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EXHIBIT 10.38.7
EXECUTION COPY
ASSET PURCHASE AGREEMENT
BY AND AMONG
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
AND
HANOVER CAPITAL PARTNERS 2, LTD.
AND
TERWIN ACQUISITION I, LLC
DATED AS OF JANUARY 12, 2007
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TABLE OF CONTENTS
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Page
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ARTICLE I
DEFINITIONS....................................................
1
1.1 Defined
Terms................................................ 1
1.2
Interpretation............................................... 9
ARTICLE II SALE OF
ASSETS................................................ 9
2.1 Sale of Assets and Assumption of
Liabilities................. 9
2.2
Consideration................................................
10
2.3 Additional Purchase
Price.................................... 10
2.4 Adjustment to Purchase
Price................................. 10
2.5 Allocation of Purchase
Price................................. 12
2.6 Certain
Disputes............................................. 12
ARTICLE III
CLOSING......................................................
12
3.1
Closing......................................................
12
3.2 Closing
Transactions......................................... 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER AND THE
COMPANY...... 13
4.1 Organization and
Power....................................... 13
4.2 Authorization of
Transactions................................ 13
4.3 Subsidiaries;
Investments.................................... 13
4.4 Absence of
Conflicts......................................... 14
4.5 Financial
Statements......................................... 14
4.6 Certain
Developments......................................... 14
4.7 Tax
Matters.................................................. 16
4.8 Contracts and
Commitments.................................... 16
4.9 Proprietary
Rights........................................... 18
4.10 Litigation;
Proceedings...................................... 19
4.11
Brokerage....................................................
19
4.12 Governmental Licenses and
Permits............................ 19
4.13 Employees; Independent
Contractors........................... 19
4.14
ERISA........................................................
20
4.15 Affiliate
Transactions....................................... 21
4.16 Compliance with
Laws......................................... 21
4.17 Environmental
Matters........................................ 22
4.18
Assets.......................................................
22
4.19
Liabilities..................................................
22
4.20 Work in
Process.............................................. 22
4.21
Insurance....................................................
22
4.22 Real
Property................................................ 23
4.23
Customers....................................................
24
4.24 Capitalization of
Seller..................................... 25
4.25 Foreign Corrupt Practices
Act................................ 25
4.26
Disclosure...................................................
25
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF
BUYER........................ 26
5.1 Organization and
Power....................................... 26
5.2 Authorization of
Transaction................................. 26
5.3 Absence of
Conflicts......................................... 26
5.4
Brokerage....................................................
26
5.5 Litigation;
Proceedings...................................... 26
5.6 Availability of
Funds........................................ 27
ARTICLE VI
COVENANTS.....................................................
27
6.1
Consents.....................................................
27
6.2 Work in
Process.............................................. 27
6.3 Relationship of the
Parties.................................. 27
ARTICLE VII CLOSING
DELIVERABLES......................................... 27
7.1 Closing Deliverables of Seller and the
Company............... 27
7.2 Closing Deliverables of
Buyer................................ 29
ARTICLE VIII INTENTIONALLY
OMITTED....................................... 29
ARTICLE IX OTHER
COVENANTS............................................... 29
9.1 Retention of Retained Records; Continuing
Assistance......... 29
9.2 Press Releases and
Announcements............................. 30
9.3 Further
Assurances........................................... 31
9.4
Confidentiality..............................................
31
9.5 Employment
Matters........................................... 32
9.6
Receivables..................................................
33
9.7 Separation
Agreements........................................ 33
9.8
Non-Disparagement............................................
33
ARTICLE X INDEMNIFICATION AND RELATED
MATTERS............................ 34
10.1 Survival; Absence of Other
Representations................... 34
10.2
Indemnification..............................................
34
10.3 Indemnification
Procedures................................... 36
10.4 Treatment of Indemnification
Payments........................ 37
10.5 Exclusive
Remedy............................................. 37
ARTICLE XI
MISCELLANEOUS.................................................
38
11.1 Amendment and
Waiver......................................... 38
11.2
Notices......................................................
38
11.3 Binding Agreement;
Assignment................................ 40
11.4
Severability.................................................
40
11.5 No Strict
Construction....................................... 40
11.6
Captions.....................................................
40
11.7 Entire
Agreement............................................. 40
11.8
Counterparts.................................................
40
11.9 Governing
Law................................................ 40
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11.10 Specific
Performance......................................... 41
11.11
Expenses.....................................................
41
11.12 Parties in
Interest.......................................... 41
11.13 Generally Accepted Accounting
Principles..................... 41
11.14 Waiver of Jury
Trial......................................... 41
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is entered into
as of
January 12, 2007 by and among Hanover Capital Partners 2, Ltd.,
a Delaware
corporation ("SELLER"), Hanover Capital Mortgage Holdings, Inc.,
a Maryland
corporation (the "COMPANY"), and Terwin Acquisition I, LLC, a
Delaware limited
liability company ("BUYER"). Buyer, Seller and the Company are
sometimes
referred to herein as the "PARTIES."
WHEREAS, the Company owns 100% of the issued and outstanding
capital stock
of Seller;
WHEREAS, Seller is engaged in several lines of business,
including the
business of providing due diligence services to mortgage
bankers, banks,
thrifts, pension funds and government agencies (such due
diligence line of
business being referred to as the "BUSINESS") and owns or has
the right to use
all of the Assets (as defined herein);
WHEREAS, Seller desires to sell, and Buyer desires to purchase,
the Assets,
upon the terms set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt
and
sufficiency of which are hereby acknowledged, the Parties agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. In this Agreement, the following terms shall
have the
following respective meanings:
"ADJUSTED INCOME" shall mean, for the Relevant Period, the sum
of (a)
Revenues less (b) Direct Expenses less (c) Indirect Expenses
plus (d) Senior
Executive Compensation.
