Exhibit 2.1
ASSET PURCHASE AGREEMENT
THIS
ASSET PURCHASE AGREEMENT (“ Agreement ”) is made
and entered into effective as of August 1, 2004 (“
Effective Date ”) by and between XETA TECHNOLOGIES,
INC. , an Oklahoma corporation (“ Purchaser
”), and BLUEJACK SYSTEMS, L.L.C. , a Washington
limited liability company (“ Seller ”) and
GREG FORREST (the “ Seller Principal
”).
Recitals
A. Seller
is a supplier of converged telephony and data cabling systems,
providing a full range of telecommunication, data and cable network
products and services to small- and medium-sized businesses
throughout the Puget Sound region and the continental United States
of America (the “ Business ”), and the Seller
Principal owns all of the issued and outstanding membership
interest of Seller.
B. Seller
desires to sell the Business to Purchaser as a going concern and in
connection therewith to sell substantially all of Seller’s
assets to Purchaser, and Purchaser desires to purchase such
Business and assets, and to assume certain of Seller’s
liabilities relating thereto, upon the terms and conditions set
forth in this Agreement (the “ Asset Purchase
”).
Agreement
NOW,
THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, Seller and Purchaser agree as
follows:
ARTICLE I
TERMS AND INTERPRETATION
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1.1
Definitions . Capitalized terms used in this
Agreement shall have the following meanings:
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1.1.1 “
Affiliate ” of, or “ Affiliated ”
with, a specified person or entity means a person or entity that
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the
specified person or entity.
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1.1.2 “
Acquired Business ” means the Assets acquired by
Purchaser with the Assumed Liabilities.
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1.1.3 “
Assets ” has the meaning set forth in Section
2.1 .
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1.1.4 “
Assumed Liabilities ” means the liabilities and
obligations of the Seller or relating to the Seller’s
business or operations to be assumed by Purchaser at the Closing in
accordance with Section 2.5 .
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1.1.5 “
Branch Contribution ” has the meaning set forth in
Section2.2(c) .
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1.1.6 “
Cash Portion of the Purchase Price ” has the meaning
set forth in Section 2.2(a) .
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1.1.7 “
Closing ” has the meaning set forth in
Section 3.1 .
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1.1.8 “
Closing Date ” has the meaning set forth in
Section 3.1 .
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1.1.9 “
Closing Date Balance Sheet ” has the meaning set forth
in Section 2.3 .
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1.1.10 “
Closing Equity Certificate ” has the meaning set forth
in Section 2.3 .
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1.1.11 “
Closing Equity Value ” has the meaning set forth in
Section 2.3 .
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1.1.11 “
Code ” means the Internal Revenue Code of 1986, as
amended.
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1.1.12 “
Damages ” has the meaning set forth in Section
10.2 .
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1.1.13 “
Earnout ” has the meaning assigned in Section
2.3(c) .
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1.1.14 “
Earnout Period ” means the five-year period after the
Date of Closing, as set forth in Section 2.3(c) .
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1.1.15 “
Encumbrances ” means all liens, mortgages, pledges,
security interests, conditional sales agreements, charges, options,
preemptive rights, rights of first refusal, reservations,
restrictions or other encumbrances or material defects in
title.
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1.1.16 “
Equity Determination Period ” means the thirty-day
period following the Date of Closing as more particularly described
in Section 2.3 .
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1.1.17 “
ERISA ” means the Employee Retirement Income Security
Act of 1974, as amended.
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1.1.18 “
Excluded Assets ” has the meaning set forth in
Section 2.1 .
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1.1.19 “
Final Determination ” has the meaning set forth in
Section 10.7 .
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1.1.20 “
Financial Statements ” has the meaning set forth in
Section 5.6 .
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1.1.21 “
GAAP ” means generally accepted accounting principles
consistently applied for all periods involved.
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1.1.22 “
Governmental Authority ” means any federal, state,
local or foreign government, political subdivision or governmental
or regulatory authority, agency, board, bureau, commission,
instrumentality or court or quasi-governmental
authority.
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1.1.23 “
Gross Profit ” has the meaning set forth in Section
2.2(c) .
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1.1.24 “
Hold-Back ” has the meaning set forth in Section
2.2(a) .
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1.1.25 “
Indemnified Party ” has the meaning set forth in
Section 10.5 .
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1.1.26 “
Indemnification Period ” has the meaning set forth in
Section 10.1 .
