ASSET PURCHASE AGREEMENT

 

Exhibit 10-s

 

ASSET PURCHASE AGREEMENT

 

 

THIS ASSET PURCHASE AGREEMENT (this “ Agreement ”) is entered into as of January 6, 2005 by and among (i) Analysts International Corp., a Minnesota corporation (“ Buyer ”); (ii) WireSpeed Networks LLC, an Ohio limited liability company (“ Seller ”); and (iii) Mark Handermann and Greg Paulson (the “ Principals ”).

 

INTRODUCTION:

 

A.   Seller operates a technology solutions services business (the “ Business ”) principally engaged in the delivery of services and sale of products with respect to the IP telephony and wireless systems of Cisco Systems, Inc. (“ Cisco ”).

 

B.   Buyer desires to purchase substantially all of the assets (other than the Excluded Assets, as defined below) used in the operation of the Business, and to assume certain liabilities in connection therewith, and Seller desires to sell and transfer all of such assets and liabilities to Buyer, upon the terms and subject to the conditions hereinafter set forth.

 

C.   The Principals own a majority of the issued and outstanding equity interests of Seller, and each such Principal owns his Intangible Assets (as defined below).

 

D.   Buyer desires to purchase the Intangible Assets from each Principal, and each Principal desires to sell and transfer the Intangible Assets, upon the terms and subject to the conditions hereinafter set forth.

 

 

AGREEMENTS:

 

In consideration for the mutual agreements and covenants set forth below, the parties hereto agree as follows:

 

 

ARTICLE 1.

DEFINITIONS

 

1.1   Certain Definitions . Capitalized terms not defined elsewhere in this Agreement, in Annex A or in the Schedules attached to this Agreement have the meanings set forth below:

 

(a)   “ Acquired Business Revenues ” means any revenues from any company, business or business unit acquired by Buyer or its Subsidiaries after the Closing Date.

 

(b)   “ Acquiring Company Business Revenues ” means any revenues from any company that acquires Buyer, the Subsidiaries of such acquiring company, or any company, business or business unit that such acquiring company or its Subsidiaries acquires after the Closing Date.

 

 

(c)   “ Applicable Percentage ” for each of the Principals means 100%, provided, however, that if a Principal’s employment with Buyer or its Subsidiaries is terminated for any reason other than a termination for the convenience by Buyer or it Subsidiaries in accordance with Section 4.2(d) of such Principal's Employment Agreement, then for the first day of the Computation Period in which such termination occurs and thereafter, such Principal’s Applicable Percentage will be zero percent (0%).

 

(d)   “ Assets ” means the Purchased Assets and the Intangible Assets.

 

(e)   “ Assigned Contracts ” means those Contracts identified on Schedule A or the attachments thereto.

 

(f)   “ Closing Date Adjusted Balance Sheet ” means an unaudited balance sheet of the Business with respect to the Purchased Assets and Assumed Liabilities as of the Closing Date. The Closing Date Adjusted Balance Sheet shall be prepared on the basis of accrual accounting and GAAP; provided, however, that the Closing Date Adjusted Balance Sheet shall not include any asset not included in the Purchased Assets or any Liability not included in the Assumed Liabilities, even if such other assets or Liabilities were reflected in the Financial Statements.

 

(g)   “ Computation Period ” means each twelve fiscal month period ending on Buyer’s fiscal year end, provided, however, that the first Computation Period shall commence immediately after the Closing Date and end on Buyer’s 2005 fiscal year end.

 

(h)   “ Computation Statement ” means any written statement substantially in the form attached as Exhibit B prepared by Buyer and delivered to Principals, in the case of a Contingent Payments, or to Seller, in the case of Purchased Assets Purchase Price Adjustment, or by Seller to Buyer in accordance with Section 3.4(a) , computing in reasonable detail a Contingent Payment or a Purchased Asset Purchase Price Adjustment in accordance with the terms of this Agreement and Exhibit B .

 

(i)   “ Contingent Payment Period ” means a period commencing after the Closing Date and continuing through the end of the Buyer’s 2008 fiscal year end.

 

(j)   “ Cumulative Distributions ” means the total, cumulative amounts paid (i) under Section 3.5(b) in prior Computation Periods plus (ii) under Sections 3.4 or 3.5(d) in the current or prior Computation Periods.

 

(k)   “ Cumulative Qualified Earnings ” means the total, cumulative Qualified Earnings during the Contingent Payment Period.

