EXHIBIT
10.5
ASSET PURCHASE OPTION
AGREEMENT
THIS ASSET PURCHASE OPTION
AGREEMENT (the " Agreement "), dated effective as of April
15, 2009, is made by and among ALPHA LASER AND ALPHA IMAGING, LLC,
a Delaware limited liability company (" Optionee "), a
wholly-owned subsidiary of AMERICAN TONERSERV CORP., a Delaware
corporation (" ATS "), MID-AMERICA ENVIRONMENTAL, LLC, an
Indiana limited liability company (" MAE "), ALPHA IMAGING
SOLUTIONS LLC, an Indiana limited liability company (" AIS "
and together with MAE, individually and collectively, "
Provider "), SCOTT ALTHAUS, JASON ALTHAUS, and AARON ALTHAUS
(individually, " Principal " and collectively, "
Principals ").
RECITALS
A. MAE is engaged
in the business of providing printing supplies and service and AIS
is engaged in the business of selling and servicing copiers (such
businesses, collectively, the " Business "), which are
located at 1730 N.
Burkhardt,
Evansville, Indiana (the " Premises ").
B. Principals own
directly or indirectly all of the issued and outstanding capital
stock and/or membership interests of Provider.
C. Provider and
ATS are parties to an Independent Sales Partner Agreement (the "
ISP Agreement "), of even date herewith, pursuant to which
ATS or its Affiliates will provide back-office support to Provider
in operating the Business, including, without limitation, billing,
collections, customer service, accounting and purchasing
power.
D. Provider and
Principals have agreed to grant to Optionee, during the period
beginning on the date hereof and ending on the Option Termination
Date, an option to purchase all of the Assets, on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration
of the foregoing and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
AGREEMENT
1. Definitions .
Capitalized terms used herein shall have the meanings ascribed
thereto in this Agreement or in the Purchase Agreement (as defined
below).
2. Option to Purchase
Assets . Provided the ISP Agreement has not been terminated by
Provider in accordance with its terms following an uncured material
breach by Optionee, and provided that there is no uncured material
breach by Optionee under this Agreement or any of the Option
Documents (in either of which events this Agreement and all
obligations and rights hereunder shall automatically terminate and
be of no further force or effect), then subject to the terms and
conditions contained herein,
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at any time after the date
hereof and through and including the five (5) year anniversary of
the date hereof (the " Option Termination Date "), Optionee
shall have an irrevocable option (the " Option "), but not
the obligation, to acquire from Provider the Assets, for an
aggregate purchase price of Four Hundred Ninety-nine Thousand Six
Hundred Dollars ($499,600), less any Option Consideration (as
defined below) paid prior to the Closing Date (as defined below),
and less any Damages (as defined in Section 7.2 hereof) for which
Optionee or ATS is entitled to be indemnified pursuant to this
Agreement. The amount of Option Consideration considered to be
"paid" prior to the Closing Date (as defined below) shall be an
amount equal to the value of the Closing Stock (as defined below)
issued to Provider, valued at $0.25 per share, and by the amount
paid in principal reduction to the Long-term Note (as defined
below) and the Contingent Note (as defined below) prior to the
Closing Date
2.1. Exercise of Option .
Optionee shall exercise the Option, if at all, by giving written
notice thereof to Provider on or before the Option Termination Date
(the date of such exercise, the " Exercise Date "). In the
event that Optionee exercises the Option, the parties hereto shall
promptly (but in no event later than five (5) business days
following the Exercise Date) execute and deliver, or cause to be
executed and delivered, and consummate the transactions
contemplated by, the Purchase Documents (as defined below) (the
date of such execution and delivery, the " Closing Date
").
2.2. Purchase Documents .
On or before the Closing Date, the parties shall execute and
deliver the following documents (the " Purchase Documents
"):
(a) an Asset Purchase Agreement,
substantially in the form attached hereto as Exhibit A (the
" Purchase Agreement "), together with the schedules
referred to therein, which schedules shall be mutually satisfactory
and delivered within 30 days of the earlier to occur of (i) the
Option Termination Date, or (ii) notice from Optionee that it
intends to exercise the Option prior to the Option Termination
Date.