"ADDITIONAL PURCHASE PRICE" has the meaning set forth in Section
2.3.
"AFFILIATE" means, with respect to any Person, any other Person
that,
directly or indirectly, controls, is controlled by or is under
common control
with such first Person.
"AGREEMENT" has the meaning set forth in the preamble to this
Agreement.
"ASSETS" means all of the assets of Seller being transferred by
Seller to
Buyer pursuant to the terms of this Agreement and as set forth
on Schedule
2.1(a) hereto.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" has the meaning set forth
in Section
7.1.
"ASSUMED CONTRACTS" has the meaning set forth in Section
2.1(c).
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"ASSUMED LIABILITIES" means the Liabilities and obligations of
Seller set
forth on Schedule 2.1(b) hereto. In the event of any claim
against Buyer with
respect to any of the Assumed Liabilities hereunder, Buyer shall
have, and
Seller hereby assigns to Buyer, any defense, counterclaim, or
right of setoff
which would have been available to Seller if such claim had been
asserted
against Seller.
"BASKET" has the meaning set forth in Section 10.2(a).
"BENEFIT PLAN" means any "employee benefit plan" (as such term
is defined
in ERISA Section 3(3)) and any other employee benefit plan,
program or
arrangement of any kind.
"BILL OF SALE" has the meaning set forth in Section 7.1.
"BUSINESS" has the meaning set forth in the recitals.
"BUSINESS DAY" means a day, other than a Saturday or Sunday, on
which
commercial banks in New York, New York are open for the general
transaction of
business.
"CAP" has the meaning set forth in Section 10.2(a).
"CLOSING" has the meaning set forth in Section 3.1.
"CLOSING DATE" has the meaning set forth in Section 3.1.
"CLOSING DATE SCHEDULE" has the meaning set forth in Section
2.4(b).
"CODE" means the United States Internal Revenue Code of 1986, as
amended.
"COBRA" has the meaning set forth in Section 4.14.
"COMPANY" has the meaning set forth in the preamble to this
Agreement.
"CONFIDENTIAL INFORMATION" has the meaning set forth in Section
9.4(a).
"CONSENT" means any consent, order, approval, authorization or
other action
of, or any filing with or notice to or other action with respect
to, any
Governmental Entity or any other Person which is (a) required or
necessary for
any of (i) the execution, delivery or performance of this
Agreement or any other
Transaction Document, (ii) the consummation of any Closing
Transaction or other
transaction contemplated hereby or thereby or (iii) the conduct
of the Business
by Buyer after Closing in substantially the same manner as
presently conducted
or proposed to be conduced by Seller or the holding or
utilization of any Asset
thereafter, whether such requirement or necessity arises
pursuant to any Legal
Requirement, Contract, Lease or License (including any of the
foregoing which is
required in order to prevent a breach of or a default under or a
termination or
modification of any Contract) or (b) requested by Buyer and set
forth on the
attached Schedule 6.1 and Schedule 7.1.
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"CONTRACT" means any oral or written agreement, instrument,
document,
lease, employee benefit or welfare plan or other business or
commercial
arrangement (in each case, including any extension, renewal,
amendment or other
modification thereof) to which Seller is a party or by which it
is bound or to
which it or any Asset is subject or which pertains to the
Business.
"CONTRACTORS" has the meaning set forth in Section 4.13.
"DIRECT EXPENSES" shall mean the total direct expenses as
contained in
Seller's internal monthly management financial results binder
titled "HCP-2-DUE
DILIGENCE TOTAL", which results binder shall have been prepared
in accordance
with past practices of Seller, for the due diligence division of
Hanover Capital
Partners 2, Ltd. for the Relevant Period, including, without
limitation, the
expense items listed under "Direct Expenses" on Exhibit A
attached hereto.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section
4.17(a).
"ERISA" means the Employment Retirement Income Security Act of
1974, as
amended.
"ESCROW AGENT" means Klehr, Harrison, Harvey, Branzburg &
Ellers LLP.
"ESCROW AGREEMENT" has the meaning set forth in Section 7.1.
"ESCROW AMOUNT" has the meaning set forth in Section 2.2.
"ESTIMATED CLOSING DATE SCHEDULE" has the meaning set forth in
Section
2.4(a).
"ESTIMATED NET EQUITY AMOUNT" has the meaning set forth in
Section 2.4(a).
"EXCLUDED LIABILITIES" means all Liabilities and obligations of
Seller
other than the Assumed Liabilities.
"FCPA" has the meaning set forth in Section 4.25.
"FIRST ADDITIONAL PURCHASE PRICE PAYMENT" has the meaning set
forth in
Section 2.2.
"FINAL NET EQUITY AMOUNT" has the meaning set forth in Section
2.4(c).
"FINANCIAL STATEMENTS" has the meaning set forth in Section
4.5.
"FRINGE EXPENSE RATE" shall mean 18%.
"GAAP" means United States generally accepted accounting
principles, as in
effect from time to time.
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"GOVERNMENTAL ENTITY" means any government, agency,
governmental
department, commission, board, bureau, court, arbitration panel
or
instrumentality of the United States of America or any state or
other political
subdivision thereof (whether now or hereafter constituted and/or
existing) and
any entity exercising executive, legislative, judicial,
regulatory or
administrative functions of or pertaining to government.
"HANOVER NONCOMPETITION AGREEMENT" has the meaning set forth in
Section
7.1.