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1.1.27 “
Indemnifying Party ” has the meaning set forth in
Section 10.5 .
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1.1.28 “
Hold-Back ” shall have the meaning set forth in
Section 2.2 .
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1.1.29 “
Law ” or “ Laws ” means any and all
federal, state, local or foreign statutes, laws, ordinances,
proclamations, codes, regulations, licenses, permits,
authorizations, approvals, consents, legal doctrines, published
requirements, orders, decrees, judgments, injunctions and rules of
any Governmental Authority, including, without limitation, those
covering environmental, Tax, energy, safety, health,
transportation, bribery, record keeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in
effect from time to time.
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1.1.30 “
Leases ” means all leases for facilities leased by the
Seller.
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1.1.31 “
Loss ” or “ Losses ” means all
liabilities, losses, claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, fees, costs and expenses
(including specifically, but without limitation, reasonable
attorneys’ fees and costs and expenses of investigation), net
of (i) income Tax effects with respect thereto (including, without
limitation, income Tax benefits recognized in connection therewith
and income Taxes upon any indemnification recovery thereof) and
(ii) insurance proceeds.
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1.1.32 “
Material Contracts ” has the meaning set forth in
Section 5.10 .
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1.1.33 “
Net Worth of the Acquired Business ” means the book
value of the Assets acquired by Purchaser hereunder
minus the book value of the Assumed Liabilities
(based on values properly reflected in accordance with GAAP on the
Closing Date Balance Sheet).
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1.1.34 “
Non-Competition Agreement ” has the meaning set forth
in Section 8.9.1 .
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1.1.35 “
Permits ” has the meaning set forth in
Section 5.12 .
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1.1.36 “
Permitted Distributions ” means withdrawals of cash,
securities and personal items, at the Seller Principal’s
discretion, which do not reduce Seller’s total
stockholders’ equity to an amount which is less than
zero.
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1.1.37 “
Permitted Encumbrances ” means (a) any Encumbrances
reserved against in the Financial Statements, (b) Encumbrances for
property or ad valorem Taxes not yet due and payable or
which are being contested in good faith and by appropriate
proceedings and (c) obligations under operating and capital leases
which are listed in Schedule 5.10 .
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1.1.38 “
Prorated Taxes ” has the meaning assigned in
Section 3.6 .
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1.1.39 “
Seattle Branch ” means the Acquired Business
functioning after Closing as Purchaser’s Seattle branch
office, as set forth in Section 2.3(c) .
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1.1.40 “
Settlement Period ” means the sixty-day period
following the close of the Equity Determination Period, as more
particularly described in Section 2.3 .
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1.1.41 “
Taxes ” means all taxes, charges, fees, levies or
other assessments including, without limitation, income, gross
receipts, excise, property, sales, withholding, social security,
unemployment, occupation, use, service, service use, license,
payroll, franchise, transfer and recording taxes, fees and charges,
imposed by the United States or any state, local or foreign
government or subdivision or agency thereof, whether computed on a
separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any
such taxes, charges, fees, levies or other assessments.
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1.1.42 “
UCC ” means the Uniform Commercial Code as the same is
in force in the jurisdiction implicated in any particular reference
herein.
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1.1.43 “
Welfare Plan ” means and includes each “
employee welfare benefit plan ” maintained by Seller
(within the meaning of Section 3(1) of ERISA).
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1.2.
Interpretation . For all purposes of this Agreement,
except as otherwise expressly provided or unless the context
otherwise requires:
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(a) The
terms defined in Article I and elsewhere in this Agreement
include the plural as well as the singular;
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(b) Words
of the masculine gender in this Agreement shall be deemed and
construed to include correlative words of the feminine and neuter
genders and words of the neuter gender shall be deemed and
construed to include correlative words of the masculine and
feminine genders;
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(c) The
words “herein,” “hereof,” and
“hereunder” and other words of similar import refer to
this Agreement as a whole, including all Schedules and Exhibits,
and not to any particular Article, Section or other
subdivision;
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(d) The
terms “include,” “includes” and
“including” are not limiting and the term
“or” has, except where otherwise indicated, the
inclusive meaning represented by the phrase
“and/or;”
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(e) The
term “material” shall mean, or an event shall be deemed
to be “material,” if its existence produces an effect
or variance of Ten Thousand dollars ($10,000) or more;
and
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(f) Whenever
a statement of any party is qualified by that party’s
knowledge, “knowledge” means and includes the actual
personal knowledge of the person making such statement at the time
or times that such statement is made, and a knowledge or awareness
of facts, circumstances or other matters contained or referred to
in such statements of which the person making the statement would
or should be aware with the exercise of reasonable care. If
the statement is made by a corporation, the knowledge of the
corporation’s officers and directors shall be imputed to the
corporation.
