EXECUTION COPY
Exhibit 99.2
ASSET PURCHASE AGREEMENT
AMONG
CAS SYSTEMS, INC.
BARRY HANSON, AS
REPRESENTATIVE
CERTAIN SHAREHOLDERS OF CAS SYSTEMS,
INC.
3079028 NOVA SCOTIA
COMPANY
RAINMAKER SYSTEMS (CANADA)
INC.
AND
RAINMAKER SYSTEMS, INC.
Dated January 25,
2007
Confidential treatment has been
requested for portions of this exhibit. The copy filed herewith
omits the information subject to the confidentiality request.
Omissions are designated “xxxxx”. A complete version of
this exhibit has been filed separately with the Securities and
Exchange Commission.
TABLE OF CONTENTS
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Page
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1.
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Sale and Transfer of Assets
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1
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2.
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Purchase Price
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2
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3.
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Purchase Price Adjustments; Earn
Out.
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3
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(a) Pre-Closing
Adjustments
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3
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(b) Post Closing
Adjustments
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3
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(c) Dispute Resolution
Procedures
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4
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(d) Settlement
Date
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5
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(e) Earn Out
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5
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4.
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Assumption of Liabilities
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7
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5.
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Representations and Warranties of Seller and
Shareholders
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8
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(a) Organization and
Good Standing
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8
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(b) Execution and Effect
of Agreement
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8
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(c) No
Contravention
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8
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(d) Title to
Assets
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9
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(e) Absence of Certain
Changes or Events
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9
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(f) Compliance
with Laws
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9
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(g) Financial Reports
and Projections
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9
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(h) Litigation;
Consents
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9
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(i) Employees
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10
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(j) Environmental
Matters
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10
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(k) Taxes
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10
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(l) Permits and
Approvals
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11
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(m) Inventory
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11
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(n) Tangible
Assets
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11
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(o) Employee Benefit
Plans
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11
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(p) Intellectual
Property
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11
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(q) Brokers and Finders
Fees
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13
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(r) Disclosure
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13
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(s) Contracts
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13
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(t) No Prepaid
Expenses
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14
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TABLE OF CONTENTS
(Continued)
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Page
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(u) Capital Stock;
Ownership
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14
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(v) Subsidiary Asset
Purchase Agreement
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15
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6.
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Representations
and Warranties of Buyer
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15
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(a) Organization and
Good Standing
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15
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(b) Execution and Effect
of Agreement
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15
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(c) No
Contravention
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15
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(d) SEC
Reports
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15
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7.
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Covenants
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15
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(a) Public
Announcements
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15
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(b) Notification of
Certain Matters, Further Assurances
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16
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(c) Between the date of
this Agreement and the Closing, Seller shall, and shall cause
Subsidiary to:
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16
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8.
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Conditions
Precedent to Buyer’s Obligations
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17
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9.
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Conditions
Precedent to Seller’s Obligations
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18
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10.
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The
Closing
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18
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11.
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Further
Assurances
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20
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12.
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Labor and
Employment Matters
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20
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13.
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Survival of
Representations and Warranties
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21
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14.
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Indemnification
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21
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15.
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Indemnification
Procedure
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23
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16.
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Third Party
Claims
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25
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17.
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Notices
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26
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18.
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Entire
Agreement
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27
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19.
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Successors; No
Third Party Rights
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27
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20.
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Section
Headings
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27
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21.
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Applicable
Law
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27
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22.
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Expenses
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27
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23.
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Severability
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27
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24.
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Counterparts
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28
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25.
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Representative
of the Shareholders; Power of Attorney
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28
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26.
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Actions of the
Representative
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29
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27.