"INDEMNIFIED PARTY" has the meaning set forth in Section
10.3.
"INDEMNIFYING PARTY" has the meaning set forth in Section
10.3.
"INDEPENDENT ACCOUNTING FIRM" has the meaning set forth in
Section 2.4(d).
"INDIRECT EXPENSES" shall mean the total indirect expenses as
contained in
Seller's internal monthly management financial results binder
titled "HCP-2-DUE
DILIGENCE TOTAL", which results binder shall have been prepared
in accordance
with past practices of Seller, for the due diligence division of
Hanover Capital
Partners 2, Ltd. for the Relevant Period, including, without
limitation, the
expense items listed under "Indirect Expenses" on Exhibit A
attached hereto.
"INSIDER" means any stockholder, partner, member, officer or
director (or
similar official) of Seller, any Affiliate or member of the
immediate family of
any of the foregoing Persons, or any Person in which any of the
foregoing
Persons directly or indirectly owns any material beneficial
interest. The
"immediate family" of any individual means such individual's
(and such
individual's present or former spouse's) grandparents, parents,
spouse,
siblings, children and grandchildren.
"IRS" has the meaning set forth in Section 4.14.
"LEASED REAL PROPERTY" means all leasehold or subleasehold
estates and
other rights to use or occupy any land, building, structures,
improvements,
fixtures or other interest in real property held by Seller.
"LEASES" means all leases, subleases, licenses, concessions and
other
agreements (written or oral), including all amendments,
extensions, renewals,
guaranties and other agreements with respect thereto, pursuant
to which Seller
holds any Leased Real Property, including the right to all
security deposits and
other amounts and instruments deposited by or on behalf of
Seller thereunder.
"LEGAL REQUIREMENT" means all federal, state and local laws,
statutes,
codes, rules, regulations, ordinances, judgments, orders,
decrees and the like
of any Governmental Entity, including common law.
"LIABILITY" means any liability (whether known or unknown,
whether asserted
or unasserted, whether absolute or contingent, whether accrued
or unaccrued,
whether
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liquidated or unliquidated, and whether due or to become due),
including
any liability for Taxes.
"LICENSE AGREEMENT" has the meaning set forth in Section
7.1.
"LICENSES" means all licenses, permits, franchises,
certificates, and other
authorizations issued by any Governmental Entity to Seller or
held by Seller
with respect to the Business or any of the Assets, including all
applications
therefor and all renewals, extensions, or modifications thereof
and additions
thereto.
"LIEN" means any mortgage, pledge, hypothecation, lien
(statutory or
otherwise), preference, priority, security agreement or other
encumbrance of any
kind or nature whatsoever (including any conditional sale or
other title
retention agreement and any lease having substantially the same
effect as any of
the foregoing and any assignment or deposit arrangement in the
nature of a
security device).
"LOSS" has the meaning set forth in Section 10.2(a).
"MANDATORY CONSENTS" has the meaning set forth in Section
7.1.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
Business,
the Assets, the Assumed Liabilities or the business, operations,
financial
condition, or results of operations of the Business or on the
ability of Seller
to perform its obligations under this Agreement or any other
Transaction
Document.
"NET EQUITY AMOUNT" has the meaning set forth in Section
2.4(a).
"NOTICE OF NET EQUITY DISAGREEMENT" has the meaning set forth in
Section
2.4(c).
"ORDINARY COURSE" means, with respect to any Person, in the
ordinary course
of that Person's business consistent with past practice,
including as to the
quantity, quality and frequency.
"OTHER CONSENTS" has the meaning set forth in Section 6.1.
"PARTIES" has the meaning set forth in the preamble to this
Agreement.
"PERMITTED LIENS" means:
(a) Liens on Assets arising by operation of law and securing
the
payment of Taxes which are not yet due and payable;
(b) easements, rights-of-way, reservations of rights, conditions
or
covenants, zoning, building or similar restrictions or other
restrictions or
encumbrances that do not, individually or in the aggregate
materially interfere
with the use of the affected property in the operation of the
Business as
conducted or as proposed to be conducted by Seller;
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(c) restrictions on transfer imposed under state or federal
securities
laws;
(d) the lessors' and sublessors' rights under the Leases and
leases of
personal property by Seller as lessee which are part of the
Assets;
(e) mechanics', carriers', workers', repairers', and similar
non-consensual Liens arising by operation of law and relating to
obligations
which are incurred in the ordinary course of business and which
secure only
Assumed Liabilities which are not yet due and payable on the
Closing Date; and
(f) Liens arising out of any failure to comply with the
provisions of
any bulk transfer law which may be applicable to the purchase
and sale of the
Assets pursuant to this Agreement.
"PERSON" means an individual, a partnership, a limited liability
company, a
corporation, an association, a joint stock company, a trust, a
joint venture, an
unincorporated organization, any Governmental Entity or any
similar entity.
"PLAN" has the meaning set forth in Section 4.14.
"PRE-CLOSING PERIOD" means any taxable period or portion thereof
ending on
or before the Closing Date or, as the context may require, all
such periods and
portions. If a taxable period begins on or before the Closing
Date and ends
after the Closing Date, then the portion of the taxable period
through the end
of the Closing Date shall constitute a Pre-Closing Period.
"POST-CLOSING PERIOD" means any taxable period or portion
thereof beginning
after the Closing Date or, as the context may require, all such
periods and
portions. If a taxable period begins on or before the Closing
Date and ends
after the Closing Date, then the portion of the taxable period
that begins on
the day following the Closing Date shall constitute a
Post-Closing Period.