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ARTICLE II
PLAN OF ACQUISITION
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2.1
Acquisition of the Assets . Upon the terms and subject
to the conditions of this Agreement, at the Closing, the Seller
agrees to sell, convey, transfer, assign and deliver to Purchaser,
and Purchaser agrees to purchase from Seller, all of Seller’s
assets, properties, businesses, franchises, goodwill and rights of
every kind and character, tangible or intangible, real or personal,
whether owned or leased, other than the Excluded Assets
(collectively, the “ Assets ”), free and clear
of all Encumbrances other than Permitted Encumbrances.
Without limiting the generality of the foregoing, the Assets shall
consist of:
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(a) all
accounts and notes receivable of Seller;
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(b) all
inventory (including, without limitation, spare parts inventory)
and work-in-progress of Seller;
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(c) all
customer lists, sales records, credit data and other information
relating to customers of Seller;
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(d) all
rights, title and interest of Seller in, to and under all existing
contracts, leases and agreements, written and verbal to which the
Seller is a party;
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(e) all
right, title and interest of the Seller in computer equipment and
hardware used exclusively by the Seller, including, without
limitation, all central processing units, terminals, disk drives,
tape drives, electronic memory units, printers, keyboards, screens,
peripherals (and other input/output devices), modems and other
communication controllers, networking equipment, and any and all
parts and appurtenances thereto, together with all software and
intellectual property with such computer equipment and
hardware;
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(f) all
of the furniture, fixtures, equipment, machinery, tools,
appliances, telephone systems, copy machines, fax machines,
implements, spare parts, supplies and all other tangible personal
property of every kind and description owned by Seller;
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(g) all
motor vehicles and other transportation equipment of
Seller;
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(h) all
right, title and interest of Seller in and to and under all
licenses, franchises, permits, and other governmental
authorizations;
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(i) all
right, title and interest of Seller in, to and under all intangible
property of Seller, all goodwill associated therewith, and all
rights and privileges used in the conducting of the Business and
the right to recover for infringement thereon;
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(j) the
name Bluejack Systems and any trade names or other assumed
names under which Seller operates;
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(k) copies
of Seller’s books, records, papers and instruments of
whatever nature and wherever located that relate to the Business or
the Assets or which are required or necessary for Purchaser to
conduct the Business from and after the Closing in the manner in
which it was being conducted before the Closing;
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(l) all
insurance proceeds and insurance claims of Seller that relate
exclusively to the Business or to all or any part of the Assets
and, to the extent transferable, the benefit of and the right to
enforce the covenants and warranties, if any, that the Seller is
entitled to enforce with respect to the Assets against its
predecessors in title, if any;
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(m) all
right, title and interest of the Seller in, to and under all
rights, privileges, claims, causes of action, and options relating
or pertaining exclusively to the Business or the Assets;
and
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(n) all
other or additional privileges, rights, interests, properties and
assets of Seller of every kind and description and wherever
located, that are exclusively used or intended for the exclusive
use in connection with the Business as presently being
conducted.
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The “ Excluded
Assets ” are the assets of the Seller listed in
Schedule 2.1 .