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Attorneys’ Fees
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29
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-ii-
TABLE OF CONTENTS
EXHIBITS AND
SCHEDULES
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Exhibit
A
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-
Assets
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Exhibit B
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- Excluded
Assets
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Exhibit
C
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- Form of
Promissory Note
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Exhibit
D
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- Assumed
Liabilities
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Exhibit
E
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- Required
Consents
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Exhibit
F
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- Form of Bill
of Sale, Assignment of Contracts and Assumption
Agreement
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Exhibit
G-1
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- Form of
Employment Agreement (Barry Hanson)
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Exhibit
G-2
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- Form of
Employment Agreement (Larry Norris)
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Exhibit
H
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- Form of
Non-Competition and Non-Solicitation Agreement
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Exhibit
I
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-
Shareholders’ Pro Rata Interest
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Exhibit
J
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- Loss
Certificate
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Schedule 3(e)(iv)
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- Earn Out
Revenue in a Sales Event
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Schedule 5(c)
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- No
Contravention
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Schedule 5(d)
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- Title to
Assets
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Schedule 5(e)
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- Absence of
Certain Changes or Events
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Schedule 5(h)
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- Litigation;
Consents
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Schedule 5(k)
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-
Taxes
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Schedule 5(n)
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- Tangible
Assets
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Schedule 5(o)
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- Employee
Benefit Plans
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Schedule 5(p)
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- Intellectual
Property
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Schedule 5(q)
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- Brokers and
Finders Fees
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Schedule 5(s)
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-
Contracts
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Schedule 5(t)
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- No Prepaid
Exenses
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Schedule 5(u)
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- Capital
Stock; Ownership
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Schedule 10(c)(vii)
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-
Employees
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-iii-
ASSET PURCHASE
AGREEMENT
This ASSET PURCHASE AGREEMENT
(“ Agreement ”) is made this 25th day of January
2007, by and among CAS Systems, Inc., a California corporation
(“ Seller ”), Rainmaker Systems, Inc., a
Delaware corporation (“ Buyer ”), certain
shareholders of Seller listed on the signature pages hereto (each,
a “ Shareholder ” and collectively, the “
Shareholders ”), Barry Hanson, as representative of
the Shareholders (in such capacity, the “
Representative ”), 3079028 Nova Scotia Company, a Nova
Scotia unlimited liability company and wholly owned subsidiary of
Seller (“ Subsidiary ”), and Rainmaker Systems
(Canada) Inc., a Canadian federal corporation and wholly owned
subsidiary of Buyer (“ Rainmaker Canada
”).
W I T N E S
S E T H :
WHEREAS, Seller, together with
Subsidiary, is engaged in the business of providing sales lead
generation and market intelligence to business customers (the
“Business”);
WHEREAS, Buyer desires to purchase
and acquire from Seller, and Seller desires to sell, assign and
transfer to Buyer, certain of the assets of Seller in consideration
for the Purchase Price, and upon the terms and subject to the
conditions hereinafter set forth; and
WHEREAS, concurrently herewith,
Subsidiary, as seller, Rainmaker Canada, as buyer, Seller,
Shareholders, Representative and Buyer are entering into an asset
purchase agreement of even date herewith (the “ Subsidiary
Asset Purchase Agreement ”) pursuant to which Rainmaker
Canada will purchase and acquire from Subsidiary certain assets of
Subsidiary, subject to the terms and conditions set forth
therein.
NOW, THEREFORE, in consideration of
the premises and the mutual covenants hereinafter contained, the
parties hereto agree as follows:
1. Sale and Transfer of
Assets . On the Closing Date, subject to the terms and
conditions hereinafter set forth, Seller agrees to sell, convey,
assign, transfer and deliver to Buyer, and Buyer agrees to purchase
from Seller, all of the right, title and interest of Seller in and
to all of its assets, other than the Excluded Assets (as defined
below) (such assets, other than the Excluded Assets, are
hereinafter collectively referred to as the “Assets”),
including, without limitation:
(a) all software
products;
(b) the customer contracts relating
to the Business identified on Exhibit A ;
(c) the “CAS System” and
all other Intellectual Property rights of Seller, and any licenses
and sublicenses granted and obtained with respect thereto and
rights thereunder, remedies against infringements thereof, and
rights to protection of interests therein under the laws of all
jurisdictions. For purposes of this Agreement, “Intellectual
Property” shall mean any of the following: (1) U.S. and
non-U.S. patents, and applications for either; (2) registered
and unregistered trademarks, service marks and other indicia of
origin, pending trademark and service mark registration
applications, and intent-to-use registrations or similar
reservations of marks; (3) registered and unregistered
copyrights and mask works, and applications for
registration of either; (4) internet domain
names, applications and reservations therefor, uniform resource
locators (“ URLs ”) and the corresponding
Internet sites (collectively, the “ Sites ”);
(5) trade secrets and proprietary information not otherwise
listed in (1) through (4) above, including unpatented
inventions, invention disclosures, moral and economic rights of
authors and inventors (however denominated), confidential
information, technical data, customer lists, corporate and business
names, trade names, trade dress, brand names, know-how, show-how,
mask works, formulae, methods (whether or not patentable), designs,
processes, procedures, technology, source codes, object codes,
computer software programs, databases, data collections and other
proprietary information or material of any type, and all
derivatives, improvements and refinements thereof, howsoever
recorded, or unrecorded; and (6) any good will associated with
any of the foregoing;
(d) (i) all trade accounts
receivable and other rights to payment from customers of Seller and
the full benefit of all security for such accounts or rights to
payment, including all trade accounts receivable representing
amounts receivable in respect of goods shipped or products sold or
services rendered to customers of Seller, (ii) all other
accounts or notes receivable of Seller and the full benefit of all
security for such accounts or notes and (iii) any claim,
remedy or other right related to any of the foregoing;
(e) all cash;
(f) all servers, desktop computers,
laptop computers, computer hardware and other office equipment
owned or leased by Seller (wherever located and whether or not
carried on Seller’s books), together with any express or
implied warranty by the manufacturers or sellers or lessors of any
item or component part thereof and all maintenance records and
other documents relating thereto; and
(g) the goodwill of the
Business.