"PROPRIETARY RIGHTS" means all of the following items owned by,
issued to
or licensed to, Seller that relate solely to the Assets or the
Assumed
Liabilities, along with all income, royalties, damages and
payments due or
payable at the Closing or thereafter, including damages and
payments for past,
present or future infringements or misappropriations thereof,
the right to sue
and recover for past infringements or misappropriations thereof
and any and all
corresponding rights that, now or hereafter, may be secured
throughout the
world: patents, patent applications, patent disclosures and
inventions (whether
or not patentable and whether or not reduced to practice) and
any reissue,
continuation, continuation-in-part, division, revision,
extension or
reexamination thereof; copyrights registered or unregistered and
copyrightable
works; mask works; and all registrations, applications and
renewals for any of
the foregoing; trade secrets and confidential information
(including ideas,
formulae, compositions, know-how, manufacturing and production
processes and
techniques, research and development information, drawings,
specifications,
designs, plans, proposals, technical data, financial, business
and marketing
plans, and customer and supplier lists and related
information);
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computer software and software systems (including data,
databases and related
documentation); other proprietary rights; licenses or other
agreements to or
from third parties regarding the foregoing; and all copies and
tangible
embodiments of the foregoing (in whatever form or medium), in
each case
including the items set forth on Schedule 4.9(a).
"PURCHASE PRICE" has the meaning set forth in Section 2.2.
"PURCHASE PRICE ALLOCATIONS" has the meaning set forth in
Section 2.5.
"REAL PROPERTY" means all real property and all improvements
thereon used,
or held for use, in the Business.
"RELEVANT GROUP" means any affiliated, combined, consolidated,
unitary or
other group for Tax purposes of which Seller is or was a
member.
"RELEVANT PERIOD" shall mean the three month period beginning on
October 1,
2006 through and including December 31, 2006.
"REVENUES" shall mean the total revenues as contained in
Seller's internal
monthly management financial results binder titled "HCP-2-DUE
DILIGENCE TOTAL",
which results binder shall have been prepared in accordance with
past practices
of Seller, for the due diligence division of Hanover Capital
Partners 2, Ltd.
for the Relevant Period, including, without limitation, the
revenue items listed
under "Revenue" on Exhibit A attached hereto.
"SELLER" has the meaning set forth in the preamble to this
Agreement.
"SENIOR EXECUTIVE COMPENSATION" shall mean the sum of (a) the
salary
paid/accrued to George Ostendorf by Seller during the Relevant
Period, (b) the
auto allowance expenses paid to George Ostendorf by Seller
during the Relevant
Period, (c) the product of (i) the Fringe Expense Rate and (ii)
the salary paid
to George Ostendorf by Seller during the Relevant Period, (d)
the salary
paid/accrued to Joyce Mizerak by Seller during the Relevant
Period; (e) the auto
allowance expenses paid to Joyce Mizerak by Seller during the
Relevant Period,
and (f) the product of (i) the Fringe Expense Rate and (ii) the
salary paid to
Joyce Mizerak by Seller during the Relevant Period, all of which
amounts shall
have been paid in accordance with past practices of Seller.
"SEPARATION AGREEMENTS" has the meaning set forth in Section
9.7.
"SHARES" has the meaning set forth in Section 4.24.
"SIGNIFICANT CUSTOMER" has the meaning set forth in Section
4.23.
"SOFTWARE PREMIUM" has the meaning set forth in Section 2.2.
"TAX" (and, with correlative meaning, "TAXES," "TAXABLE" and
"TAXING")
means (i) any federal, state, local or foreign income, gross
receipts,
franchise, estimated,
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alternative minimum, add-on minimum, sales (including bulk
sales), use,
transfer, registration, value added, excise, natural resources,
severance,
stamp, occupation, premium, windfall profits, environmental
(including under
Section 59A of the Code), customs, duty, real property, real
property gains,
personal property, capital stock, social security, unemployment,
disability,
payroll, license, employee or other withholding or other tax
assessment, fees,
levy or other governmental charge of any kind whatever, whether
disputed or not,
including any interest, penalties or additions to tax or
additional amounts in
respect of the foregoing; (ii) any liability for or in respect
of the payment of
any amount of a type described in clause (i) of this definition
arising as a
result of being or having been a member of any Relevant Group
and (iii) any
liability for or in respect of the payment of any amount of a
type described in
clauses (i) or (ii) of this definition as a transferee or
successor, by contract
or otherwise.
"TAX RETURN" means any return, declaration, report, claim for
refund,
information return or other document (including any related or
supporting
schedules, statements or information) filed or required to be
filed in
connection with the determination, assessment or collection of
Taxes or the
administration of any Legal Requirement relating to any
Taxes.
"TAXING AUTHORITY" means any governmental agency, board, bureau,
body,
department or authority of any United States federal, state or
local
jurisdiction or any non-United States jurisdiction, having or
purporting to
exercise jurisdiction with respect to any Tax.
"TRANSACTION DOCUMENTS" means this Agreement, the License
Agreement, the
Assignment and Assumption Agreement, the Escrow Agreement, the
Bill of Sale, the
Hanover Noncompetition Agreement and the Transitional Services
Agreement.
"TRANSFER TAXES" means sales, bulk sales, use, transfer, real
property
transfer, filing, recording, stock transfer, stamp, stamp duty
reserve, value
added, documentary and other similar Taxes.
"TRANSFERRED EMPLOYEE" has the meaning set forth in Section
9.1.
"TRANSITIONAL SERVICES AGREEMENT" has the meaning set forth in
Section 7.1.
"TREASURY REGULATIONS" means the regulations promulgated or
proposed by the
United States Treasury Department under the Code.
