Exhibit 2.1
Execution Version
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (as amended or supplemented from time to
time, this "Agreement") is hereby made this 7th day of March, 2005 by and among
WE THE PEOPLE FORMS AND SERVICE CENTERS USA, INC., a California corporation (the
"Seller"), ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ("▇▇▇") and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇," and together
with ▇▇▇, the "Shareholders," and each individually, a "Shareholder"), and WTP
ACQUISITION CORP., a Delaware corporation (the "Purchaser") and, solely for
purposes of Section 13.3, DOLLAR FINANCIAL GROUP, INC., a New York corporation
(the "Guarantor").
PRELIMINARY STATEMENTS
The Seller is engaged in the business of operating and granting to third
parties the right, license or franchise to develop or operate independent legal
document preparation services businesses utilizing the "We the People" system
and providing documentation preparation services to such third parties. The
Seller proposes to extend its business to include the creation, distribution and
sale of books and other materials pertaining to legal matters. The Shareholders
own one hundred percent (100%) of the issued and outstanding shares of the
Seller's capital stock. The Seller desires to sell to the Purchaser and the
Purchaser desires to purchase from the Seller the Purchased Assets. Except for
the Assumed Liabilities, the Purchaser is assuming none of the Seller's
Liabilities.
IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified:
1.1 "Accounting Firm" shall have the meaning set forth in Section 2.8(c).
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1.2 Reserved.
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1.3 "Accounts Receivable" shall mean all of Seller's accounts receivables,
notes receivable, instruments, drafts, acceptances and other forms of
receivables and all rights earned under Seller's Franchising Contracts and any
other Contracts to sell goods or render services.
1.4 "Affiliate" shall mean, with respect to any Person specified: (i) any
Person that directly or indirectly through one or more intermediaries controls,
is controlled by or under common control with the Person specified; (ii) any
director, officer, or Subsidiary of the Person specified; and (iii) the spouse,
parents, children, siblings, mothers-in-law, fathers-in law, sons-in-law,
daughters-in-law, brothers-in-law, and sisters-in-law of the Person specified,
whether arising by blood, marriage or adoption, and any Person who resides in
the specified Person's
home. For purposes of this definition and without limitation to the previous
sentence, (x) "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with") of a Person means the power,
direct or indirect, to direct or cause the direction of management and policies
of such Person, whether through ownership of voting securities, by contract or
otherwise, and (y) any Person beneficially owning, directly or indirectly, more
than ten percent (10%) or more of any class of voting securities or similar
interests of another Person shall be deemed to be an Affiliate of that Person.
1.5 "Affiliate Transaction" shall have the meaning set forth in Section
3.21. -------
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1.6 "Affiliated Accounts Receivable" shall mean all Accounts Receivable
owing from any Affiliate of the Seller or either Shareholder including, without
limitation, Accounts Receivable arising in connection with any Franchising
Contract with such Affiliate or any other Contract with such Affiliate to sell
goods or render services pursuant to the franchise relationship between the
Seller and such Affiliate.
1.7 "American Express Computer Lease" shall mean the Master Lease Agreement
# 779254/832896 between American Express Business Finance Corporation and the
Seller, dated July 25, 2003, together with Equipment Schedule to Master
Agreement, dated July 25, 2003, and Software Addendum, dated July 25, 2003.
1.8 "Assigned Contracts" shall mean (a) all Franchising Contracts; (b) all
Real Property Leases identified as an Assigned Contract on Schedule 3.12(b); (c)
the Publication Agreements; (d) the ▇▇▇▇▇▇ Agreements; (e) the ▇▇▇▇▇ Agreements;
(f) the American Express Computer Lease; (g) the Colonial Pacific Computer
Lease; and (h) any other Material Contracts identified as an Assigned Contract
on Schedule 3.14(a).
1.9 "Assignment and Assumption Agreement" shall mean the Assignment and
Assumption Agreement to be executed and delivered by and between the Purchaser
and the Seller in the form attached to this Agreement as Exhibit A.
1.10 "Assumed Liabilities" shall have the meaning set forth in Section
2.10. -------
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1.11 "Audit Expenses" shall have the meaning set forth in Section 13.6.
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1.12 "Base Period" shall mean the First Base Period or the Second Base
Period, as applicable.
1.13 "▇▇▇▇ of Sale" shall mean the ▇▇▇▇ of Sale to be executed and
delivered by the Seller to the Purchaser in the form attached to this Agreement
as Exhibit B.