Notwithstanding anything to the
contrary contained herein, it is understood that Seller is not
selling and Buyer is not buying (i) the minute books, stock
record books, stock ledgers and tax records of Seller; and
(ii) any assets of Seller set forth on Exhibit B
(collectively, the “ Excluded Assets
”).
2. Purchase Price
.
(a) The consideration for the Assets
(the “ Purchase Price ”) will be three million
five hundred thousand dollars ($3,500,000). The Purchase Price
shall be delivered by Buyer to Seller as follows: (i) one
million four hundred thousand dollars ($1,400,000) by wire transfer
on the Closing Date, (ii) one million four hundred thousand
dollars ($1,400,000) payable over three (3) years pursuant to
the terms of a promissory note in substantially the form of
Exhibit C (the “ Promissory Note ”) and
(iii) subject to the satisfaction of the Post-Closing Earn Out
Conditions or the Post-Closing Earn Out Conditions Following a
Sales Event, as the case may be, seven hundred thousand dollars
($700,000) (the “ Earn Out ”) payable as
provided in Section 3 below. In addition, Buyer will assume
the Assumed Liabilities as provided in Section 4(b)
below. For purposes of this Agreement, “Business Day”
shall mean any day, other than a Saturday, Sunday or a day on which
banks located in San Francisco, California, shall be authorized or
required by law to close.
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(b) Notwithstanding the foregoing,
Buyer may withhold from its payments under Sections 2(a)(ii)
, 2(a)(iii) and 3(a) the equivalent of any amounts
then in dispute relating to indemnification obligations arising
under this Agreement, provided that the withheld amount, to
the extent not applied in satisfaction of indemnification
obligations, shall be delivered to Seller as described above
promptly upon resolution of such dispute.
(c) The Purchase Price shall be
allocated among the Assets in the manner designated by Buyer and
Seller, and in accordance with Section 1060 of the Internal
Revenue Code and the Treasury Regulations promulgated thereunder.
Each of Buyer and Seller and their respective Affiliates shall
report the Federal, state, local and other tax consequences of the
purchase and sale contemplated hereby (including, without
limitation, the filing of Internal Revenue Service Form 8594) in a
manner consistent with such Purchase Price allocation. Neither of
the parties shall, nor shall such party permit any of its
Affiliates to, take a position (except as required by law or
pursuant to a “determination” within the meaning of
section 1313(a) of the Internal Revenue Code) on any financial
statement or tax return, before any governmental entity charged
with the collection of any tax, or in any judicial proceeding, that
is inconsistent with the Purchase Price allocation as so determined
by Buyer and Seller.
(d) Buyer nor any attorney,
accountant or other advisor of Buyer has made, nor makes, any
representations or warranties to Seller or the Shareholders
regarding the tax treatment of the transfer of the Assets and any
other transactions contemplated by this Agreement or any of the tax
consequences contemplated hereby or thereby, and Seller and the
Shareholders acknowledge that Seller and the Shareholders are
relying solely on their own tax advisors in connection with this
Agreement and the transactions contemplated by this
Agreement.
3. Purchase Price Adjustments;
Earn Out .
(a) Pre-Closing Adjustments .
(i) Seller has delivered to Buyer an estimated consolidated
balance sheet for Seller (the “ Estimated Closing Date
Balance Sheet ”) and an estimated calculation of the
Current Asset Value Shortfall (as defined below), in each case,
measured as of the Closing Date after giving effect to the payment
of, or reservation for, all liabilities and other obligations
described in Section 4(a) below. Seller shall also provide
Buyer with copies of all work papers and other documents and data
as were used to prepare the Estimated Closing Date Balance Sheet.
If the Estimated Closing Date Balance Sheet shows a Current Asset
Value Shortfall, the Purchase Price payable under
Section 2(a)(i) above shall be reduced by the aggregate
amount of such Current Asset Value Shortfall multiplied by
70%, and the aggregate Purchase Price to be paid to Seller, as set
forth in Section 2(a) above, shall be adjusted
accordingly. As used herein, “ Current Asset Value
Shortfall ” means the amount by which (x) current
assets minus total liabilities, excluding deferred revenue
and operating leases assumed by Buyer (in each case, determined on
a consolidated basis in U.S. dollars for Seller), is less than
(y) $1,300,000. (ii) In the event that the Estimated
Closing Date Balance Sheet shows that current assets minus
total liabilities, excluding deferred revenue and operating leases
assumed by Buyer (in each case, determined on a consolidated basis
in U.S. dollars for Seller), is
-3-
greater than $1,300,000 (such excess, the
“ Current Asset Value Excess ”), then Buyer
shall pay over to Seller, subject to Buyer’s rights under
Sections 2(b) and 15(d) , the cash included in the
Estimated Closing Date Balance Sheet in an amount equal to the
lesser of (x) the Current Asset Value Excess and
(y) $250,000 (the lesser of (x) and (y), the “
Required Payment ”), within 3 Business Days following
the Closing Date; provided , however , that if such
cash is insufficient to cover the full amount of the Required
Payment, then Buyer shall next pay over to Seller, subject to
Buyer’s rights under Sections 2(b) and 15(d) ,
the cash proceeds of accounts receivable included in the Estimated
Closing Date Balance Sheet in an amount equal to the Required
Payment less the amount of cash previously paid to Seller
under this Section 3(a)(ii) , within 30 Business Days
following receipt of such cash proceeds by Buyer.