(b) a Bill of Sale,
substantially in the form attached to the Purchase
Agreement.
(c) an Assignment and Assumption
Agreement, substantially in the form attached to the Purchase
Agreement.
(d) an Intellectual Property
Assignment, substantially in the form attached to the Purchase
Agreement.
(e) an Employment Agreement, in
form and substance reasonably satisfactory to Optionee and each
Principal.
(f) a Noncompetition,
Nonsolicitation and Nondisclosure Agreement, in form and substance
reasonably satisfactory to Optionee and each Principal.
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(g) an assignment,
sublease, novation, termination, lease or such other documents and
agreements as the parties determine are necessary or appropriate in
connection with the real property leased by Provider and used in
the Business.
(h) such other documents and
agreements as the parties determine are necessary or appropriate in
connection with the transactions contemplated by the Purchase
Agreement.
2.3. Option Documents .
Simultaneously with the execution and delivery of this Agreement,
the parties shall execute and deliver the following documents (the
" Option Documents "):
(a) the Promissory Note,
substantially in the form attached hereto as Exhibit B (the
" Long-term Note ").
(b) the Contingent Promissory
Note, substantially in the form attached hereto as Exhibit C
(the " Contingent Note ").
(c) Employment Agreements,
substantially in the form attached hereto as Exhibit D (the
" Employment Agreement ").
(d) Offer Letters to join an ATS
advisory board, substantially in the form attached hereto as
Exhibit E (the " Offer Letters ").
2.4. No Transfer of Assets or
Assumption of Liabilities . Notwithstanding any other
provisions in this Agreement to the contrary, no assets of Provider
are hereby transferred to Optionee, and no liabilities of Provider
are hereby assumed by Optionee.
3. Option
Consideration .
3.1. Option Consideration
. Subject to adjustment as provided below, the aggregate
consideration (the " Option Consideration ") to be paid by
Optionee to Provider for the Option shall be Four Hundred
Ninety-nine Thousand Six Hundred Dollars ($499,600), less any
Damages for which Optionee or ATS is entitled to be indemnified
pursuant to this Agreement.
3.2. Payment of the Option
Consideration . The Option Consideration shall be paid by
Optionee to Provider as follows:
(a) Promissory Notes .
Optionee shall execute and deliver to Provider the following
promissory notes (collectively, the " Notes "):
(1) Long - term Note .
The Long-term Note, made payable to Provider in the principal
amount of Three Hundred Thirty-seven Thousand Eight Hundred Dollars
($337,800). The Long-term Note will bear interest at seven percent
(7%) per annum and be amortized over sixty (60) months and be
payable in equal
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monthly installments of
principal and interest of approximately Six Thousand Six Hundred
Eighty-nine Dollars ($6,689).
(2) Contingent Note . The
Contingent Note, made payable to Provider in the original principal
amount of One Hundred Eleven Thousand Eight Hundred Dollars
($111,800), bearing interest at five percent (5%) per annum. No
payment shall be due during the first two (2) months following the
date hereof, but interest shall accrue during such period and the
accrued interest and principal shall then be due and payable in
fifty-eight (58) monthly installments. The principal amount of the
Contingent Note shall be increased or decreased, as the case may
be, on a quarterly basis, by the amount of any adjustment
contemplated by Section 3.3 hereof.
(3) Additional Terms and
Conditions . The following terms and conditions shall be
included in the Notes, as more fully described therein.
(i) Offsets . Optionee
expressly reserves against Provider the right of offset against
sums payable under the Notes (in the priority described below) an
amount equal to (i) any downward adjustment contemplated by Section
3.3; and (ii) any Damages for which Optionee or ATS is entitled to
be indemnified pursuant to this Agreement. Optionee shall exercise
its right of offset in the following priority: first against sums
payable under the Contingent Note, then against the sums payable
under the Long-term Note.
(ii) Assignment . The
Notes shall not be transferred or assigned, by operation of law or
otherwise, without the prior written consent of Optionee, which
consent shall not be unreasonably withheld if the transferee or
assignee thereof is an Affiliate of Provider who agrees in writing
to be bound by the terms and conditions in such Note.