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2.2
Purchase Price . The purchase price for the
Assets shall be equal to the sum of the following:
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(a) $600,000
to be paid in cash at Closing (the “ Cash Portion of the
Purchase Price ”) less $100,000 to be
held-back (“ Hold-Back ”) and paid in accordance
with Section 2.2(b) below; plus
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(b) Subject
to Sections 2.3 and 2.4 below, if the Net Worth of the Acquired
Business exceeds $0, such excess, if any, shall be added to the
Hold-Back by Purchaser and then paid in cash at the end of the
Settlement Period; provided, however, that should it be determined,
pursuant to the procedures set forth in Sections 2.3 and 2.4, that
Net Worth of the Acquired Business was, actually, less than $0,
Purchaser shall be entitled to reimburse itself for such deficiency
out of the Hold-Back before paying the balance thereof to Seller at
the end of the Settlement Period; plus
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(c) An
“ Earnout ” in the amount which is equal to
thirty-two percent (32%) of Seller’s Branch Contribution
during the five years immediately following the Closing (“
Earnout Period ”). The Earnout shall be
calculated by Purchaser on a quarterly basis for each three-month
period following the Closing (“ Quarter
”)throughout the Earnout Period. Within five business
days after the public announcement of Purchaser’s earnings
for the Quarter, Purchaser shall provide Seller with a written
statement itemizing Purchaser’s calculation of the Branch
Contribution and resulting Earnout and provide Seller with payment
in the amount of seventy five percent (75%) of the calculated
Earnout. The remaining Earnout balance due for the preceding
four Quarters shall be reconciled annually as of the thirty-first
(31 st) day of each July during the Earnout Period and
shall be paid not later than the fifteenth (15 th ) day
of September following.
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(i) As
used herein, “ Branch Contribution ” means the
Gross Profit of the Seattle Branch, functioning after Closing as
Purchaser’s Seattle branch (“ Seattle Branch
”), less the sales expenses of the Seattle
Branch.
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(ii) “
Gross Profit ,” for the purpose of computing Branch
Contribution, shall be the sum of: (1) for systems and equipment
sales and “Other Revenues” as reported in
Purchaser’s financial statements, the gross profit computed
by the Purchaser’s accounting systems; plus (2)
for cabling, installation and service revenues, an assumed gross
profit determined by Purchaser from time-to-time based on
Purchaser’s actual service and installation gross profit as
reported by the Purchaser’s accounting systems;
less (3) a charge of 2% of all revenues to cover the
Seattle Branch’s portion of the Purchaser’s corporate
cost of goods sold (material logistics functions).
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(iii) Sales
expenses for purposes of computing Branch Contribution shall mean
the direct operating expenses associated with the sales and sales
administration of the Seattle Branch as customarily reported by the
Purchaser’s accounting systems including, but not limited to
salaries, wages, payroll taxes, benefit costs, office expenses,
lease expenses, rent, travel costs, and certain allocated corporate
overhead expenses.
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(iv) As
of the Closing Date, the only allocated corporate expenses to be
charged against the Branch Contribution formula shall be vacation
and depreciation costs. Certain costs of the Seattle Branch,
such as rent expense, that require allocation between sales
expenses and other departments within Purchaser’s Seattle
Branch, shall generally be allocated based upon the relative
headcount of the sales and sales administration portion of the
Seattle Branch compared to the total headcount of the Seattle
Branch.
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(v) From
time-to-time, it may be necessary to change the allocation formula
or to add or subtract allocated expenses from the calculation of
Branch Contribution. Such changes, other than changes due to
relative headcount, shall be agreed to in writing by the Seller and
the Purchaser prior to inclusion of the change in the computation
of Branch Contribution.
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(vi) Seller
and its representatives shall have the right for a period of thirty
(30) days after receiving the annual reconciliation of
Purchaser’s Earnout calculation to review Seller’s
books and records and, if Seller desires, to have an independent
public accountant examine such books and records, for up to an
additional sixty (60) days (ninety days in all), to verify
Purchaser’s calculation of the Earnout. In the event a
dispute exists between the parties in relation to Purchaser’s
calculation of the Earnout, the parties shall negotiate in good
faith toward an agreed calculation of the Earnout.
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2.3
Equity Determination . Seller shall perform and
certify a physical count of its inventory as of the Closing Date at
which Purchaser and its duly authorized representatives shall be
entitled to be present. A balance sheet for Seller as of the
Closing Date (“ Closing Date Balance Sheet ”)
shall be delivered by Seller to Purchaser at or within fifteen (15)
days after the Closing, and Purchaser shall have thirty (30) days
following such delivery (“ Equity Determination Period
”) to review the Closing Balance Sheet to complete
Purchaser’s verification that Seller’s receivables are
collectible, that its inventory is in good condition and salable in
the ordinary course of business, and that there have been no
material changes in the assets or liabilities of Seller since May
31, 2004 (other than the Permitted Distributions). At the end of
the Equity Determination Period, Purchaser shall deliver to the
Seller a certificate
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(“ Closing Equity
Certificate ”) signed by an officer of Purchaser
indicating its determination of the amount of Seller’s total
stockholder’s equity of the Closing Date (“ Closing
Equity Value ”) as determined by Purchaser in good faith,
and, subject to Section 2.4 below, Purchaser shall pay the Seller
an amount equal to the excess of Seller’s Closing Equity
Value over the amount paid to the Seller pursuant to
Section 2.2(b) ; provided that if
Seller’s Closing Equity Value is less than $0, Seller shall
fully reimburse Purchaser to the extent of such deficit and such
obligation of Seller shall constitute an offset in favor of
Purchaser against the Hold-Back and the Earnout.