(b) Post Closing Adjustments
. As soon as practicable after the Closing Date, Buyer shall cause
its accountants to prepare and deliver to the Representative a
consolidated balance sheet for Seller (the “ Closing Date
Balance Sheet ”) and a calculation of the Current Asset
Value Shortfall, in each case, measured as of the close of business
on the Closing Date, prepared in accordance with United States
generally accepted accounting principles (“ GAAP
”). Buyer shall endeavor in good faith to cause its
accountants to deliver to the Representative the Closing Date
Balance Sheet and calculation of the Current Asset Value Shortfall
within 60 days after the Closing Date; provided ,
however , that if the Closing Date Balance Sheet is not
delivered to the Representative by Buyer’s accountants within
60 days after the Closing Date, the Estimated Closing Date Balance
Sheet shall be the final consolidated balance sheet of Seller for
purposes of this Section 3 . Buyer shall also make
available to the Representative copies of all work papers and other
documents and data as was used to calculate the Closing Date
Balance Sheet, and Buyer shall set out all proposed adjustments in
reasonable detail in a written statement delivered to
Representative. The Representative shall have the right to dispute
the Closing Date Balance Sheet (and any items therein) and the
accompanying calculation of the Current Asset Value Shortfall and
make any proposed adjustments thereto as provided in
Section 3(c) below. If it is determined after
completion of the time and procedure described in
Section 3(c) below that there is a Current Asset Value
Shortfall in excess of the estimated Current Asset Value Shortfall
and the Representative does not dispute such determination as
described in Section 3(c) below, an amount equal to
(x) the excess Current Asset Value Shortfall multiplied
by 70% plus (y) the amount of the Current Asset
Value Excess, if any, paid to the Seller under
Section 3(a) shall be deducted from the Purchase Price
payable under Sections 2(a)(ii) and 2(a)(iii) by
Buyer (such deduction to be allocated to amounts payable under one
or both of such Sections as Buyer shall determine in its sole
discretion).
(c) Dispute Resolution
Procedures . The Representative shall have until thirty
(30) days after the receipt of the Closing Date Balance Sheet
and the accompanying Current Asset Value Shortfall calculation to
review such calculation and propose any adjustments thereto. All
adjustments proposed by the Representative shall be set out in
reasonable detail in a written statement delivered to Buyer (the
“ Adjustment Statement ”) and shall be
incorporated into the Closing Date Balance Sheet, unless Buyer
shall object in writing to such proposed adjustments (the proposed
adjustment or adjustments to which Buyer objects are referred to
herein as the “ Contested Adjustments ” and
Buyer’s objection notice is referred to herein as the “
Contested Adjustment Notice ”) within thirty
(30) days of Buyer’s receipt of the Adjustment
Statement. If Buyer delivers a Contested Adjustment Notice to the
Representative, Buyer and the Representative shall attempt in good
faith to resolve their dispute regarding the Contested
-4-
Adjustments, but if a final resolution thereof
is not obtained within ten (10) days after Buyer delivers to
the Representative said Contested Adjustment Notice, either Buyer
or the Representative may retain for the benefit of all the parties
hereto a nationally recognized independent accounting firm
acceptable to both the Representative and Buyer (the “
Independent Accountant ”) to resolve any remaining
disputes concerning the Contested Adjustments. If the Independent
Accountant is retained, then (i) the Representative and Buyer
shall each submit to the Independent Accountant in writing not
later than fifteen (15) days after the Independent Accountant
is retained their respective positions with respect to the
Contested Adjustments and their respective calculation of the
Current Asset Value Shortfall, together with such supporting
documentation as they deem necessary or as the Independent
Accountant requests, and (ii) the Independent Accountant
shall, within thirty (30) days after receiving the positions
of both the Representative and Buyer and all supplementary
supporting documentation requested by the Independent Accountant,
render its decision as to the Contested Adjustments, which decision
shall be final and binding on, and nonappealable by, the
Representative and Buyer. The fees and expenses of the Independent
Accountant shall be paid one-half by the Shareholders and one-half
by Buyer; provided , however , that if the Current
Asset Value Shortfall as finally determined by the Independent
Account and set forth in the Settlement Amount Certificate (defined
below) is closer to the Current Asset Value Shortfall submitted by
the Representative than to the Current Asset Value Shortfall
submitted by Buyer, then Buyer shall pay 100% of the fees and
expenses of the Independent Accountant. The decision of the
Independent Accountant shall also include a certificate of the
Independent Accountant setting forth the final Current Asset Value
Shortfall calculation measured as of the Closing Date (the “
Settlement Amount Certificate ”). The Closing Date
Balance Sheet shall be deemed to include all proposed adjustments
not disputed by Buyer and those adjustments accepted or made by the
decision of the Independent Accountant in resolving the Contested
Adjustments.