"TURNOVER PERIOD" has the meaning set forth in Section 6.2.
"WIP" has the meaning set forth in Section 4.20.
"WIP CONTRACT" has the meaning set forth in Section 6.2.
"WIP CUSTOMER" has the meaning set forth in Section 6.2.
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1.2 INTERPRETATION. The terms "hereof," "herein" and "hereunder"
and terms
of similar import will refer to this Agreement as a whole and
not to any
particular provision of this Agreement. Section, clause, Exhibit
and Schedule
references contained in this Agreement are references to
Sections, clauses,
Exhibits and Schedules in or attached to this Agreement, unless
otherwise
specified. Each defined term used in this Agreement has a
comparable meaning
when used in its plural or singular form. Each gender-specific
term used in this
Agreement has a comparable meaning whether used in a masculine,
feminine or
gender-neutral form. As used in this Agreement, the terms
"knowledge" or "aware"
will include the actual knowledge and awareness of the Person in
question, and
the knowledge and awareness that such Person would have obtained
after making
reasonable inquiry and exercising reasonable diligence with
respect to the
matter in question. Each reference in this Agreement to any
Legal Requirement
will be deemed to include such Legal Requirement as it hereafter
may be amended,
supplemented or modified from time to time and any successor
thereto, unless
such treatment would be contrary to the express terms of this
Agreement.
ARTICLE II
SALE OF ASSETS
2.1 SALE OF ASSETS AND ASSUMPTION OF LIABILITIES.
(a) Sale of Assets. On the Closing Date, and on the terms and
subject
to the conditions in this Agreement, Seller shall sell, assign,
transfer,
deliver, and convey to Buyer and/or its nominees, and Buyer
and/or its nominees
shall purchase and accept from Seller, all of Seller's right,
title, and
interest in and to the Assets, in each case free and clear of
any Lien (other
than Permitted Liens) and restrictions on transfer.
(b) Assumption of Liabilities. On the Closing Date, and on the
terms
and subject to the conditions in this Agreement, Buyer and/or
its nominees shall
assume and agree to pay, perform, fulfill, and discharge, as or
when due from
and after the Closing Date, the Assumed Liabilities. The Buyer
will not assume
or have any responsibility with respect to any Liability not
expressly included
in the definition of Assumed Liabilities.
(c) Assumption of Assumed Contracts. On the Closing Date, and on
the
terms and subject to the conditions in this Agreement and the
Assignment and
Assumption Agreement, Buyer and/or its nominees shall assume and
agree to
perform all of the duties, obligations, terms, provisions and
covenants, and to
pay and discharge all of the liabilities of Seller to be
observed, performed,
paid or discharged from and after the Closing, in connection
with the Contracts
set forth on Schedule 2.1(c) (the "ASSUMED CONTRACTS").
Notwithstanding the
immediately preceding sentence or any other provision of this
Agreement, this
Section 2.1(c) shall not constitute an assignment to Buyer of
any Contract set
forth on Schedule 2.1(c), and the defined term "ASSUMED
CONTRACTS" shall not
include any Contract set forth on Schedule 2.1(c) for purposes
of this
Agreement, if an assignment of a Contract set forth on Schedule
2.1(c) requires
the Consent of the other party thereto and such Consent has not
been obtained as
of the Closing Date or an attempted assignment of the same
without the Consent
of the other party thereto would constitute a breach thereof or
in any way
impair the rights of Seller
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thereunder; provided, that if any such Consent is obtained after
the date hereof
with respect to any such Contract, this instrument shall
constitute an
assignment of the same to Buyer as of the date of such consent
without further
action by Seller or Buyer.
2.2 CONSIDERATION. The consideration for the Assets and the
Assumed
Liabilites (the "PURCHASE PRICE") shall consist of (a) the
Estimated Net Equity
Amount (as defined in Section 2.4(a)), which shall be subject to
adjustment as
set forth in Section 2.4, (b) $750,000 (the "SOFTWARE PREMIUM"),
which amount
represents a premium for certain software being purchased by
Buyer pursuant to
this Agreement, and (c) the Additional Purchase Price. At the
Closing, Buyer
shall deliver to (a) Seller the Estimated Net Equity Amount, the
Software
Premium and the sum of $725,000 (the "FIRST ADDITIONAL PURCHASE
PRICE PAYMENT")
by wire transfer to an account designated by Seller and (b) the
Escrow Agent the
sum of $125,000 (the "ESCROW AMOUNT"). The Escrow Amount shall
be paid in
accordance with Section 2.3.
2.3 ADDITIONAL PURCHASE PRICE. On or before March 31, 2007,
Seller shall
prepare or cause to be prepared, and shall submit to Buyer, a
calculation of the
Adjusted Income. If the Adjusted Income of Seller is at least
equal to or
greater than $202,962, the "ADDITIONAL PURCHASE PRICE" shall
equal $850,000. If
the Adjusted Income of Seller is less than $202,962, the
"ADDITIONAL PURCHASE
PRICE" shall equal (a) $850,000, less (b) the product obtained
by multiplying
(i) two, by (ii) the amount by which $202,962 exceeds the
Adjusted Income of
Seller. Within 10 days of such calculation becoming final and
binding on the
parties hereto pursuant to Section 2.6, (a) if the Additional
Purchase Price is
greater than the First Additional Purchase Price Payment, Buyer
and Seller shall
direct the Escrow Agent to pay to Seller the difference between
the Additional
Purchase Price and the First Additional Purchase Price Payment
and any remainder
in the Escrow Account shall be paid to Buyer or (b) if the
Additional Purchase
Price is less than the First Additional Purchase Price Payment,
Buyer and Seller
shall direct the Escrow Agent to pay to Buyer the Escrow Amount
and Seller shall
pay to Buyer the difference between the First Additional
Purchase Price Payment
and the Additional Purchase Price.