1.14 "Books and Records" shall mean all records, documents, lists and
files, relating to any of the Purchased Assets, the Assumed Liabilities, and the
Business including, without limitation, price lists, lists of accounts,
customers, suppliers and personnel, all product, business and marketing plans,
historical sales data and all books, files and business records (including,
without limitation, all financial records and books of account) of or relating
to any of the Purchased Assets, the Assumed Liabilities, and the Business; in
any of the foregoing cases, whether in electronic form or otherwise.
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1.15 "Business" shall mean the business of (a) operating and granting to
third parties the right, license or franchise to develop or operate independent
legal document preparation services businesses utilizing the "We the People"
system, (b) providing documentation preparation services to such third parties
and (c) creating, distributing and selling books and other works of authorship
in any form of media pertaining to legal matters.
1.16 "Business Day" shall mean a day other than a Saturday, Sunday or other
day on which the New York Stock Exchange does not conduct regular trading.
1.17 "Cap" shall have the meaning set forth in Section 9.5(c).
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1.18 "Cash Consideration" shall have the meaning set forth in Section 2.3.
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1.19 "Claim Notice" shall have the meaning set forth in Section 9.4(b).
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1.20 "CLC Agreements" shall mean the following Contracts: (a) Joint
Marketing Program Agreement, dated May 30, 2003, between the Seller and CLC
Incorporated; (b) Distributor License Agreement, dated June 5, 2003, between the
Seller and CLC Incorporated; and (c) Contract for Services, dated may 30, 2003,
between the Seller and CLC Incorporated.
1.21 "Closing" shall have the meaning set forth in Section 7.1.
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1.22 "Closing Date" shall mean the date on which the Closing actually takes
place.
1.23 "Code" shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.24 "Colonial Pacific Computer Lease" shall mean the Lease Agreement
#341372001 between GE Capital Colonial Pacific Leasing, as successor/assignee of
MSM Capital Corporation, dated January 23, 2001, together with Schedule 1
thereto, dated January 23, 2001, as amended by the Lease Addendum, dated January
26, 2001.
1.25 "Confidential Information" shall mean, (i) with respect to any party
to this Agreement or any Affiliate of such party, all financial, technical,
commercial or other information disclosed or otherwise made available by such
party or such Affiliate (the "Discloser") to another party (the "Recipient") in
connection with the Transactions (ii) the fact or substance of the Transactions
and (iii) each of the terms, conditions and other provisions contained in this
Agreement and in the other Transaction Documents. Notwithstanding the preceding
sentence, the definition of Confidential Information shall not include any
information that (i) is in the public domain at the time of disclosure to the
Recipient or becomes part of the public domain after such disclosure through no
fault of the Recipient, (ii) is already in the possession of the Recipient at
the time of disclosure to such Recipient, as demonstrated by Recipient's records
prior to such time of disclosure, (iii) is properly disclosed to the Recipient
by any Person other than the Discloser or any of the Discloser's
representatives; provided, that the Recipient does not have actual knowledge
that such Person is prohibited from disclosing such
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information (either by reason of contractual, or legal or fiduciary duty or
obligation) or (iv) is proven by the Recipient to have been developed
independently by any party without the use of any Confidential Information.
1.26 "Consents" shall mean any consents, waivers, approvals,
authorizations, or certifications from any Person or under any Contract,
Organizational Document or Requirement of Law, as applicable.
1.27 "Contingent Consideration" shall have the meaning set forth in Section
2.8. -------
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1.28 "Contingent Consideration Dispute Period" shall have the meaning set
forth in Section 2.8(c).
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1.29 "Contracts" shall mean any indentures, indebtedness, contracts,
leases, agreements, instruments, licenses, undertakings and other commitments,
whether written or oral.
1.30 "Copyright Assignment" shall mean the Copyright Assignment to be
executed and delivered between the Seller and the Purchaser in the form attached
to this Agreement as Exhibit C.
1.31 "Copyrights" shall mean all copyrights, copyrightable works, mask
works and databases, including, without limitation, any Software, Internet
web-sites and the content thereof, and any other works of authorship, whether
statutory or common law, registered or unregistered, and registrations for and
pending applications to register the same including all reissues, extensions and
renewals thereto, and all moral rights thereto under the laws of any
jurisdiction.
1.32 "DFC" shall mean Dollar Financial Corp., a Delaware corporation.
1.33 "DFC Common Stock" shall mean the common stock of DFC, par value
$0.001 per share.