(d) Settlement Date . There
shall be a “ Settlement Date ” after the
calculation of the Current Asset Value Shortfall measured as of the
Closing Date which shall mean the following, as
applicable:
(i) If the Representative has not
timely delivered an Adjustment Statement to Buyer, thirty-five
(35) Business Days after the date the Representative receives
the Current Asset Value Shortfall calculation;
(ii) If the Representative has
timely delivered an Adjustment Statement and Buyer has not timely
delivered a Contested Adjustment Notice, thirty-five
(35) Business Days after the date Buyer receives the
Adjustment Statement;
(iii) If the Representative and
Buyer have any disputes regarding Contested Adjustments and they
resolve those disputes, five (5) Business Days after such
resolution;
(iv) Five (5) Business Days
after the Independent Accountant delivers the Settlement Amount
Certificate, if applicable; or
(v) Such other date as shall be
mutually agreed between the Representative and Buyer.
-5-
(e) Earn Out .
(i) As soon as practicable after
December 31, 2007 (or, if sooner, as soon as practicable after
a Sales Event (as hereinafter defined)), Buyer shall prepare and
deliver to the Representative a statement of earned revenues
generated directly by the Assets and paid or payable by all
business units of xxxxx and all business units of xxxxx (the
“ Statement of Revenues ”), in each case,
measured in U.S. dollars for (x) the full 2007 calendar year
or (y) in the event of a Sales Event prior to
December 31, 2007, the portion of the 2007 calendar year
elapsed through the date of such Sales Event (including, in the
case of each of the preceding clauses (x) and (y), the portion
of such year occurring prior to the Closing Date) and, in each
case, prepared in accordance with United States generally accepted
accounting principles (“ GAAP ”). Buyer shall
endeavor in good faith to deliver to the Representative the
Statement of Revenues by February 15, 2008, in the case of the
preceding clause (x), and within 20 Business Days after the Sales
Event, in the case of the preceding clause (y). Buyer shall also
make available to the Representative copies of all work papers and
other documents and data as was used to calculate the Statement of
Revenues. The Representative shall have the right to dispute the
Statement of Revenues (and any items therein) as provided in
Section 3(e)(iii) below.
(ii) If (A) on the first
anniversary of the Closing Date both xxxxx are clients in good
standing of Buyer in respect of the Business associated with the
Assets and (B) it is determined, after completion of the
Statement of Revenues, and after completion of the time and
procedure described in Section 3(e)(iii) below if
Representative disputes the Statement of Revenues, that both
(1) earned revenues, recognized in accordance with GAAP, for
calendar year 2007 (including the portion of such year occurring
prior to the Closing Date) generated directly by the Assets and
paid or payable by xxxxx is equal to or greater than xxxxx in the
aggregate and (2) earned revenues, recognized in accordance
with GAAP, for calendar year 2007 (including the portion of such
year occurring prior to the Closing Date) generated directly by the
Assets and paid or payable by xxxxx is equal to or greater than
xxxxx ((A) and (B) being, collectively, the “
Post-Closing Earn Out Conditions ”), then Buyer shall
promptly pay the Earn Out to Seller by wire transfer, subject to
Buyer’s rights under Sections 2(b) and 15(d) ;
provided , however , that if the Post-Closing Earn
Out Conditions are not satisfied in full, then no Earn Out shall be
due and Buyer shall have no obligation to pay all or any portion of
the Earn Out to Seller, subject to Section 3(e)(iv)
below.
(iii) The Representative shall have
until thirty (30) days after the receipt of the Statement of
Revenues to review such statement. If the Representative disputes
Buyer’s Statement of Revenues, he shall so notify Buyer on or
prior to the expiration of such 30-day period. Buyer and
Representative shall then submit the matter to BDO Seidman LLP
(“BDO”). BDO shall submit its written Statement of
Revenues to the parties concurrently with the completion of its
audit of Buyer’s financial statements for the fiscal year
ending December 31, 2007. The decision of BDO shall be final
and binding on, and nonappealable by, the parties.