2.4 ADJUSTMENT TO PURCHASE PRICE.
(a) The Purchase Price shall be adjusted based on the Seller's
Net
Equity Amount in accordance with this Section 2.4. For purposes
of this Article
II, the "NET EQUITY AMOUNT" shall be equal to the Assets minus
Assumed
Liabilities due and payable to unaffiliated third parties as of
the Closing
Date, each determined utilizing principles that are consistent
with past
practices of Seller. Three days prior to the expected Closing
Date, Seller shall
provide Buyer with a good faith estimate of the Closing Date
Schedule, included
as Schedule 2.4(a) (the "ESTIMATED CLOSING DATE SCHEDULE"), and
the estimated
calculation of the Net Equity Amount (the "ESTIMATED NET EQUITY
AMOUNT").
(b) As promptly as practicable, but no later than sixty (60)
days
after the Closing Date, Seller shall prepare and deliver to
Buyer a schedule of
the Assets and the Assumed Liabilities of Seller as of the close
of business on
the Closing Date (the
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"CLOSING DATE SCHEDULE") prepared utilizing principles that are
consistent with
past practices by Seller and a calculation of the Net Equity
Amount as of the
Closing Date. During the thirty (30) days immediately following
receipt of the
Closing Date Schedule by Buyer, and upon reasonable prior
written notice and
during normal business hours, Buyer and its representatives will
be permitted to
review at the location of the Business all books and records of
Seller relating
to Seller's preparation of the Closing Date Schedule.
(c) Buyer shall notify Seller in writing (the "NOTICE OF NET
EQUITY
DISAGREEMENT") within thirty (30) days after receiving the
Closing Date Schedule
and calculation of the Net Equity Amount if it disagrees with
the Net Equity
Amount. Such Notice of Net Equity Disagreement shall set forth
in reasonable
detail the basis for such dispute and the amounts involved and
Buyer's good
faith calculation of what the Net Equity Amount should be. If
Buyer accepts the
Net Equity Amount within such thirty (30) day period, or if
Buyer does not
deliver a Notice of Net Equity Disagreement to Seller within
such thirty (30)
day period, then the Net Equity Amount set forth in the Closing
Date Schedule
shall be deemed to have been accepted, shall become final and
binding upon the
Parties, and shall be the "FINAL NET EQUITY AMOUNT."
(d) During the thirty (30) days immediately following the
delivery of
a Notice of Net Equity Disagreement, Seller and Buyer shall seek
in good faith
to resolve any differences that they may have specified in the
Notice of Net
Equity Disagreement. If at the end of such thirty (30) day
period Seller and
Buyer have been unable to agree upon a Final Net Equity Amount,
then Seller and
Buyer shall submit to an independent accounting firm of national
recognition
mutually acceptable to Seller and Buyer (the "INDEPENDENT
ACCOUNTING FIRM") for
review and resolution of any and all matters that remain in
dispute with respect
to the Notice of Net Equity Disagreement. Buyer and Seller shall
cause the
Independent Accounting Firm to use commercially practicable
efforts to make,
within sixty (60) days from such submission, a final
determination (which
determination shall be binding on the Parties absent manifest
error) as to what
the Net Equity Amount should be, and such final determination
shall be the Final
Net Equity Amount. The cost of the Independent Accounting Firm's
review and
determination shall be paid one-half by Seller and one-half by
Buyer. During the
sixty (60) day review by the Independent Accounting Firm, Buyer
and Seller will
each make available to the Independent Accounting Firm
interviews with such
individuals and such information, books and records as may be
reasonably
required by the Independent Accounting Firm to make its final
determination.
(e) In the event that the Final Net Equity Amount is less than
the
Estimated Net Equity Amount, then Seller shall, within three (3)
Business Days
of the determination of the Final Net Equity Amount, pay to
Buyer the amount of
the difference between the Estimated Net Equity Amount and the
Final Net Equity
Amount in accordance with written instructions received from
Buyer. In the event
that the Final Net Equity Amount is greater than the Estimated
Net Equity
Amount, then Buyer shall, within three (3) Business Days of the
determination of
the Final Net Equity Amount, pay to Seller the amount of the
difference between
the Final Net Equity Amount and the
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Estimated Net Equity Amount in accordance with written
instructions received
from Seller.
(f) All amounts payable pursuant to this Section 2.4 by Seller
to
Buyer shall be treated as an adjustment to the Purchase
Price.
2.5 ALLOCATION OF PURCHASE PRICE. The portion of the Purchase
Price paid in
exchange for the Assets pursuant to Section 2.2, together with
the allocable
portion of the Assumed Liabilities and any other relevant items,
shall be
allocated among the Assets, the License Agreement or the
Noncompetition
Agreements, as the case may be (such allocations, the "PURCHASE
PRICE
ALLOCATIONS"). As promptly as practicable after the Closing
Date, Buyer shall
prepare or cause to be prepared, and shall submit to Seller, a
draft version of
the Purchase Price Allocations, which shall be reasonable and
determined in
accordance with Section 1060 of the Code and the applicable
Treasury regulations
thereunder. Buyer and Seller shall report the Tax consequences
of the
transactions contemplated by this Agreement in a manner
consistent with the
Purchase Price Allocations and shall not take any action or
position that is
inconsistent therewith. Buyer and Seller shall mutually agree
upon and shall
mutually prepare and file in accordance with applicable Treasury
regulations and
in accordance with the Purchase Price Allocations Internal
Revenue Service Form
8594 with respect to the acquisition by Buyer of the Assets.