 

(l)   “ Disagreement Notice ” means any written statement substantially in the form attached hereto as Exhibit C prepared by a party (or both Principals in the case of Contingent Payments) receiving a Computation Statement setting forth in reasonable detail such recipient’s or recipients’ disagreement with a Computation Statement, or any other disagreement regarding any claim that any Contingent Payment is due and owing to any of the Principals, that a Purchased Assets Purchase Price Adjustment is not proper. As contemplated by Exhibit C , such Disagreement Notice shall identify the specific items

 

 

involved and the dollar amount of each such disagreement and provide reasonable supporting documentation for each such disagreement.

 

(m)   “ Independent Accountant ” means any independent accountant that shall be a firm of independent accountants mutually agreed to by Seller and the Buyer that is not and has not been within the prior three years a regular auditor of Seller or Buyer.

 

(n)   “ Net Asset Value ” means an amount equal to (i) the aggregate book value of the Purchased Assets reflected on the Closing Date Adjusted Balance Sheet, less (ii) the aggregate book value of the Assumed Liabilities reflected on the Closing Date Adjusted Balance Sheet.

 

(o)   “ Net Asset Value Adjustment ” means an amount equal to (i) the Net Asset Value as reflected on the Closing Date Adjusted Balance Sheet less (ii) $250,000.

 

(p)   “ Qualified Earnings ” means for each Computation Period during the Contingent Payment Period, an amount equal to (i) all Qualified Revenues during such Computation Period, less (ii) all Qualified Expenses during such Computation Period.

 

(q)   “ Qualified Expenses ” means the following costs paid or accrued: (i) all costs of all personnel of Buyer or its Subsidiaries performing the Qualified Services, including, without limitation, all compensation, benefits, and incidental expenses allocable to performance of the Qualified Services; (ii) all amounts paid or payable to subcontractors performing the Qualified Services; (iii) fully-loaded costs of goods sold of any Qualified Product Sales; (iv) Recruiting Charges; and (v) any and all expenses associated with the creation or anticipated creation of revenue including, but not limited to, advertising, marketing, facility expenses, office and office products costs and salaries of managers and other administrative sales and recruiting resources dedicated in whole or in part to the generation of Qualified Revenues, but excluding corporate overhead and acquisition costs, if any. If personnel are partially dedicated to the performance of Qualified Services, the Controller of Buyer and Seller shall negotiate to determine the appropriate percentage of that expense to be included in Qualified Expenses. The Controller of Buyer shall determine whether or not an expense is a Qualified Expense, subject to the rights of the Seller under Section 3.6 of this Agreement.

 

(r)   “ Qualified Product Sales ” means all (i) products, except Storage Related Products, sold by Cisco and resold by Buyer; and (ii) products, except Storage Related Products, of Cisco and other manufacturers sold by Buyer in connection with an engagement to install IP telephony, basic switch routing, security, wireless infrastructure or to provide consulting services in these areas, in each case during the Contingent Payment Period.

 

(s)   “ Qualified Revenues ” means (i) each item of revenue actually collected by Buyer or its Subsidiaries from the rendition of Qualified Services, and (ii) each item of revenue actually collected from Qualified Product Sales. Qualified Revenues includes all Acquired Business Revenues, but does not include Acquiring Company Business Revenues.

 

 

(t)   “ Qualified Services ” means all Cisco product, except Cisco Storage Related Products, IP telephony and wireless related services provided to Buyer’s clients and performed by personnel of or subcontractors to Buyer, or its Subsidiaries, in each case during the Contingent Payment Period.

 

(u)   “ Recruiting Charges ” means, unless otherwise negotiated and agreed in writing by Seller and Buyer, an amount equal to $4,000 per hire. When special recruiting programs are created by the Buyer or its Subsidiaries to recruit its or their resources required to deliver Qualified Services, the Buyer and the Principals will negotiate the Recruiting Charges appropriate prior to commencement of such special recruiting programs.

 

(v)   “ Storage Related Products ” includes hard disk, optical and tape drivers, flash memory, SAN, FAS and NAS systems, tape libraries, fiber channel switches and components, SCSI over IP, and backup and recovery related products.

 

 

ARTICLE 2.

PURCHASE OF ASSETS

 

2.1   Purchase of Purchased Assets .  

 

(a)   Purchased Assets . Subject to the terms and conditions of this Agreement, Seller hereby agrees at Closing to assign, sell, transfer, convey, and deliver to Buyer, and Buyer hereby agrees to purchase from Seller at Closing, all of Seller’s rights, title and interest in and to all of its assets, including, but not limited to, those Assigned Contracts and all other assets listed on the attached Schedule A , but excluding the Excluded Assets (the “ Purchased Assets ”), free and clear of all Liens.