(iv) If (A) prior to
December 31, 2007, Buyer sells all or substantially all of the
Assets to a third party (other than an Affiliate of Buyer) (a
“ Sales Event ”), (B) xxxxx are clients in
good standing of Buyer in respect of the Business associated with
the Assets
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on the closing date of such Sales Event and
(C) it is determined, after completion of the Statement of
Revenues, and after completion of the time and procedure described
in Section 3(e)(iii) above if Representative disputes
the Statement of Revenues, that both (1) earned revenues,
recognized in accordance with GAAP, for calendar year 2007
(including the portion of such year occurring prior to the Closing
Date) through the Business Day immediately preceding the closing
date of such Sales Event generated directly by the Assets and paid
or payable by xxxxx is in the aggregate equal to or greater than
the applicable U.S. dollar amount set forth on Schedule
3(e)(iv) and (2) earned revenues, recognized in accordance
with GAAP, for calendar year 2007 (including the portion of such
year occurring prior to the Closing Date) through the Business Day
immediately preceding the closing date of such Sales Event
generated directly by the Assets and paid or payable by xxxxx is
equal to or greater than the applicable U.S. dollar amount set
forth on Schedule 3(e)(iv) ((A), (B) and
(C) being, collectively, the “ Post-Closing Earn Out
Conditions Following a Sales Event ”), then Buyer shall
promptly pay the Earn Out to Seller by wire transfer, subject to
Buyer’s rights under Sections 2(b) and 15(d) ;
provided , however , that if the Post-Closing Earn
Out Conditions Following a Sales Event are not satisfied in full,
then no Earn Out shall be due under this
Section 3(e)(iv) and Buyer shall have no obligation
under this Section 3(e)(iv) to pay all or any portion
of the Earn Out to Seller. As used herein, the term
“Affiliate” shall mean, in respect of any specified
person or entity (“Person”), any other Person directly
or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person (for the
purposes of this definition, “control” (including, with
correlative meanings, the terms “controlled by” and
“under common control with”), as used with respect to
any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities or by agreement or otherwise).
(v) For purposes of this
Section 3(e) , earned revenues generated directly by
the Assets shall include all lead generation DMID service revenues,
all event support service revenues and all telesales service
revenues generated by the Assets and paid or payable by xxxxx,
without regard to the location where such services are performed.
Buyer shall not take any action in bad faith intended to prevent
Seller or Shareholders from satisfying the conditions precedent to
the payment of the Earn Out to Seller.
(vi) If Buyer fails to pay all or
any portion of the Earn Out when due as provided above under this
Section 3 , and if the conditions for such Earn Out
have been fully satisfied as determined by BDO, then the unpaid
principal amount of the Earn Out shall accrue interest until paid
at the interest rate per annum then applicable to principal
outstanding under the Promissory Note.
4. Assumption of Liabilities
.
(a) Without limiting
Section 4(c) below, the parties agree and acknowledge
that prior to the Closing Date, Seller will pay or reserve against
the following liabilities: (i) fees of Wendel, Rosen,
Black & Dean LLP not to exceed $25,000; (ii) fees of
Mah & Associates, LLP not to exceed $25,000;
(iii) any accrued paid time off of employees and all other
accrued employee benefits; (iv) an aggregate distribution not
to exceed $200,000 to the shareholders of Seller on account of
their reasonably anticipated tax liabilities for calendar year 2006
as a result of Seller’s status as an S corporation; and
(v) all other liabilities of Seller, excluding the liabilities
assumed by Buyer under Section 4(b) below.
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(b) On the Closing Date, effective
upon consummation of the Closing, Buyer shall assume and agree to
discharge only the liabilities and obligations of Seller identified
on Exhibit D hereto (the “ Assumed Liabilities
”).
(c) Notwithstanding any provision in
this Agreement or any other writing to the contrary, Buyer shall
not assume and shall not be liable for any liabilities and
obligations of Seller, the Shareholders or the conduct of the
Business by Seller of whatever nature whether presently in
existence or arising hereafter, except for the Assumed Liabilities.
All such liabilities and obligations, other than the Assumed
Liabilities, shall be retained by and remain liabilities and
obligations of Seller and the Shareholders, as the case may be
(collectively, the “ Excluded Liabilities ”).