1.34 "Employee Benefit Plan" shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Seller or any ERISA Affiliate (including, without
limitation, health insurance, life insurance and other benefit plans maintained
for retirees) within the previous six plan years or with respect to which
contributions are or were (within such six year period) made or required to be
made by the Seller or any ERISA Affiliate or with respect to which the Seller
has any liability.
1.35 "Employment Agreements" shall mean (a) the Employment Agreement to be
executed and delivered by and between ▇▇▇ and the Purchaser in the form attached
to this Agreement as Exhibit D-1 and (b) the Employment Agreement to be executed
and delivered by and between ▇▇▇▇▇ and the Purchaser to be executed in the form
attached to this Agreement as Exhibit D-2.
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1.36 "Encumbrances" shall mean any security interests, liens, encumbrances,
pledges, mortgages, conditional or installment sales Contracts, title retention
Contracts, transferability restrictions and other claims or burdens of any
nature whatsoever.
1.37 "Environmental Laws" shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.38 "Environmental Liabilities" shall mean any and all Liabilities arising
under Environmental Laws in connection with or in any way relating to the
Seller, its Affiliates and predecessors, or the Business, Purchased Assets or
Real Property (including historical conditions), whether contingent or fixed,
actual or potential, known or unknown, in any case, other than to the extent
arising from or relating to any actions or conditions which first occur or exist
after the Closing Date with respect to the Purchaser's conduct of the Business,
ownership of the Purchased Assets or operation of the Leased Real Property.
1.39 "ERISA" shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.40 "ERISA Affiliate" shall mean any Person that is included with the
Seller in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.41 "Escrow Agent" shall mean U.S. Bank, National Association.
1.42 "Escrow Agreement" shall mean the Escrow Agreement to be executed and
delivered by and among Purchaser, Guarantor, Seller, Shareholders, and Escrow
Agent in the form attached to this Agreement as Exhibit E.
1.43 "Escrow Amount" shall have the meaning set forth in Section
2.5(a)(ii). -------
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1.44 "Excluded Assets" shall have the meaning set forth in Section 2.2.
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1.45 "Excluded Contracts" shall have the meaning set forth in Section
2.2(d). -------
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1.46 "Financial Statements" shall have the meaning set forth in Section
3.10(a). -------
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1.47 "First Base Period" shall mean the twelve (12) month period ending on
January 31, 2005.
1.48 "First Measurement Period" shall mean the twelve (12) month period
beginning on the first day of the month next succeeding the month after which
the Purchaser has obtained registrations for the offer and sale of franchises
using the WTP Trademark in all states which, under their respective Franchising
Laws, require such registrations and for which the Seller has a current
registration.
1.49 "Form Franchising Contracts" shall have the meaning set forth in
Section 3.14(b).
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1.50 "Franchising Contracts" shall mean all presently outstanding and
unexpired Contracts pursuant to which the Seller grants to any other Person any
right, license or right to license, option or right of first refusal or
negotiation to operate franchises and businesses using any of the Seller's
Trademarks.
1.51 "Franchising Laws" shall mean all Requirements of Law which govern the
offer, sale, operation, advertisement, renewal or termination of franchises
including, without limitation, the Federal Trade Commission Rule entitled
"Disclosure Requirements and Prohibition Concerning Franchising and Business
Opportunity Ventures" and all state franchise disclosure and registration acts,
franchise termination laws and franchise rights laws, and business opportunity
laws.