 

(b)   Excluded Assets . Notwithstanding anything herein to the contrary, Seller shall retain all of its rights, title and interest in and to, and there shall be excluded from sale, assignment or transfer to Buyer hereunder, only those assets set forth on the attached Schedule B (the “ Excluded Assets ”).  

 

2.2   Assumption of Assumed Liabilities .  

 

(a)   Assumed Liabilities . At Closing, Buyer hereby agrees to assume and fully perform, pay, and discharge when due, in accordance with the terms thereof, only those Liabilities of Seller set forth on Schedule C (the “ Assumed Liabilities ”).

 

(b)   No Assumption of Excluded Liabilities . Except as expressly set forth in Section 2.2(a) , Buyer shall not assume any Liabilities of the Seller or the Principals of any kind or nature whatsoever, whether fixed or contingent, known or unknown, determined or determinable, due or not yet due (collectively, the “ Excluded Liabilities ”). Without limiting the generality of the foregoing sentence, Buyer specifically disclaims assumption of any Liabilities with respect to claims asserted with regard to Seller’s operation of its business prior to or after the date of this Agreement, or any Liabilities out of or relating to relationships and dealings of the Seller or the Principals with third

 

 

parties, whether under contract or otherwise, or with its employees, customers, vendors, business partners or Principals.

 

2.3   Purchase of Intangible Assets .

 

(a)   Acknowledgments . It is acknowledged that each Principal owns individually certain intangible assets that are based on and related to each such Principal’s long-standing relationship with key personnel at Cisco and with customers of the Business which have resulted in the generation of a significant amount of ongoing business revenues for Seller (the “ Intangible Assets ”) and that the Intangible Assets that have been developed by each Principal are personal to each Principal.

 

(b)   Purchase . Subject to the terms and conditions of this Agreement, the Principals hereby agree at Closing to assign, sell, transfer, convey, and deliver to Buyer, and Buyer hereby agrees to purchase from the Principals at Closing, all of the Principal’s rights, title and interest in and to all of the Intangible Assets.

 

2.4   Cisco and Other Customers . The parties acknowledge that Buyer has or will enter into a new agreement with Cisco in connection with the conduct of the Business by Buyer after Closing, and that Buyer is not assuming Seller’s existing agreement with Cisco. Buyer is assuming certain, but not all of, Seller’s contracts with other customers of Seller. Seller and the Principals covenant and agree (a) to use their best efforts to cause Cisco, as soon as possible after Closing, to enter into new statements of work with Buyer under Buyer’s new agreement with Cisco with respect to all Cisco statements of work with Seller which are pending as of Closing, and (b) to transfer Seller’s and the Principal’s relationships and work flow with Cisco and other customers to Buyer and to cooperate with and assist Buyer in all matters related thereto.

 

 

ARTICLE 3.

PURCHASE PRICE AND PAYMENT TERMS

 

3.1   Purchased Assets Purchase Price . The purchase price (the “ Purchased Assets Purchase Price ”) for the Purchased Assets shall be an amount equal to the sum of the following, subject to adjustments after Closing as set forth in Section 3.4 :

 

(a)   Cash Closing Payment . $1,750,000 (the “ Cash Closing Payment ”) which shall be paid at Closing pursuant to a wire transfer to a Seller bank account designated by Seller.

 

(b)   Escrow Amount . $650,000 (the “ Escrow Amount ”), of which:

 

(i)   Cash Escrow Amount . $250,000 (the “ Cash Escrow Amount ”) shall be paid at Closing pursuant to a wire transfer to the Escrow Agent, and 

 

(ii)   Share Escrow Amount . $400,000 (the “ Share Escrow Amount ”) shall be paid in shares (the “ Shares ”) of Common Stock of Buyer pursuant to the delivery to the Escrow Agent promptly after Closing of a stock certificate duly registered in Escrow Agent’s name for a number of shares of Buyer Common

 

 

Stock equal to the Share Escrow Amount divided by the Average Market Price. At or promptly after Closing, Buyer agrees to instruct its transfer agent to deliver a stock certificate to the Escrow Agent.

 

(c)   Assumed Liabilities . An amount equal to the Assumed Liabilities.

 

3.2   Intangible Asset Purchase Price . The purchase price for the Intangible Assets payable to each Principal (the “ Intangible Assets Purchase Price ,” and together with the Purchased Asset Purchase Price, the “ Purchase Price ”) shall be an amount equal to the Contingent Payments, if any, payable to such Principal in accordance with Section 3.3 .