(iii) Nonrecourse .
Notwithstanding any other provision of this Agreement to the
contrary, each of the Notes are nonrecourse as to Optionee and ATS.
Upon the occurrence and continuance of an Event of Default (as
defined in the Notes), including application of any notice and cure
periods, Provider and/or Principals' sole recourse shall be to
retain any amounts previously paid thereunder and to terminate the
Option and the ISP Agreement. Provider and/or Principals shall have
no other recourse against Optionee and/or ATS or any assets of
Optionee and/or ATS. This provision is not intended to constitute a
discharge or release of any obligation contained in the Notes, but
is a covenant by Provider and Principals not to sue Optionee and/or
ATS for a deficiency.
(b) Closing Stock .
Promptly following execution and delivery of this Agreement, ATS
shall issue to Provider Two Hundred Thousand (200,000) shares of
common stock of ATS (the " Closing Stock "), such amount
being equal to the quotient obtained by dividing Fifty Thousand
Dollars ($50,000), by $0.25. The Closing Stock shall be subject to
a twenty-four (24)-month lock up period, during which time Provider
shall not sell, assign, pledge, encumber, hypothecate, or in any
other manner transfer any of the Closing Stock or any right or
interest therein, whether voluntarily or
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by operation of law. In order to
enforce the foregoing covenant, ATS may impose a restrictive legend
on each certificate representing the Closing Stock and a
stop-transfer instructions with respect to the Closing Stock until
the end of such period. Immediately following the twenty-four (24)
month lock up period, ATS shall, upon written request, take such
steps as may be reasonably necessary, if any, to remove the
restrictive legend and stop-transfer instructions on such Closing
Stock, and provided it is to be sold in compliance with Rule 144,
the Closing Stock will be tradeable on the over-the counter market
or other market in which ATS stock is then being traded.
3.3. Option Consideration
Adjustments . The Option Consideration is subject to the
following adjustments, which adjustments shall be effected by
lowering the principal amount of the Contingent Note:
(a) ISP Agreement
Adjustment . The Option Consideration shall be adjusted
downward in an amount equal to one dollar for each dollar of
compensation paid to Provider under the ISP Agreement.
(b) Contingent
Adjustment .
(1) Contingent Adjustment
. Adjusted EBITDA shall be calculated on a quarterly basis and the
principal amount of the Contingent Note shall be adjusted as
follows: (i) in the event that the aggregate Adjusted EBITDA for
any calendar quarter during any Contingent Period is less than the
Quarterly Target Amount, the principal amount of the Contingent
Note shall be adjusted downward; and (ii) in the event that the
aggregate Adjusted EBITDA for any calendar quarter during any
Contingent Period is more than the Quarterly Target Amount, the
principal amount of the Contingent Note shall be adjusted upward,
in each case, in accordance with the sample calculations attached
hereto as Schedule 3.3(b)(1) attached hereto. As a result of
the contingent adjustments described herein, at the end of the full
Contingent Period, the principal amount of the Contingent Note
shall be equal to the Adjusted EBITDA for the full Contingent
Period multiplied by forty percent (40%).
(2) Determination of
Contingent Adjustment . No later than forty-five (45) days
following the expiration of each calendar quarter during each
Contingent Period, Optionee shall deliver to Provider a statement
(the " EBITDA Statement ") setting forth its computation of
the aggregate Adjusted EBITDA for such calendar quarter. The EBITDA
Statement shall become final and binding upon the parties fifteen
(15) days following Provider's receipt thereof unless Provider
gives written notice of its disagreement (" EBITDA Dispute
Notice ") to Optionee prior to such date. Provider shall have
such fifteen (15)-day period to bring a dispute, but only on the
basis that the amounts reflected on the EBITDA Statement were not
presented in accordance with generally accepted accounting
principles or this Agreement, or were otherwise inaccurate or
incomplete. Within thirty (30) days after delivery of such EBITDA
Dispute Notice, the parties hereto shall attempt to resolve such
dispute and agree in writing upon the final content of the disputed
EBITDA Statement. If Optionee and Provider are unable to resolve
any dispute within the thirty (30)-day period after Provider's
receipt of an EBITDA Dispute Notice, Provider and Optionee shall
jointly engage an accounting
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firm acceptable to and jointly
engaged by both Optionee and Provider, provided such accounting
firm has not performed accounting, tax or auditing services for
Optionee or Provider or any of their respective Affiliates during
the past three (3) years (the " Arbitrating Accountant ").