1.52 "Franchise Repurchase Agreements" shall mean the following Contracts:
(a) Agreement of Sale, dated as of November 5, 2003, by and among Seller, Achtel
Enterprises, Inc., ▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, as amended and
supplemented by the Purchase Agreement, dated as of February 16, 2004, among the
Seller, ▇▇▇, ▇▇▇▇▇▇ Enterprises, Inc., ▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇; (b)
Agreement of Sale, dated as of December 4, 2003, by and among Seller, Achtel
Enterprises, Inc., ▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, as amended and
supplemented by Purchase Agreement, dated as of February 16, 2004, among the
Seller, ▇▇▇, ▇▇▇▇▇▇ Enterprises, Inc., ▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇; (c)
Agreement of Sale, dated July 5, 2002, between the Seller and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇; (d) letter/e-mail correspondence from the Seller to ▇▇▇▇▇▇
▇▇▇▇▇, undated (whereby Seller agreed to refund the $69,500 originally paid to
Seller, plus and additional $10,000 in interest, at the rate of $5,000 per
month, beginning on May 10, 2004 and on the 10th day of each month thereafter
until the amount of $79,500 is paid in full; (e) Agreement of Sale, dated August
8, 2004, among the Seller and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇; (f)
Agreement of Sale, dated August 24, 2004, among the Seller and ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇; (g) verbal agreement between Seller and ▇▇▇▇▇▇▇ ▇▇▇▇ (whereby Seller
agreed to refund the $44,750 franchise fee at the rate of $5,000 per month, with
a current unpaid balance of $24,750); (h) Agreement of Sale, dated November 21,
2003, as amended in writing as of November 24, 2003, between the Seller and
▇▇▇▇▇▇▇▇ Document Services, Inc., as verbally amended to allow the Seller to
continue to make payments in lieu of payment upon the sale of the applicable "We
The People" center; and (i) Sales Agreement and
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Release, dated as of January 11, 2002, by and among Seller, Ira, Linda, WTP
Florida, LLC, WTP Marketing, LLC, WTP Media, LLC, WTP Service and Support, LLC,
WTP Florida Investor, LLC, ▇▇▇▇ ▇▇▇▇▇▇▇, and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as amended by
the First Amendment to Sales Agreement and Release, dated April 15, 2003, among
the Seller, Ira, Linda, WTP Florida LLC, ▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
1.53 "Franchise Repurchase Obligations" shall have the meaning set forth in
Section 2.10(b).
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1.54 "GAAP" shall mean generally accepted accounting principles in the
United States.
1.55 "Governmental or Regulatory Authority" shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.56 "Guaranteed Obligations" shall have the meaning set forth in Section
13.3. -------
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1.57 "Indemnifiable Losses" shall mean all losses, liabilities,
obligations, claims, demands, damages, penalties, settlements, causes of action,
costs and expenses, including, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 9 of this Agreement.
1.58 "Indemnified Party" shall mean any Purchaser Indemnified Party or any
Seller Indemnified Party, as applicable.
1.59 "Indemnifying Party" shall have the meaning set forth in Section
9.4(a). -------
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1.60 "Indemnity Notice" shall have the meaning set forth in Section 9.4(a).
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1.61 "Intellectual Property" shall mean the Owned Intellectual Property and
the Licensed Intellectual Property.
1.62 "Interim Financial Statements" shall have the meaning set forth in
Section 3.10(b).
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1.63 "Inventory" shall mean all inventories of supplies, work-in-process
and finished goods which are used in the conduct of the Business or which are
held for sale by the Seller.
1.64 "IRS" shall mean the Internal Revenue Service or any successor
organization thereto.
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1.65 "Knowledge" shall mean, with respect to any representation or warranty
made by any Seller or Shareholder in this Agreement that is qualified by such
party's "Knowledge", the actual knowledge of any one or more of the following
individuals: Ira, Linda, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇.
1.66 "Leased Real Property" shall have the meaning set forth in Section
3.12(b). -------
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1.67 "Legal Proceeding" shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.68 "Liabilities" shall mean all obligations and liabilities including,
without limitation, direct or indirect indebtedness, guaranties, endorsements,
claims, losses, damages, deficiencies, costs, expenses, or responsibilities, in
any of the foregoing cases, whether fixed or unfixed, known or unknown, asserted
or unasserted, ▇▇▇▇▇▇ or inchoate, liquidated or unliquidated, or secured or
unsecured.
1.69 "Licensed Intellectual Property" shall mean all Copyrights, Patents,
Trademarks, technology rights and licenses, trade secrets, know-how, inventions,
methods, techniques and other intellectual property used by the Seller other
than the Owned Intellectual Property.
1.70 "▇▇▇▇▇▇ Agreements" shall mean the following Contracts: (a) Agreement,
effective July 19, 2004, between the Seller and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ with respect
to an original work tentatively titled "We The People's Step-by-▇▇▇▇ ▇▇▇▇▇ to
Bankruptcy"; (b) Agreement, effective July 19, 2004, between the Seller and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ with respect to an original work tentatively titled "We The
People's Estate Planning Handbook"; and (c) Agreement, effective September 13,
2004, between the Seller and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ with respect to an original work
tentatively titled "We The People's Step-by-▇▇▇▇ ▇▇▇▇▇ to Divorce".
1.71 "Material Adverse Effect" shall mean any material adverse effect on or
change in any of the Business, the Purchased Assets or the Assumed Liabilities,
in each case taken as a whole; provided, that any such effects directly
resulting from (a) the announcement of this Agreement or the Transactions or (b)
any changes in general economic, regulatory or political conditions shall not be
considered a Material Adverse Effect.