 

3.3   Contingent Payments . As the Intangible Asset Purchase Price, Buyer agrees to pay to each Principal the Contingent Payments owing, if any, pursuant to the following terms:

 

(a)   Contingent Payments . If at the end of any Computation Period, the Cumulative Qualified Earnings from the Closing Date through the end of such Computation Period exceeds the target set forth below (the “ Cumulative Qualified Earnings Target ”), then for such Computation Period, each Principal shall be entitled to be paid in accordance with Section 3.3(b) an amount equal to (i) (A) each such Principal’s Applicable Percentage times (B) the Cumulative Qualified Earnings in excess of the applicable Cumulative Qualified Earnings Target times (C) 16.5%, less (ii) any Contingent Payments made in prior Computation Periods to such Principal. Each payment made under this Section 3.3(a) , a “ Contingent Payment ”). The total amount of Contingent Payments paid under this Section 3.3(a) shall not exceed $2,800,000.

 

Computation Period	Cumulative Qualified Earnings Target
Buyer 2005 Fiscal Year End	$3,880,000
Buyer 2006 Fiscal Year End	$6,130,000
Buyer 2007 Fiscal Year End	$9,580,000
Buyer 2008 Fiscal Year End	$14,800,000

 

(b)   Computation and Payment . Within ninety days after the end of each Computation Period, Buyer shall provide the Principals with a Computation Statement setting forth the Contingent Payments then due and owing for such Computation Period. Within ten business days after acceptance or finalization of the Computation Statement with respect thereto, Buyer shall pay the Contingent Payments then due and owing to the Principals for such Computation Period. 

 

(c)   Subordination . Reference is hereby made to that certain Credit Agreement dated as of April 11, 2002, by and among General Electric Capital Corporation, a Delaware corporation, individually as a lender and as agent (“Agent”) and security trustee for the lenders, the other credit parties signatory from time to time thereto, and Buyer, as amended or otherwise modified from time to time (the “ Credit Agreement ”). The rights of the Principals hereunder are subordinated and subject in right of payment, as set forth below, to the prior payment in full in cash of the Obligations (as defined in the Credit Agreement).

 

 

(i)   Notwithstanding the terms of the foregoing Section 3.3 , the Buyer hereby agrees that it may not make, and each Principal hereby agrees that he will not accept, any payment with respect to the Contingent Payments at any time an Event of Default (as defined in the Credit Agreement) exists under the Credit Agreement or would exist after giving effect to the making of such payment. The Buyer may resume such payments (and may make any such payment missed due to the application of this paragraph) upon a cure or waiver of such Event of Default.

 

(ii)   Until the prior payment in full in cash of the Obligations, (A) each Principal shall have no right for a period of 90 days after written notice to Agent (at the addresses set forth in the Credit Agreement) of the occurrence of a breach or default under this Agreement, to sue for payment of, or to initiate or participate with others in any suit, action or proceeding against Buyer to (1) enforce payment of or to collect the whole or any part of any amount owing or claimed owing to such Principal under Section 3.3 of this Agreement or (2) commence judicial enforcement of any of the rights and remedies under this Agreement or applicable law with respect thereto, and (B) each Principal shall have no right to initiate or participate with others in any action under the provisions of any state or federal law with respect to Buyer, including, without limitation, Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. or other applicable bankruptcy, insolvency or similar laws.

 

(iii)   In the event a Principal receives any payment in contravention of the terms hereof, such Principal shall hold such funds in trust and promptly turn such funds over to Agent. Each Principal hereby acknowledges and agrees that Agent and Lenders (as defined in the Credit Agreement) are relying on the subordination provisions set forth herein and are third party beneficiaries of such provisions with the right to enforce the terms hereof. The terms of such subordination provisions may not be amended or otherwise modified without the prior written consent of Agent in each instance.

 

3.4   Adjustments to the Purchased Assets Purchase Price . The Purchased Assets Purchase Price shall be subject to the following adjustments (the “ Purchase Asset Purchase Price Adjustments ”):

 

(a)   Net Asset Value Adjustment . The Purchased Assets Purchase Price shall be increased or decreased, as the case may be, by an aggregate amount equal to the Net Asset Value Adjustment.

 

(i)   Net Asset Value Adjustment . If the Net Asset Value Adjustment is positive, then the Purchased Assets Purchase Price shall be increased by the amount of the Net Asset Value Adjustment. If the Net Asset Value Adjustment is negative, then the Purchased Assets Purchase Price shall be decreased by the amount of the Net Asset Value Adjustment.

 

 

(ii)   Computation and Payment . Within thirty days after the Closing Date, Seller shall provide the Buyer with a Closing Date Adjusted Balance Sheet and a Computation Statement setting forth the Net Asset Value Adjustment. Buyer shall have thirty days following the provision of a Closing Date Adjusted Balance Sheet and Computation Statement to review, audit and accept the same. Within ten business days after acceptance of such Computation Statement, (A) Buyer shall pay to Seller the Net Asset Value Adjustment if it is positive, and (B) Buyer shall instruct the Escrow Agent to pay to Buyer the Net Asset Value Adjustment if it is negative.