Seller’s books shall be closed as of the Closing Date
consistent with past practice in accordance with GAAP.
2.4
Disagreement Regarding Equity Determination
. Notwithstanding Section 2.3 above, Seller and its
representatives shall have the right for a period of thirty (30)
days after receiving the Closing Equity Certificate to review
Seller’s books and records as of the Closing Date and, if
Seller desires, to have an independent public accountant examine
such books and records, for up to an additional sixty (60) days
(ninety days in all), to verify Purchaser’s calculation of
the Closing Equity Value. If Seller does not agree with
Purchaser’s calculation of Closing Equity Value, the parties
shall negotiate in good faith to agree upon such value and
allocation, and to the extent that the Closing Equity Value is
found to have been less than $0, Seller shall reimburse Purchaser
the amount of such deficiency with in ten (10) days after delivery
of such independent evaluation. If the independent evaluation
established a Closing Equity Value which is 110% or more of the
value determined by Purchaser as set forth in the Closing Equity
Certificate, Purchaser shall pay all costs incurred by Seller in
connection with such independent evaluation.
2.5
Assumed Liabilities . As further consideration
for Asset Purchase, Purchaser shall assume and discharge those and
only those liabilities and obligations of Seller described in
Schedule 2.5 (“ Assumed Liabilities
”), which shall not include any long-term debt, including
current maturities thereof, if any.
2.6
Allocation of Purchase Price . The parties to
this Agreement shall allocate the Purchase Price among the Assets
in accordance with the book value of Seller’s assets as
reflected in the Closing Date Balance Sheet. Twenty-thousand
dollars ($20,000) of the Purchase Price shall be allocated to the
Non-Competition Agreement. The parties agree to file any and
all applicable tax returns and other required related tax schedules
in accordance with such allocation and Section 1060 of the Internal
Revenue Code and will not adopt or otherwise assert tax positions
inconsistent therewith. Purchaser and Seller shall each
prepare and file its Form 8594 for the taxable year in which the
Closing takes place, consistent with the requirements set forth in
this Section 2.6.
ARTICLE III
THE CLOSING
3.1
Closing Time and Place . The consummation of the
Asset Purchase and the other transactions contemplated by this
Agreement (the “ Closing ”) shall take place as
soon as reasonably practicable after every party to this Agreement
shall have indicated to the other that it has satisfied or stands
ready to satisfy all conditions of Closing for which it is
responsible, or at such other time and place as Seller and
Purchaser shall mutually agree, but not later than August 2, 2004
which date shall be referred to as the “ Closing Date
.” The Closing shall take place at the offices of
Purchaser’s counsel, Barber & Bartz, P.C., 525 South
Main, Tulsa, Oklahoma 74103-4511.
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3.2
Seller’s Deliveries . At the Closing,
Seller will deliver to Purchaser all of the items described in
Section 8.9 hereof, including the Bill of Sale and Assignment
referred to therein conveying to Purchaser all of Seller’s
right, title and interest in and to all of the Assets. At or
after the Closing, Seller shall execute and deliver to Purchaser
such other instruments of transfer as shall be reasonably necessary
or appropriate to vest in Purchaser good title to the Assets, free
and clear of all Encumbrances other than Permitted Encumbrances and
to comply with the purposes and intent of this
Agreement.
3.3
Purchaser’s Deliveries . At the Closing,
Purchaser will deliver to Seller all of the items described in
Section 9.4 hereof.
3.4
Further Assurances . Seller and Purchaser agree
that they shall, at any time and from time to time after the
Closing, upon request of the other party, do, execute, acknowledge
and deliver, or will cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required
to carry out the purposes and intents of this Agreement. No
action taken or document executed pursuant to this section shall
increase the liability of Seller or Purchaser beyond that
contemplated by any other provision of this
Agreement.