Without limiting the generality of the foregoing, Buyer shall not
assume and shall not be liable for any of the following liabilities
or obligations of Seller or the Shareholders: (i) any and all
taxes levied by and owing to any foreign, federal, state or local
taxing authority with respect to the ownership or use of the Assets
or Subsidiary’s assets by Seller or Subsidiary or the conduct
of the Business by Seller or Subsidiary; (ii) any liabilities
or obligations related to the Excluded Assets or which are not
directly incident to or arising out of or incurred with respect to
the Business; (iii) all lawsuits, claims and other liabilities
or obligations arising in connection with all actions, suits,
claims, investigations or proceedings to the extent relating to the
conduct of the Business by Seller or Subsidiary or the ownership of
the Assets or Subsidiary’s assets by Seller or Subsidiary;
(iv) subject to Section 12(d) below, all
liabilities or obligations relating to the employment, failure to
employ or termination of employment of any individual with respect
to the Business by Seller or Subsidiary or relating to or under any
labor agreements or employee benefit or compensation arrangements,
plans, programs, policies, practices or agreements, including,
without limitation, severance or accrued vacation pay, of Seller or
Subsidiary or for the benefit of employees of Seller or Subsidiary;
(v) any liability arising under Environmental Laws (as such
term is defined in Section 5(j) hereof) with respect to
the conduct of the Business by Seller or Subsidiary; (vi) any
indebtedness for borrowed money or otherwise of Seller, the
Shareholders or Subsidiary; (vii) any amounts payable to
Seller’s or Subsidiary’s affiliates; (viii) any
workers’ compensation claims relating to employees of Seller
or Subsidiary; or (ix) all liabilities or obligations related
to any and all agreements between Seller and Suppress Products,
LLC.
5. Representations and Warranties
of Seller and Shareholders . As of the Closing Date, Seller and
Shareholders, jointly and severally, represent and warrant to Buyer
as follows:
(a) Organization and Good
Standing . Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of
California. Seller has the full power and authority to own its
properties, to carry on its business as presently conducted and to
sell and convey the Assets to Buyer. Seller is the sole shareholder
of Subsidiary. Except for Subsidiary, Seller has no other
subsidiaries nor does Seller otherwise have any equity interest in
any other Person.
(b) Execution and Effect of
Agreement . Seller has the requisite power and authority to
enter into this Agreement and to perform its obligations hereunder,
and the execution
-8-
and delivery of this Agreement and the
consummation of the transactions contemplated hereby and the
performance of Seller’s obligations hereunder have been duly
authorized by all necessary action on the part of Seller. This
Agreement has been duly executed and delivered by Seller and each
Shareholder and constitutes the legal, valid and binding obligation
of Seller and each Shareholder, enforceable against it in
accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors’ rights and remedies
generally and subject, as to enforceability, to general principles
of equity (the “ Enforceability Exceptions
”).
(c) No Contravention .
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will
(i) violate or conflict with any provision of Seller’s
Articles of Incorporation or Bylaws, (ii) except as set forth
on Schedule 5(c) , (with or without the giving of notice or
the lapse of time or both) violate, or result in a breach of, or
constitute a default under, or conflict with, or give rise to a
right of termination of, or accelerate the performance required by,
any of the terms of any agreement, lease, mortgage, indenture or
other instrument to which Seller or any Shareholder is a party or
by which it is bound, or (iii) violate or conflict with any
judgment, decree, order or award of any court, governmental body or
arbitrator, or, any law, rule or regulation applicable to Seller,
or any Shareholder, nor will the same result in the creation of any
Liens (as such term is defined in Section 5(d) hereof)
upon any of the Assets.
(d) Title to Assets . Seller
is the owner of the Assets, and, by the execution and delivery on
the Closing Date of the instruments of transfer provided for
herein, Buyer will be vested with good, valid and marketable title
to each of the Assets, free and clear of all liens, mortgages,
pledges, imperfections of title, security interests, restrictions,
prior assignments, encumbrances and claims of any kind or nature
whatsoever (collectively, “ Liens ”). Except as
set forth on Schedule 5(d) hereto, there are no Liens
on any of the Assets as of the Closing Date.
(e) Absence of Certain Changes or
Events . Except as set forth on Schedule 5(e) , since
December 31, 2005, there has not been: (i) any event or
circumstance which is reasonably likely to have a material adverse
effect on the Assets (a “ Material Adverse Effect
”), (ii) any damage, destruction, or casualty loss,
whether or not covered by insurance, to any Assets, (iii) any
disposition or use of the Assets by Seller other than in the
ordinary course of business consistent with past practice, or
(iv) any Lien created on any Asset, other than the Liens
referenced on Schedule 5(d) hereto.
(f) Compliance with Laws .
The Business has been conducted, and is presently being conducted,
in compliance with all applicable requirements of laws, ordinances,
regulations and rules and all applicable requirements of
governmental bodies and agencies having jurisdiction over Seller,
except for such non-compliance as is not reasonably likely to have
a Material Adverse Effect.
(g) Financial Reports .
Seller has delivered to Buyer the reviewed consolidated financial
statements of Seller as of and for the fiscal year ended
December 31, 2005 and the unaudited consolidated financial
statements of Seller as of and for the nine months ended
September 30, 2006, all of which are true and correct in all
material respects. There are no material inaccuracies, undisclosed
liabilities or discrepancies contained or reflected
therein.
-9-
(h) Litigation; Consents .
Except as set forth on Schedule 5(h) hereto, there is no
action, suit, litigation, administrative or arbitration proceeding
or formal governmental inquiry or investigation pending or, to the
best knowledge of Seller and Shareholders, threatened against or
affecting Seller, or any of their respective properties or rights.