2.6 CERTAIN DISPUTES. If Buyer or Seller disputes any item in
the
calculation of Adjusted Income, the Additional Purchase Price or
the Purchase
Price Allocations, the Party disputing such item shall notify
the other Party,
in writing, of each disputed item and specify the amount thereof
in dispute
within five Business Days after delivery to the disputing Party
of the
applicable determination by the other Party. In the absence of
fraud, the
determination of each of the Adjusted Income, Additional
Purchase Price and the
Purchase Price Allocations shall become final and binding upon
the Parties if no
dispute relating thereto shall have been asserted within such
five Business Day
period. If Buyer and Seller cannot resolve any such dispute
within five Business
Days after delivery of such notice of dispute, then upon demand
of either party,
such dispute will be resolved by the Independent Accounting Firm
mutually
acceptable to Buyer and Seller as determined pursuant to Section
2.4(d).
ARTICLE III
CLOSING
3.1 CLOSING. The closing of the purchase and sale of the Assets
and the
assumption of the Assumed Liabilities pursuant to this Agreement
(the "CLOSING")
will occur at the offices of Klehr, Harrison, Harvey, Branzburg
& Ellers LLP,
260 South Broad Street, Philadelphia, PA 19102 at 10:00 a.m. on
January 12, 2007
(the "CLOSING DATE")
3.2 CLOSING TRANSACTIONS. At the Closing:
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(a) Buyer will deliver to Seller the Estimated Net Equity
Amount, the
Software Premium and the First Additional Purchase Price Payment
by wire
transfer to an account designated by Seller;
(b) Buyer will deliver the Escrow Amount to the Escrow
Agent;
(c) Seller shall deliver or cause to be delivered to Buyer
(except to
the extent waived by Buyer in writing) the items set forth in
Section 7.1; and
(d) Buyer shall deliver or cause to be delivered to Seller and
the
Company (except to the extent waived by Seller in writing) the
items set forth
in Section 7.2.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY
As a material inducement to Buyer to enter into this Agreement,
Seller and
the Company jointly and severally represent and warrant to Buyer
as set forth
below:
4.1 ORGANIZATION AND POWER. Except as set forth on the attached
Schedule
4.1, each of Seller and the Company is a corporation, validly
existing and in
good standing (or having comparable active status) under the
laws of its
jurisdiction of incorporation and is qualified to do business in
every
jurisdiction in which the nature of its business or its
ownership of property
requires it to be qualified, except where the failure to be so
qualified would
not have a Material Adverse Effect. Each of Seller and the
Company has the full
power necessary to own and operate its properties and carry on
the Business as
now conducted.
4.2 AUTHORIZATION OF TRANSACTIONS. Each of Seller and the
Company has full
power and authority to execute and deliver this Agreement and
all other
Transaction Documents to which it is a party and to perform its
obligations
hereunder and thereunder. Each of Seller and the Company has
duly approved this
Agreement and all other Transaction Documents to which it is a
party and has
duly authorized its execution and delivery of this Agreement and
such
Transaction Documents and the performance of its obligations
hereunder and
thereunder. No other proceeding or action on the part of Seller
or the Company
or any of their shareholders is necessary to approve and
authorize Seller's or
the Company's execution and delivery of this Agreement or any
other Transaction
Document to which Seller or the Company is a party or the
performance of their
obligations hereunder or thereunder. This Agreement constitutes,
and each of the
other Transaction Documents to which Seller and the Company is a
party will when
executed constitute, a valid and binding obligation of Seller
and the Company,
enforceable in accordance with its terms, except as
enforceability hereof may be
limited by bankruptcy, insolvency or other laws affecting
creditor's rights
generally and limitations on the availability of equitable
remedies.
4.3 SUBSIDIARIES; INVESTMENTS. The Assets do not include any
shares of
capital stock or any other security, interest or investment in,
or loan to
(other than extensions of trade credit in the Ordinary Course),
any other Person
or any right which is
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exercisable or exchangeable for or convertible into any capital
stock or other
security, interest or investment in any other Person.
4.4 ABSENCE OF CONFLICTS. Except as set forth on the attached
Schedule 4.4,
neither the execution, delivery and performance of this
Agreement or any other
Transaction Document by Seller or the Company nor the
consummation by Seller or
the Company of the transactions contemplated hereby or
thereby:
(a) does or will (i) conflict with or result in any breach of
any of
the provisions of, (ii) constitute a default under, (iii) result
in a violation
of, (iv) give any third party the right to terminate or to
accelerate any
obligation under or (v) result in the creation of any Lien upon
any Assets, in
each case under the provisions of the articles or certificate of
incorporation,
bylaws or similar organizational document of Seller or the
Company or any
indenture, mortgage, lease, loan agreement or other agreement,
instrument or
Contract or any Legal Requirement by which Seller or the Company
or any Asset is
affected, or to which Seller or the Company or any Assets is
subject, except
where the violation, breach, default, termination, acceleration
or lien would
not have a Material Adverse Effect, or
(b) without limiting clause (a) above, requires any Consent of
any
Governmental Entity or any other Person, except where the
failure to obtain
Consent would not have a Material Adverse Effect.