The Arbitrating Accountant shall promptly, and in any event within
forty-five (45) days after the date of its appointment, determine,
based solely on presentations by Optionee and Provider, and not by
independent review, only those issues in dispute and shall render a
written report as to the dispute and the resulting computation of
the EBITDA Statement and the aggregate Adjusted EBITDA for the
relevant calendar quarter, which shall be conclusive and binding
upon the parties and not subject to appeal or judicial review. In
resolving any disputed item, the Arbitrating Accountant may not
assign a value to any item greater than the greatest value for such
item claimed by either party or less than the smallest value for
such item claimed by either party. Upon the resolution of all such
disputes, the EBITDA Statement shall be revised to reflect such
resolution. The Arbitrating Accountant shall determine the
proportion of its fees and expenses to be paid by each of Provider
and Optionee, based primarily on the degree to which the
Arbitrating Accountant has accepted the positions of the respective
parties.
(3) Computation of EBITDA
. The calculation of EBITDA shall be computed in a manner which
treats Provider as a separate profit and cost center, distinct from
ATS and other Affiliates of ATS. The EBITDA shall be computed
without regard to any ATS general and administrative overhead
allocation; provided, however, any direct expenses or costs paid by
ATS on behalf of Provider will be included in the calculation of
EBITDA.
(4) Definitions . As used
in this Agreement, the following terms shall have the following
meanings:
(i) " Adjusted EBITDA "
shall mean, for any period, EBITDA for such period minus an
amount equal to the principal and interest paid during such period
by Optionee under the Long-term Note.
(ii) " EBITDA " shall
mean, for any period, the aggregate net income of Optionee
(determined in accordance with generally accepted accounting
principles) for such period plus , to the extent deducted in
computing such net income, without duplication, the sum of (i)
interest expense, (ii) income tax expense or, if imposed by any
relevant jurisdiction in lieu of an income tax, franchise and/or
gross receipts tax expense, (iii) depreciation and amortization
expense, (iv) amortization of intangibles (including, but not
limited to, goodwill), and (v) other non-cash items decreasing net
income; and minus , to the extent added in computing such
net income, without duplication, the sum of (A) interest income,
(B) extraordinary nonrecurring gains and (C) other non-cash items
increasing net income; as adjusted for mutually agreed upon
addbacks and deducts.
(iii) " Contingent Period
" shall mean the twelve (12) month period following the date hereof
and each twelve (12) month period thereafter, ending on the Option
Termination Date.
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(iv) " Quarterly
Target Amount " shall equal Thirty-three Thousand Seven Hundred
Fifty Dollars ($33,750), which amount is equal to 25% of the Target
Amount.
(v) " Target Amount "
shall equal One Hundred Thirty-five Thousand Dollars
($135,000).
4. Representations and
Warranties of Provider and Principals . Provider and Principals
hereby, jointly and severally, represent and warrant to Optionee
and ATS that:
4.1. Organization .
Provider is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of
Indiana and has all requisite power and authority to carry on the
Business as presently conducted. Provider is duly qualified or
licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed
would not have a material adverse effect on Provider.
4.2. Capitalization .
Principals are the sole owners of all of the issued and outstanding
stock and/or membership interests of Provider, and no other person
owns any right, title, or interest in Provider or the
Business.
4.3. Authority;
Enforceability . Provider has full power and authority to
execute and deliver this Agreement and the Option Documents to
which it is a party, and to perform its obligations hereunder and
thereunder. Principals have all requisite capacity, power and
authority to execute and deliver this Agreement and each of the
Option Documents to which they are a party and to perform their
obligations hereunder and thereunder. This Agreement and the Option
Documents to which they are a party constitute the valid and
legally binding obligations of Provider or Principals, as the case
may be, enforceable in accordance with their respective terms and
conditions, except as may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting
enforcement of creditors' rights generally, and (ii) laws relating
to the availability of specific performance, injunctive relief or
other equitable remedies.