 

(iii)   Preliminary Net Asset Value Adjustment . Notwithstanding anything to the contrary in this Article, at or before Closing and by mutual written agreement of Seller and Buyer, Seller and Buyer may make an estimate of the Net Asset Value Adjustment, and may make a preliminary adjustment to the Cash Closing Payment based thereon, in which case the computations and payments under this Section 3.4(a)(ii) shall take into account such preliminary adjustment.

 

(b)   Uncollected Receivables Adjustment . The Purchased Assets Purchase Price shall be decreased, if applicable, by an aggregate amount equal to the Uncollected Receivables Adjustment.

 

(i)   Uncollected Receivables Adjustment . If any accounts receivable included in the Purchased Assets are not collected in full within 180 days after the Closing Date (the “ Collection Date ”), the Purchased Assets Purchase Price shall be reduced by the amount thereof plus any collection costs incurred by Buyer in connection therewith (the “ Uncollected Receivable Adjustment ”) and any remaining accounts receivable shall be assigned and returned ”as is” and without any representation or warranty to Seller for collection. Buyer agrees to use the same efforts that it customarily uses for its other receivables to collect such accounts receivable prior to the Collection Date.

 

(ii)   Computation and Payment . After the Collection Date, Buyer may provide Seller with a Computation Statement of the Uncollected Receivables Adjustment and Seller shall have ten days to review, audit and accept such Computation Statement. Within ten business days after acceptance of such Computation Statement, Buyer shall direct the Escrow Agent to pay the entire Uncollected Receivables Adjustment to Buyer.

 

(c)   Minimum Qualified Revenues Adjustment . The Purchased Assets Purchase Price shall be decreased, if applicable, by an aggregate amount equal to the Minimum Qualified Revenues Adjustments.

 

(i)   Minimum Qualified Revenues Adjustment . Starting with the Computation Period ending on Buyer’s 2005 fiscal year end, for each such Computation Period during the Contingent Payment Period if the total amount of Qualified Revenue during the twelve fiscal months prior thereto is less than the revenues of Buyer and Seller for 2004 in total that would otherwise meet the

 

 

definition of Qualified Revenues (which the parties estimate as of the date hereof to be approximately $12,000,000), then the amount of the Purchased Assets Purchase Price shall be reduced by an amount equal to the amount of the Scheduled Periodic Release of the Escrow amount for such Computation Period in which such Qualified Revenues are less than such amount (each such adjustment, a “ Minimum Qualified Revenues Adjustment ”).

 

(ii)   Computation and Payment . Buyer may provide Seller with a Computation Statement of each Minimum Qualified Revenues Adjustment as part of the Computation Statement to be delivered under Section 3.5(c) , which adjustment shall be paid as set forth therein.

 

3.5   Escrow Amount .

 

(a)   Escrow Agent . At Closing, Seller and Buyer shall enter into an escrow agreement (the “ Escrow Agreement ”) with a third party escrow agent selected by Buyer (the “ Escrow Agent ”), whose fees shall be paid by Buyer. The form of such Escrow Agreement, once finalized, shall be attached hereto as Exhibit A . As will be further described in the Escrow Agreement, distributions of the Escrow Amount, with any interest earned thereon, shall be disbursed by the Escrow Agent to Seller or Buyer, as the case may be, within ten days after written instructions provided by Buyer to the Escrow Agent along with a copy thereof to Seller, provided Seller has not timely delivered its Objection Notice (as defined therein). Buyer agrees to issue instructions when and as required under this Agreement.

 

(b)   Periodic Releases . As of the end of each Computation Period commencing for the Computation Period ending on Buyer’s 2005 fiscal year end, Seller shall be entitled to receive from the Escrow Amount an amount equal to the following (the “ Scheduled Periodic Releases ”), provided that the following is subject to Section 3.4(c) :

 

 

(c)   Computation of Periodic Release; Disbursement . Within ninety days after the end of each Computation Period, Buyer shall deliver to Seller a Computation Statement showing the Minimum Qualified Revenues Adjustment, if any, and the amount

 

 

of the Scheduled Periodic Releases to be released to Seller in accordance with Section 3.5(b) (subject to Section 3.4(c) ). Seller shall have thirty days to review and accept such Computation Statement. Within ten business days after acceptance or finalization of such Computation Statement by Seller, Buyer shall instruct the Escrow Agent to disburse to Seller the amount required by Section 3.5(b) or to Buyer pursuant to Section 3.4(c) .