3.5
Consents . To the extent that the assignment or
transfer of any contract or right to be assigned or transferred to
Purchaser as provided in this Agreement shall require the consent
of the other party thereto, this Agreement shall not constitute an
agreement to assign or transfer the same if any attempted
assignment would constitute a breach thereof. Seller agrees
that it will use its best efforts to obtain the consent of the
other parties to all Material Contracts to the assignment or
transfer thereof to Purchaser. Seller shall have no liability
to Purchaser for failure to obtain any such third party consent
provided Seller complies with its obligations under this
section. Purchaser agrees that it will cooperate with and
assist Seller in its efforts to obtain any such consents. If
Seller is unable to obtain any necessary consent to an assignment
or transfer to Purchaser of any Material Contract, Purchaser shall
have the right to terminate this Agreement pursuant to
Section 11.1 without liability to any party under this
Agreement.
3.6
Prorations . Any paid or unpaid taxes or
governmental charges or assessments which are levied or assessed
based solely on time periods (e.g., property taxes but not sales or
income taxes), relating to the Assets for the periods during which
the Closing occurs (“ Prorated Taxes ”), shall
not be deemed to be part of the Assumed Liabilities or Assets to be
acquired by Purchaser, but shall be prorated between Seller and
Purchaser, as of the Closing Date, with Purchaser bearing only that
portion of such expense that the number of days after the Closing
Date bears to the total number of days in the applicable period and
Seller bearing only that portion of such expense that the number of
days prior to the Closing Date bears to the total number of days in
the applicable period. To the extent not adjusted in cash at
Closing, all requests for payment of taxes properly attributable to
one party that are received by the other will be promptly forwarded
to the other party, which shall promptly pay the
same.
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ARTICLE IV
EMPLOYMENT MATTERS
4.1
Employees . Neither Purchaser nor any of its
Affiliates shall have any obligation to offer employment to, or to
employ, any employee of Seller, except as provided below, and
neither Purchaser nor any of its Affiliates shall have any
liability in respect of any salary, severance, health, welfare,
retirement, or any other benefits relating to employment of such
employees with Seller or its predecessors. To the extent that
Purchaser offers employment to Seller’s employees and such
employees accept such employment, Purchaser will credit them with
time previously served with Seller in order to calculate the amount
of paid time off to which they will be entitled in
Purchaser’s employ. Notwithstanding the foregoing,
Purchaser shall offer to enter into written employment agreements
in the form set forth in the attached Schedule 4.1 with the
following current employees of Seller: Fred McDermott,
Timothy L. Nicholas, and Craig Y. Nishizaki.
4.2
Medical Coverage . Seller shall retain, in
accordance with its applicable employee plans, responsibility for
and continue to pay all hospital, medical, life insurance,
disability and other employee welfare benefit plan expenses and
benefits for each Seller employee hired by Purchaser to the extent
of Seller’s responsibility to employees and their covered
dependents (or the applicable requirements under COBRA) for the
period prior to the Closing Date.
4.3
Indemnification . Seller shall, defend, indemnify
and hold harmless Purchaser, its corporate affiliates, and their
respective directors, officers and employees, successors and
assigns against and in respect of: (i) any claim for wrongful
discharge or breach of any written employment contract or written
plan or policy arising from any termination of the employment of
any employee by Seller; (ii) any claim for severance benefits or
termination pay or continued employment arising out of or resulting
from any employee’s employment by Seller, including, without
limitation, any claims relating to Purchaser’s obligations as
a successor; (iii) any claims relating to Purchaser’s
obligations as a “successor” to the Business and claims
for withdrawal liability, each with respect to any multi-employer
pension plans; and (iv) any liability that may arise as a
result of Seller or any of its subsidiaries being a member of a
“controlled group” or an “affiliated service
group” (within the meaning of Sections 414(b), (c), (m) or
(o) of the Code), or being under “common control”
(within the meaning of Section 4001 of ERISA).
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL SHAREHOLDER AND THE SELLER
The
Seller Principal and Seller represent and warrant to Purchaser as
follows:
5.1
Organization and Qualification . Seller is a
limited liability company duly organized, validly existing and in
good standing under the Laws of the State of Washington and is duly
authorized and qualified to do business under all applicable Laws
and to carry on its business in the places and in the manner as now
conducted. Attached as Schedule 5.1 are true, correct,
and complete copies of Seller’s Certificate of Formation and
Operating Agreement, and all amendments thereto. Seller has
the requisite power and authority to own, lease and operate
its
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assets and properties and to
carry on its business as such business is currently being
conducted. Seller is in good standing in each jurisdiction in
which the operation of its business requires it to be registered to
do business unless the failure to be so registered would not have a
material adverse effect on Seller.