4.4. No Conflict . The
execution, delivery and performance of this Agreement and the
Option Documents to which they are a party by Provider, or
Principals, as the case may be, and the consummation of the
transactions contemplated hereby and thereby will not (i) violate,
conflict with, result in any breach of, or constitute a default (or
an event that, with notice or lapse of time or both, would
constitute a default) under Provider's articles of organization or
articles of incorporation (or equivalent documents) or operating
agreement or bylaws (or equivalent documents); (ii) violate,
conflict with, result in any breach of, or constitute a default (or
an event that, with notice or lapse of time or both, would
constitute a default) under any Contract or Judgment to which
Provider or Principals, as the case may be, are a party or by which
they are bound, or which relates to the Assets or the Business;
(iii) result in the creation of any Encumbrance on any of the
Assets; (iv) violate any statute, ordinance, regulation,
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order, judgment or decree of any
court or governmental agency or board; or (v) violate or result in
the suspension, revocation, modification, invalidity or limitation
of any Permits relating to the Assets or the Business; or (vi) give
any party with rights under any Contract, Judgment or other
restriction to which Provider is a party or by which it is bound or
which relates to the Assets or the Business, the right to
terminate, modify or accelerate any rights, obligations or
performance under such Contract, Judgment or
restriction.
4.5. No Consents . No
consents, approvals or authorizations of, or declaration, filing or
registration with, any governmental authority or any other person
or entity are required for the execution, delivery and performance
by Provider or Principals, as the case may be, of this Agreement
and the Option Documents to which they are a party, and the
consummation of the transactions contemplated hereby and
thereby.
4.6. Title to Assets .
Provider is the sole owner of all the Assets and, other than
certain liens existing as of the date hereof securing certain
indebtedness to First Federal Savings Bank, Legence Bank, and Old
National Bank, has good and marketable title to the
Assets.
4.7. Sufficiency of
Assets . The Assets are adequate to conduct the Business as it
is presently conducted and as it has been conducted during the
periods reflected in the Financial Statements, and the Assets are
adequate to enable Provider to continue to conduct the Business as
it is presently conducted and as it has been conducted during the
periods reflected in the Financial Statements.
4.8. Claims and Legal
Proceedings . There are no Claims pending or threatened, or any
order, injunction or decree outstanding, against Seller. There is
no reasonable basis for future Claims against Seller which, if
adversely determined, might result in a Material Adverse
Change.
As used in this Agreement, "
Claim " shall mean any private, judicial or administrative
claim, demand, cause of action, suit, litigation, proceeding,
arbitration, hearing, inquiry, investigation, action, order,
consent, agreement or similar action.
4.9. Books and Records .
Provider's books, accounts and records are, and have been,
maintained in Provider's usual, regular and ordinary manner, and
all transactions to which Provider has been a party are properly
reflected therein.
4.10.
Financial Statements .
(a) Attached hereto as
Schedule 4.10 are the following financial statements of the
Business (collectively, the " Financial Statements "): (i)
an unaudited balance sheet (the " Balance Sheet ") dated as
of December 31, 2008 (the " Balance Sheet Date "), and (ii)
an unaudited statement of income for the trailing twelve (12)-month
period ending on the Balance Sheet Date.
(b) The Financial Statements (i)
were prepared from the books and records kept by Provider for the
Business (which books and records are correct and
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complete in all material
respects), (ii) are true and correct in all material respects,
(iii) have been prepared on an income tax basis applied on a
consistent basis throughout the periods covered thereby, and (iv)
present fairly the financial condition of Provider and the Business
as of such dates and the results of operations of Provider and the
Business for such periods; provided, however, that the Financial
Statements are subject to normal year-end adjustments (which will
not be material individually or in the aggregate) and lack
footnotes and other presentation items. Except for current
liabilities incurred in the ordinary course of business consistent
with past practices (and not materially different in type or
amount), the Business does not have any liabilities or obligation
of any nature, whether accrued, absolute, contingent or otherwise,
whether due or to become due, whether properly reflected as a
liability or a charge or reserve against an asset or equity
account, and whether the amount thereof is readily ascertainable,
that are not reflected in the Financial Statements or which are not
otherwise disclosed in this Agreement or any schedule or exhibit
hereto.