 

(d)   Indemnifiable Loss . In the event any Indemnifiable Loss is not paid by Seller or any Principals when due, Buyer shall be entitled to be paid the amount thereof from the Escrow Amount. If such Indemnifiable Losses are not paid when due, and such failure continues for a period of ten days after demand by Buyer to Seller, Buyer may instruct the Escrow Agent to disburse to Buyer the amount of any such unpaid Indemnifiable Losses.

 

(e)   Cash; Shares . Unless otherwise agreed in writing by Seller and Buyer, any disbursements of the Escrow Amount under Section 3.4 or 3.5 shall be allocated on a pro rata basis between the Cash Escrow Amount and the Share Escrow Amount based on the original amounts thereof, and any shares of Buyer Common Stock shall be valued for purposes of such disbursement based on the price used for purposes of Section 3.1(b)(ii) (as equitably adjusted for stock splits and the like after the Closing Date).

 

(f)   Excess Purchased Assets Purchase Price Adjustments and Indemnifiable Losses . In the event any Purchased Asset Purchase Price Adjustments or Indemnifiable Losses are not able to be paid from the Escrow Account due to lack of available escrowed funds, Seller and the Principals shall pay to Buyer such amounts within ten days after written demand.

 

3.6   Acceptance or Finalization of Computation Statements; Disagreements . The sole and exclusive manner for resolution of any disagreements or other disputes regarding the amount of any Contingent Payments due and owing, if any, and/or the amount of any Purchased Assets Purchase Price Adjustments, if any, or the inclusion or exclusion of any item affecting the computation thereof, shall be as follows, and the parties hereby waive any right to bring any claim based thereon in any court (other than to enforce the provisions of this Section 3.6 or to enforce its or their rights as a result of a determination in accordance with the following):

 

(a)   Actual Results of Operations . The Contingent Payments due and owing, if any, to the Principals and the amount of any Purchased Assets Purchase Price Adjustments, if any, shall be computable and payable solely based on actual results of operation by Buyer and its Subsidiaries of their businesses, including the Business. Buyer and their Subsidiaries shall have sole and absolute discretion to operate their businesses in the manner they deem appropriate, and without limiting the generality of the foregoing, they will not have any duty to operate their businesses in any manner to increase any Contingent Payments otherwise payable, or to take any action to avoid a Purchased Assets Purchase Price Adjustment. Buyer makes no representations or warranties regarding the amount, if any, that may be payable in connection with the Contingent Payment, or the amount of any Purchased Assets Purchase Price Adjustment. Seller and the Principals irrevocably waive, and covenant not to assert, any claim that the Seller and/or the Principals would or may have realized greater Contingent Payments, or

 

 

would have suffered less of a reduction in the Purchased Assets Purchase Price, or realized other benefits, or avoided other detriments, had Buyer or its Subsidiaries managed their businesses differently or taken, or failed to take, other actions or inactions.

 

(b)   Unique Nature . Seller and the Principals understand and acknowledge the unique nature of the transactions contemplated by this Agreement, and that Buyer’s and its Subsidiaries’ operation of the Business as a new business unit of Buyer requires an analysis of profitability that is different from those of Buyer’s other business units. Seller’s, the Principals’ and the Independent Accountant’s review of the decisions made by Buyer and its representative, including its Chief Financial Officer, in determining any Computation Statement or any item affecting such Computation Statements shall not consider Buyer’s policies or procedures in other business units of Buyer in determining the appropriateness of those decisions. The sole purpose of the reviewer is to determine whether or not the decision of the representatives of Buyer, including its Chief Financial Officer, in determining a Computation Statement or any item affecting such Computation Statements not based upon any fact and is without any reasonable judgment.

 

(c)   Acceptance . At any time Buyer and Seller may agree in writing upon a Computation Statement with respect to a Purchased Assets Purchase Price Adjustment, and at any time Buyer and both of the Principals may agree in writing upon a Computation Statement with respect to any Contingent Payments, and when so agreed, such Computation Statement shall be final and binding upon the parties.