There are no such actions, suits, litigation, administrative or
arbitration proceedings or formal governmental inquiries or
investigations pending or, to the best knowledge of Seller and
Shareholders, threatened which seek to restrain or prohibit or
otherwise challenge the execution, delivery and performance of this
Agreement or the consummation, legality or validity of the
transactions contemplated hereby. Seller is not in violation of any
term of any judgment, decree, injunction or order entered by any
court or governmental authority and outstanding against it or
otherwise binding on any of its assets. Except as set forth on
Schedule 5(h) , no consent, approval or authorization
of or filing with any governmental authority or other third party
on the part of Seller is required in connection with the execution,
delivery and performance of this Agreement or the consummation of
any of the transactions contemplated hereby,
except with respect to any consent
to assignment that may be required in connection with
any contract assigned to Buyer hereunder that is
not a material customer contract or lease.
(i) Employees . There are no
pending or, to the best knowledge of Seller and Shareholders,
threatened strikes, work stoppages, slowdowns, grievances or other
labor disputes with respect to individuals employed by Seller in
connection with the Business. There are no pending or, to the best
knowledge of Seller and Shareholders, threatened complaints or
charges with any federal, state or local governmental agency or
court with respect to any individual or group of individuals
employed by Seller in connection with the Business alleging
employment discrimination, wrongful termination, any unfair labor
practice charges or any other employment-related claim. To the best
knowledge of Seller and Shareholders, no individuals employed by
Seller in connection with the Business are represented by any labor
organization with respect to their employment by Seller, and no
group of such individuals or labor organization with respect to
such individuals have made a demand for recognition or have filed a
petition seeking a representation proceeding with the National
Labor Relations Board or similar foreign governmental authority
within the past two years.
(j) Environmental Matters .
To the best knowledge of Seller and Shareholders, the operations of
the Business are in compliance in all material respects with all
applicable federal, state, local or other governmental statutes,
codes, rules, regulations, ordinances, decrees, orders or other
requirements of law relating to the protection of human health and
safety or the environment (collectively, “ Environmental
Laws ”) and all permits issued pursuant to Environmental
Laws.
(k) Taxes . Except as set
forth on Schedule 5(k) , Seller has accurately prepared and
duly and timely filed all tax returns required to be filed by
Seller or on behalf of Seller on or prior to the date hereof.
Except as set forth on Schedule 5(k) , all taxes owed
by or with respect to Seller (whether or not shown on any tax
return) have been paid in full. Seller is not currently the
beneficiary of any extension of time within which to file any tax
return. Except as set forth on Schedule 5(k) , no
deficiencies for any taxes have been asserted or assessed against
Seller which remain unpaid. There are no tax Liens upon any of the
Assets. All amounts required to be withheld by Seller (including
from employees of Seller for income taxes, social security and
other payroll taxes) have been collected and withheld and have been
paid to the respective governmental agencies. None of the Assets is
treated as being owned by a person other than Seller for tax
purposes.
-10-
For purposes of this Agreement, the
term (i) “tax” shall mean all taxes, levies or
other like assessments, charges or fees, including, without
limitation, income, gross receipts, excise, value added, real or
personal property, withholding, asset, sales, use, license,
payroll, transaction, capital, business, corporation, employment,
net worth and franchise taxes, or other governmental taxes imposed
by or payable to the United States of America or any State, local
or foreign governmental entity, whether computed on a separate,
consolidated, unitary, combined or any other basis, including
liability arising as a transferee or successor-in-interest; and in
each instance such term shall include any interest, penalties or
additions to tax attributable to any such tax; and
(ii) “tax return” shall mean any return,
declaration, report, claim for refund, information return or
statement relating to taxes, including any schedules or attachments
thereto, and including any amendment thereof.
(l) Permits and Approvals .
Seller has all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental
authorities (collectively, the “ Permits ”)
necessary or required for the conduct of the Business as presently
conducted by Seller. Within the past eighteen months, Seller has
not received a written notice alleging a violation or probable
violation or notice of revocation or other written communication
from or on behalf of any governmental entity, which violation has
not been corrected or otherwise settled, alleging (i) any
violation of any Permit or (ii) that Seller requires any
Permit not currently held by Seller.
(m) Inventory . Seller has no
inventory.
(n) Tangible Assets .
Schedule 5(n) lists all servers, desktop computers, laptop
computers, computer hardware and other office equipment owned or
leased by Seller (wherever located and whether or not carried on
Seller’s books).
(o) Employee Benefit Plans .
Set forth in Schedule 5(o) is an accurate and complete list
of each domestic and foreign employee benefit plan, within the
meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations
thereunder (“ ERISA ”), whether or not subject
to ERISA, and each stock option, stock appreciation right,
restricted stock, stock purchase, stock unit, performance share,
incentive, bonus, profit-sharing, savings, deferred compensation,
hea