4.5 FINANCIAL STATEMENTS. Seller has delivered to Buyer (i)
audited
consolidated financial statements (balance sheet, statement of
operations and
statement of cash flows) for the Company for the period from
incorporation
through December 31, 2005 and (ii) Seller's unaudited financial
schedules from
Seller's monthly financial book (balance sheet and statement of
operations) for
the eleven (1) month period from January 1, 2006 through
November 30, 2006
(collectively, the "FINANCIAL STATEMENTS"). The Financial
Statements are
complete and correct in all material respects. The Company's
Financial
Statements only have been prepared in accordance with GAAP
applied on a
consistent basis throughout the periods indicated with each
other. The Financial
Statements of Seller fairly present the assets and liabilities
of Seller as of
the date thereof and fairly and accurately present the financial
condition and
operating results of Seller as of the dates, and for the
periods, indicated
therein. All of Seller's transactions are fairly and accurately
presented in the
Financial Statements.
4.6 CERTAIN DEVELOPMENTS. Except as set forth on Schedule 4.6,
during the
period beginning on January 1, 2006 and ending on the Closing
Date, Seller has
not:
(a) suffered any theft, damage, destruction or casualty loss to
any
Asset or any portion of the Assets, or any substantial
destruction of its books
and records (in each case whether or not covered by
insurance);
(b) sold, leased, assigned or transferred any Asset or any
portion of
the Assets (other than dispositions of obsolete or worn-out
Assets disposed of
in the Ordinary Course, dispositions of Assets which have been
replaced with
Assets of equal or greater
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value and utility and dispositions of non-material amounts of
Assets in the
Ordinary Course);
(c) waived any right of material value under the Assumed
Contracts or
relating to the Business, the Assets or the Assumed
Liabilities;
(d) accelerated, terminated, modified, or cancelled any
Assumed
Contract or other agreement, contract, lease, or license (or
series of related
agreements, contracts, leases, and licenses) relating to the
Business, the
Assets or the Assumed Liabilities involving more than $10,000
(individually or
in the aggregate);
(e) imposed any Lien upon any of the Assets, tangible or
intangible
(other than a Permitted Lien or any Lien for which Seller has
delivered to Buyer
an executed authorization for Buyer (or its lenders) to file all
appropriate UCC
termination statements);
(f) made any capital expenditure (or series of related
capital
expenditures) relating to the Business, the Assets or the
Assumed Liabilities
either involving more than $25,000 or outside the Ordinary
Course;
(g) made any capital investment in, any loan to, or any
acquisition of
the securities or assets of, any other Person (or series of
related capital
investments, loans, and acquisitions) relating to the Business,
the Assets or
the Assumed Liabilities, other than transactions with any
Affiliate;
(h) issued any note, bond, or other debt security or
created,
incurred, assumed, or guaranteed any indebtedness for borrowed
money or
capitalized lease obligation relating to the Business, the
Assets or the Assumed
Liabilities;
(i) delayed or postponed the payment of accounts payable or
other
Liabilities relating to the Business, the Assets or the Assumed
Liabilities
outside the Ordinary Course;
(j) entered into any employment contract or collective
bargaining
agreement relating to the Business or the Assets, written or
oral, or modified
the terms of any existing such contract or agreement;
(k) adopted, amended, modified, or terminated any bonus,
profit
sharing, incentive, severance, or other plan, contract, or
commitment for the
benefit of any of its directors, officers, employees or
consultants engaged in
any respect in the Business (or taken any such action with
respect to any other
Benefit Plan);
(l) made any Tax election, adopted or changed any accounting
method
for Tax purposes, filed any amended Tax Return, consented to or
entered into any
closing agreement or similar agreement with any Taxing
Authority, consented to
or settled or compromised any Tax claim or assessment or taken
any position
inconsistent with any past practice on any Tax Return;
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<PAGE>
(m) entered into any other transaction relating to the Business,
the
Assets or the Assumed Liabilities other than in the Ordinary
Course, or
materially changed any material business practice relating to
the Business;
(n) made or granted any bonus or any wage, salary or
compensation
increase in excess of $5,000 per year to any employee or
independent contractor
engaged in any respect in the Business, except as described on
the attached
Schedule 4.8(a); or
(o) agreed or committed to do any of the foregoing.
4.7 TAX MATTERS. Except as set forth on Schedule 4.7:
(a) Seller has duly and timely filed all Tax Returns that it
was
required to file. All such Tax Returns are true, complete and
correct. All Taxes
owed by Seller (whether or not shown on any Tax Return) have
been paid. Seller
is not the beneficiary of any extension of time within which to
file any Tax
Return. No claim has ever been made by a Taxing Authority in a
jurisdiction
where Seller does not file Tax Returns that it is or may be
subject to taxation
by that jurisdiction. There are no Liens on any of the assets of
Seller that
arose in connection with any failure (or alleged failure) to pay
any Tax. No
power of attorney with respect to any Taxes has been executed or
filed with any
Taxing Authority with respect to Seller.
(b) Seller has withheld and paid all Taxes required to have
been
withheld and paid in connection with amounts paid or owing to
any employee,
former employee, partner, independent contractor, creditor,
stockholder,
affiliate, customer, supplier or other third party.
(c) There is no dispute or claim concerning any Tax Liability
of
Seller (i) claimed or raised by any Taxing Authority in writing
or (ii)
otherwise to Seller's knowledge (including, for this purpose, to
the knowledge
of any employee responsible for Tax matters). Schedule 4.7 lists
all United
States federal, state, local and non-United States income Tax
Returns filed by
or with respect to Seller for any taxable period ended on or
after January 1,
2000, indicates those Tax Returns that have been audited and
indicates those Tax
Returns that currently are the subject of audit. Seller has
delivered or made
available to Buyer correct and complete copies of all material
Tax Returns filed
by, and all examination reports and statements of
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