1.72 "Material Contract" shall have the meaning set forth in Section
3.14(a). -------
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1.73 "Measurement Period" shall mean the First Measurement Period or the
Second Measurement Period, as applicable.
1.74 "Name" shall have the meaning set forth in Section 11.3.
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1.75 "Noncompetition, Nonsolicitation and Confidentiality Agreements" shall
mean (a) the Noncompetition, Nonsolicitation and Confidentiality Agreement to be
executed and delivered by and between the Purchaser and the Seller in the form
attached to this Agreement as Exhibit F-1, and (b) the Noncompetition,
Nonsolicitation and Confidentiality Agreement to be
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executed and delivered by and between the Purchaser and each of ▇▇▇ and
▇▇▇▇▇ in the forms attached to this Agreement as Exhibit F-2 and Exhibit F-3,
respectively.
1.76 "Notice of Contingent Consideration Dispute" shall have the meaning
set forth in Section 2.8(c).
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1.77 "Organizational Documents" shall mean, with respect to any Person,
such Person's articles or certificate of incorporation, by-laws or other
governing or constitutive documents, if any.
1.78 "Owned Intellectual Property" shall mean all Copyrights, Patents,
Trademarks, technology, trade secrets, know-how, inventions, methods, techniques
and other intellectual property owned by the Seller.
1.79 "Owned Real Property" shall have the meaning set forth in Section
3.12(a). -------
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1.80 "Order" shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final
and whether voluntarily imposed or consented to).
1.81 "Patents" shall mean patents and patent applications (including,
without limitation, provisional applications, utility applications and design
applications), including, without limitation, reissues, patents of addition,
continuations, continuations-in-part, substitutions, additions, divisionals,
renewals, registrations, confirmations, re-examinations, certificates of
inventorship, extensions and the like, any foreign or international equivalent
of any of the foregoing, and any domestic or foreign patents or patent
applications claiming priority to any of the above.
1.82 "PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor organization thereto.
1.83 "Permits" shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to either or both of the Purchased
Assets or the Business.
1.84 "Person" shall mean any natural person, corporation, general
partnership, limited partnership, limited liability partnership, limited
liability company, proprietorship, joint venture, trust, association, union,
entity, or other form of business organization or any Governmental or Regulatory
Authority whatsoever.
1.85 "Pre-March Processing Receivables" shall mean all Accounts Receivable
earned by the Seller under the Seller's Franchising Contracts on account of
document preparation services provided by the Seller to its franchisees on or
before February 28, 2005.
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1.86 "Prepaid Expenses" shall mean, as of any date of determination,
payments made by the Seller with respect to the Business that constitute prepaid
expenses of the Business in accordance with GAAP consistently applied as of such
date.
1.87 "Publication Agreements" shall mean the following Contracts: (a)
Agreement, dated August 10, 2004, between the Seller, care of ▇▇▇▇▇ Literary
Enterprises, Inc. and ▇▇▇▇ ▇▇▇▇▇ & Sons, Inc., with respect to a Work written by
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ tentatively titled "We The People's
Step-by-▇▇▇▇ ▇▇▇▇▇ to Bankruptcy"; (b) Agreement, dated August 12, 2004, between
the Seller, care of ▇▇▇▇▇ Literary Enterprises, Inc. and ▇▇▇▇ Wiley & Sons,
Inc., with respect to a Work written by ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
tentatively titled "We The People's Estate Planning Guide: A Step-by-▇▇▇▇ ▇▇▇▇▇
to Creating a Will and Living Trust"; and (c) Agreement, dated October 18, 2004,
between the Seller, care of ▇▇▇▇▇ Literary Enterprises, Inc., and ▇▇▇▇ Wiley &
Sons, Inc. with respect to a Work written by ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ tentatively titled "We The People's Guide to Divorce: A
Do-It-Yourself Plan for Negotiating with Your Spouse".
1.88 "Purchased Assets" shall have the meaning set forth in Section 2.1.
-----------
1.89 "Purchaser Affiliated Entity" shall mean any Person that is a direct
or indirect Subsidiary of DFC.
1.90 "Purchaser Indemnified Parties" shall have the meaning set forth in
Section 9.1.