4.11. Compliance with
Laws. Provider, in the conduct of the Business and in the
ownership of the Assets, has not violated and is not in violation
of, nor has it made any improper payments or incurred any liability
in respect of, any material provision of federal, state or local
laws, codes, regulations or ordinances, including, without
limitation, relating to environmental protection, health, hazardous
or toxic substances, building use and occupancy, fire or safety
hazards, occupational safety, labor or employee benefit or
employment discrimination laws, nor has Provider or Principals, as
the case may be, received any notices of investigation or violation
pertaining to any such matters.
4.12. Taxes . All Tax
obligations of Provider with respect to its operation of the
Business have been timely paid or are being contested in good
faith, Provider has no liability for any delinquent Tax obligations
with respect to its operation of the Business and no interest or
penalties have accrued or are accruing with respect thereto,
whether state, county, local or otherwise with respect to any
periods prior to the date of this Agreement. Neither Provider nor
any Principals is a "foreign person" (as that term is defined in
Section 1445 of the Code).
4.13. Affiliated
Transactions . Provider has disclosed to Optionee every
business relationship (including employment relationships) between
Provider, on the one hand, and Principals and/or Principals'
Affiliates, on the other hand. None of said parties (other than
Provider), directly or indirectly, own any assets which are used in
the Business, or is engaged in any business which competes with the
Business.
As used in this Agreement, "
Affiliate " shall mean with respect to any person means any
other person who directly or indirectly controls, is controlled by,
or is under common control with such person including in the case
of any person who is an individual, his or her spouse or registered
domestic partner, any of his or her descendants (lineal or adopted)
or ancestors, and any of their spouses or registered domestic
partner. For purposes of the previous sentence, (i) "
control " shall mean the power, direct or indirect, to
direct or cause the direction of the management and policies of a
person through voting securities, contract or otherwise; and (ii) "
person " shall
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mean any individual,
corporation, partnership, limited liability company, joint venture,
association, bank, trust company, trust or other entity, whether or
not legal entities, or any governmental entity, agency or political
subdivision.
4.14. Permits . Provider
has obtained and does now maintain all licenses, permits,
registrations, approvals and agreements and consents which are
required in connection with the ownership or operation of the
Assets or the conduct of the Business as presently conducted (the "
Permits "). Provider is not in violation of any Permits, and
no written notice has been received by Provider or Principals
alleging any such violation, nor is there any reasonable basis for
future violations which might have a material adverse effect on the
Business as presently conducted or the Assets.
4.15. Significant Customers
and Suppliers . To Provider's knowledge, no significant
customer or significant supplier is involved in, threatened with or
affected by, any Claim, Judgment or circumstances that may
materially and adversely affect the Assets or the conduct,
business, operations, properties, condition (financial or
otherwise) or prospects of the Business; (ii) there is no
indication recognized by Provider that any significant customer or
significant supplier intends to terminate or modify its
relationship with Provider; and (iii) to Provider's knowledge, the
consummation of the transactions contemplated by this Agreement,
the Option Documents, or the Purchase Documents will not adversely
affect the relationship of Provider with any significant customer
or significant supplier. No significant customer or significant
supplier has during the last 12 months decreased or limited
materially, or threatened to decrease or limit materially, its
purchase of Provider's products, or its supply of materials or
services to Provider, as the case may be.
4.16. Material Adverse
Change . Without limiting any other representation or warranty
contained herein, since the Balance Sheet Date, Provider has not
suffered or been threatened with any material adverse change in the
business, operations, assets, liabilities, financial condition or
prospects, including the existence or threat of any labor dispute,
or any material adverse change in, or loss of, any relationship
between Provider and any of its customers, suppliers or key
employees, or that might have a material adverse effect on the
rights, duties or obligations of the parties set forth in this
Agreement (a " Material Adverse Change "), exclusive of
adverse changes in the economy generally.
4.17. Brokers .
Ne