 

(d)   Notice Period; Disagreement Notice . A Computation Statement shall become final and binding upon the parties thirty days (or if less, the periods set forth above) after delivery by the party providing such Computation Statement to the party or parties to receive such Computation Statement, unless such party or parties (both of the Principals in the case of a Contingent Payment) deliver to the party providing such Computation Statement a Disagreement Notice with respect to such Computation Statement within such thirty day period (of if less, the periods set forth above). After delivery of such a Disagreement Notice, the party or parties providing such Disagreement Notice may not introduce additional disagreements with respect to any item in such Computation Statement or increase the amount of any disagreement identified in the Disagreement Notice, and any item not identified in the Disagreement Notice shall be deemed to be agreed to by the party or parties receiving such Computation Statement. If the party or parties receiving the Computation Statement timely provides a Disagreement Notice in the proscribed form, during the thirty-day period following receipt of the Disagreement Notice, Buyer and Seller or the Principals, as the case may be, will negotiate in good faith to resolve their disagreement in writing. If Buyer and Seller or the Principals, as the case may be, shall so resolve their disagreement, the Computation Statement shall become final as so agreed. Failing such resolution, the issues that remain in dispute shall be resolved as set forth below.

 

(e)   Elevation to Senior Management . Failing resolution of such disagreements during the thirty days period contemplated by set forth in Section 3.6(d) , the issues that remain in dispute shall referred to one or more members of senior management. For a period of ten days after expiration of such thirty day period, such

 

 

member or members of senior management and Seller or the Principals, as the case may be, will negotiate in good faith to resolve their disagreement. Failing such resolution, either party at the end of such additional ten day period may refer the matter to the Independent Accountant for resolution as set forth below by providing written notice of such disagreement and submission to the Independent Accountant and to the other party. 

 

(f)   Independent Accountant Resolution . The resolution by the Independent Accountant shall not constitute or entail an audit. The Independent Accountant shall make its resolution based solely on presentations and supporting material provided by the parties and not pursuant to any independent review. The Independent Accountant will only consider those items and amounts set forth in the Computation Statement as to which Buyer and Seller or the Principals, as the case may be, have disagreed within the time periods and on the terms specified above. The decision of the Independent Accountant shall be limited to whether the Computation Statement and the calculation of any Contingent Payments and adjustments to the Purchased Assets Purchase Price was done in accordance with this Agreement. The Independent Accountant shall not have any authority to decide any other matter. Buyer and Seller shall make readily available to the Independent Accountant all relevant information, books and records and any work papers relating to such matters and all other items reasonably requested by the Independent Accountant. The Independent Accountant shall be instructed to submit the results of its examination within thirty calendar days. Any amounts so recalculated shall be final and binding on the parties, and the Computation Statement, and the resulting Contingent Payments, Supplemental Payments or adjustments to the Purchased Assets Purchase Price, or determination of the Accelerated Escrow Release Amount, as applicable, shall become final as adjusted to reflect such recalculated amounts. The Independent Accountant shall make a ratable allocation of its charges for such work as a part of its determination based on the proportion by which the amount in dispute was determined in favor of one party or the other.

 

(g)   Minor Disagreements . Notwithstanding Sections 3.6(e) and 3.6(f), if following the thirty day period set forth in Section 3.6(d) , the amount of the disagreement set forth in the Disagreement Notice impacts the amount due to or from Seller or the Principals by in total $2,500, the Chief Executive Officer of Seller and the Controller of Buyer shall meet and confer to resolve the disagreement. If they are unable to resolve their disagreements, the amount in disagreement (but in no event more than $2,500 in total) shall be split equally. Further, this Section 3.6(g) shall no longer apply once the total cumulative amount of all disagreements to which this Section 3.6(g)  applies equals or exceeds $10,000.

 

(h)   Failure to Deliver Computation Statement . If Buyer or Seller has not delivered a Computation Statement but Seller, the Principals or Buyer, as the case may be, in good faith and reasonably believes that Buyer or Seller, as the case may be, should have delivered a Computation Statement, Seller, the Principals or Buyer, as the case may be, may deliver a Disagreement Notice with respect to such failure. Within thirty days thereafter, Buyer or Seller, as the case may be, shall deliver a Computation Statement (which may indicate, among other things, that no amounts are due and owing). Such

 

 

Computation Statement shall be subject to the dispute resolution procedures set forth above.

 

3.7   Certain Tax Matters .

 

(a)   Allocation of Purchase Price . Following Closing, Buyer shall allocate the Purchase Price among the Assets in accordance with Section 1060 of the Code and other applicable Laws, and once such allocation is made, shall provide a copy thereof to the Seller. The parties will, to the extent permitted by applicable Law, adopt and utilize the amounts allocated to each asset or class of assets, as such allocations may be adjusted pursuant to this Agreement, for purposes of all federal, state, local and other tax returns or reports, in any claim for refund, or otherwise with respect to such tax returns or reports. Each party agrees to timely file an IRS Form 8594 reflecting the allocation of the Purchase Price and the Assumed Liabilities among the Assets for the taxable year that includes the Closing and to timely file any comparable or similar forms required by applicable state, local, and foreign tax laws. In the event of any adjustments to the Purchase Price, the parties shall prepare and timely file a supplemental asset acquisition statement on IRS Form 8594 in accordance with the rules under Section 1060 of the Code and the Treasury regulations issued thereunder and shall prepare and timely file any comparable or similar form required by applicable state, local, and foreign tax laws. No party shall, after filing any IRS Form 8594 (or comparable or similar form), or any supplement thereto, revoke or amend such form without the prior written consent of the other. 