5.2
Authority . Seller has the requisite power and
authority to enter into this Agreement and to effect the
transactions contemplated hereby. The Seller Principal has
the full legal right, power and authority to enter into this
Agreement. Seller is member-managed and the execution,
delivery and performance of this Agreement have been approved by
Seller’s Members. Attached as Schedule 5.2 are true
and correct copies of the Resolutions adopted and approved by all
of Seller’s Members by unanimous written consent authorizing
the transactions to be effected pursuant to this Agreement.
No additional organizational proceeding on the part of Seller is
necessary to authorize the execution and delivery of this Agreement
and the consummation by Seller of the transactions contemplated
hereby.
5.3
Enforceability . This Agreement has been duly and
validly executed and delivered by Seller and the Seller Principal,
and, assuming the due authorization, execution and delivery hereof
by Purchaser, constitutes, to the best of Seller’s and the
Seller Principal’s knowledge, a valid and binding agreement
of Seller and the Seller Principal, enforceable against each of
them 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.
5.4
Non-Contravention . The execution and delivery of
this Agreement by Seller and the Seller Principal do not, and the
consummation by Seller and the Seller Principal of the transactions
contemplated hereby will not, (i) violate or result in a
breach of any provision of, or constitute a default under,
(ii) result in the termination of, (iii) accelerate the
performance required by, (iv) result in a right of termination
or acceleration under, or result in the creation of any
Encumbrances upon any of the Assets under any of the terms,
conditions or provisions of, (X) Seller’s Articles of
Organization or Operating Agreement, (Y) any Laws applicable to
Seller or any of the Assets, or (Z) except as set forth in
Schedule 5.4 , any material instrument or agreement
which Seller is now a party or by which Seller or any of the Assets
may be bound or affected.
5.5
Consents . No declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any
Governmental Authority or third party is necessary for the
execution and delivery of this Agreement by Seller and the Seller
Principal or the consummation by Seller and the Seller Principal of
the transactions contemplated hereby except as set forth in
Schedule 5.5 and such actions or filings which, if not
made or obtained, as the case may be, would not have a material
adverse affect.
5.6
Financial Statements . Seller has delivered to
Purchaser copies of Seller’s internally generated financial
statements for the twelve (12) months ended December 31, 2002, and
December 31, 2003 and the six-month period ended as of June
30, 2004 (collectively, the “ Financial Statements
”), true and correct copies of which are hereto attached as
Schedule 5.6 . The Financial Statements have been
prepared in accordance with GAAP applied on a consistent basis
(except for the fact that footnotes have not been included) and
fairly and accurately present all of Seller’s assets and
liabilities as of the date thereof and the results of operations
for the periods covered thereby.
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5.7
Assets . Except as set forth in
Schedule 5.7 , Seller has good and marketable title to
all of the Assets or, in the case of leased Assets, valid leasehold
interests whether real, personal, mixed, tangible or intangible.
All the owned Assets and the Seller’s interest in the other
Assets are free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of Encumbrances other
than Permitted Encumbrances. The Assets are all the assets and
properties necessary to permit the Seller to operate the Business
as currently operated. The Assets are in good working order and
condition, ordinary wear and tear excepted.
5.8
Accounts and Notes Receivable .
Schedule 5.8 sets forth an accurate list of the
accounts and notes receivable of the Seller as of June 30,
2004. Receivables from and advances to employees, Seller, its
shareholders or any entities or persons related to or Affiliates of
Seller or its shareholders are separately identified in
Schedule 5.8 . Schedule 5.8 also sets
forth an accurate aging of all accounts and notes receivable as of
the June 30, 2004, showing amounts due in 30-day aging
categories. The trade and other accounts receivable of the
Seller are bona fide receivables, arising from the sale of goods or
services in the ordinary course of business and were recorded
correctly in the books and records of Seller in accordance with
GAAP and to the knowledge of the Seller and the Seller Principals
are collectible in the amounts shown on Schedule 5.8
net of reserves reflected in the Financial Statements.
Notwithstanding the foregoing, if any receivable outstanding at the
Closing Date, including receivables reflecting accrued
manufacturers’ incen
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