 

(b)   Contingent Payments . Any Contingent Payment shall be treated for tax purposes as the total consideration paid for the Intangible Assets under this Agreement to the extent such characterization is proper and permissible under relevant tax authorities.

 

(c)   Adjustments . Any Purchased Assets Purchase Price Adjustments under this Article shall be treated for tax purposes as an adjustment of the total consideration paid for the Purchased Assets under this Agreement to the extent such characterization is proper and permissible under relevant tax authorities.

 

(d)   Transfer Taxes . Seller shall pay any Transfer Taxes, if any, arising out of the sale or transfer of the Assets contemplated by this Agreement.

 

 

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES OF SELLER AND THE PRINCIPALS

 

Except as expressly set forth in the Seller Disclosure Schedule (with references to Sections of the Seller Disclosure Schedule referencing Sections of this Article 4 as applicable), Seller and the Principals, jointly and severally, represent and warrant to Buyer as of the date hereof and as of the Closing Date as follows, with the intention that Buyer may rely upon the same, and acknowledge that the same shall survive the consummation of this transaction:

 

 

4.1   Organization of Seller . Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Seller is duly qualified as a foreign limited liability company in all jurisdictions where required by applicable Law to be so qualified. All of the outstanding equity interests in the Seller are owned directly by the Principals. Complete and correct copies of Seller’s organizational documents, each as amended to date, have been made available to Buyer.

 

4.2   Authority . Seller has full limited liability company power and authority to own, lease and operate its property and assets constituting the Business and to conduct the Business as it is currently being conducted. The execution, delivery and performance by Seller of this Agreement and the other Transaction Documents and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized and approved by the members of Seller, and no other limited liability company, equity owner or other action is necessary for the authorization, execution, delivery and performance by Seller of this Agreement and the Transaction Documents or the consummation of the transactions contemplated hereby or thereby. This Agreement has been, and at the Closing each of the Transaction Documents will be, duly executed and delivered by Seller and the Principals, as applicable, and this Agreement is, and at the Closing each of the Transaction Documents will be, a legal, valid and binding obligation of Seller and the Principals, as applicable, enforceable in accordance with its and their terms, subject to Enforcement Exceptions.

 

4.3   Consents . Except for those consents, approvals or notices set forth in Section 4.3 of the Seller Disclosure Schedule (the “ Required Consents ”), neither the execution, delivery or performance by Seller or the Principals of this Agreement or the other Transaction Documents or the consummation by Seller and the Principals of the transactions contemplated hereby or thereby does not and will not (a) violate or conflict with any provision of the governing documents of Seller, (b) require any consent, approval or notice under, conflict with or result in the breach, lapse, cancellation or termination of, or constitute a default under, or result in the acceleration (in each case, with or without the giving of notice or the lapse of time or both) of any right or obligation of, or the performance by, Seller under, or result in a loss of any benefit to which Seller is entitled or result in any penalty or adverse consequence under, any Assigned Contract or any plan, permit, authorization or approval which is a Purchased Asset, (c) result in the creation or imposition of any Lien on any of the Assets, or (d) with or without the giving of notice or the lapse of time or both, violate, result in the breach of or require any consent, approval, filing or notice under any provision of any Law or Governmental Order to which Seller, the Business or any of the Assets is subject. 

 

4.4   Financial Information .

 

(a)   Financial Statements . Set forth as Section 4.4(a) of the Seller Disclosure Schedule is the unaudited balance sheet (the “ Interim Balance Sheet ”) of Seller as of the date indicated therein (the “ Interim Balance Sheet Date ”) and the related unaudited profit and loss statement for the interim period therein as of the date indicated therein (collectively, the “ Financial Statements ”). The Financial Statements (i) are true, correct and complete in all material respects and have been prepared in accor-dance with the books and records regularly maintained by Seller as consis-tently applied and maintained through-out the periods indicated, and (ii) fairly present in all material respects the

 

 

financial condition and the results of operations, changes in members' equity and cash flow of Seller as of the Interim Balance Sheet Date and for the periods indicated therein in accordance with GAAP, subject to normal recurring year-end adjust