-----------
1.91 "Purchaser Total Revenue" shall mean, with respect to any Measurement
Period, the total revenue recognized by the Purchaser or any Purchaser
Affiliated Entity during such Measurement Period, as calculated and determined
in accordance with GAAP, as a result of: (a) the sale or provision by the
Purchaser or any Purchaser Affiliated Entity to any Person of any products or
document preparation services of the type offered by the Seller as of the date
of this Agreement or any books which the Seller is actively contemplating to be
made available for distribution during 2005 pursuant to the Publication
Agreements; (b) the grant by the Purchaser or any Purchaser Affiliated Entity
during such Measurement Period to any Person of any right, license or right to
license, option or right of first refusal or negotiation to operate franchises
or businesses using the WTP Trademark or any confusingly similar trademark or
service ▇▇▇▇; (c) the grant by the Purchaser or any Purchaser Affiliated Entity
during such Measurement Period to any licensed franchisee under a Franchising
Contract in effect as of the Closing Date of any right, license or right to
license, option or right of first refusal or negotiation to operate franchises
using any of the Purchaser's or any Purchaser Affiliated Entity's trademarks,
service marks, trade names, and fictitious names, whether registered or
unregistered; or (d) the sale or provision of any of the Purchaser's or any
Purchaser Affiliated Entity's products or services (other than products and
services of the type described in clause (a) above) through any "We The People"
center which is (i) in operation as of the Closing Date, and (ii) operated by
the Purchaser, any Purchaser Affiliated Entity, or any licensed franchisee under
a Franchising Contract in effect as of the Closing Date.
1.92 "Real Property" shall mean the Leased Real Property and the Owned Real
Property.
10
1.93 "Regulatory Approvals" shall mean all Consents from all Governmental
or Regulatory Authorities.
1.94 "Related and Incidental Assets" shall mean the Business as a going
concern and the Seller's goodwill; all deposits and prepayments for goods or
services purchased or to be purchased by the Seller (other than deposits and
prepayments relating to services provided in connection with the negotiation,
preparation, execution and delivery of this Agreement); all customer lists and
records; all sales data; all restricted covenants prohibiting competition,
solicitation of employees, vendors, suppliers, customers, agents and independent
contractors, and the use and disclosure of confidential information and similar
covenants which run in favor of the Seller; all Encumbrances on the assets of
others; suppliers' lists and records; all Books and Records owned by the Seller;
all catalogues, brochures, art work, photographs and advertising and marketing
materials owned by the Seller; and all other property and rights of every kind
or nature owned by the Seller, in any of the foregoing cases, other than to the
extent comprising a part of the Excluded Assets.
1.95 "Requirement of Law" shall mean any provision of law, statute, treaty,
rule, regulation, ordinance or pronouncement having the effect of law, and any
Order.
1.96 "Retained Franchising Contracts Liabilities" shall mean all
Liabilities arising under or in connection with any Franchising Contract with
respect to any one or more of the following: (a) any obligation (other than the
Franchise Repurchase Obligations) to repay or refund any franchising fee or
other amount paid by a Person to obtain rights to any territory or any
obligation to repurchase any territory or rights from any Person including,
without limitation, those obligations specified on Schedule 3.28(m); (b) any
obligation to pay all or any portion of any expenses of any Person other than on
account of the advertising commitments specified on Schedule 3.28(g); (c) any
obligation to pay any portion of any revenue to, or otherwise share any revenue
with, any Person other than the obligation to pay a portion of the proceeds
received as a result of internet sales to a customer located within a
franchisee's exclusive territory (but only to the extent that such obligation to
pay a portion of internet proceeds is expressly set forth in the Form
Franchising Contract in effect at the time such franchisee entered into its
Franchising Contract); (d) any obligation to be responsible for the payment or
performance of any obligation incurred for or on behalf of any Person, whether
for any loan, line of credit, lease or other obligation of such Person
including, without limitation, those obligations listed on Schedule 3.28(i); (e)
any obligation with respect to the purchase, sale or transfer of any ownership
interest in any Person; and (f) any obligation to operate any "We The People"
center or franchise.
1.97 "Retained Liabilities" shall have the meaning set forth in Section
2.11. -------
----
1.98 "Revenue Statement" shall have the meaning set forth in Section 2.8.
-----------
1.99 "Second Base Period" shall mean the First Measurement Period.
1.100 "Second Measurement Period" shall mean the twelve (12) month period
which immediately follows the First Measurement Period.
11
1.101 "Securities Act" shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.102 "Seller Balance Sheet" shall have the meaning set forth in Section
3.11. -------
----
1.103 "Seller Indemnified Parties" shall have the meaning set forth in
Section 9.2.
-----------
1.104 "Seller Total Revenue" shall mean, with respect to the First Base
Period, Sixteen Million Six Hundred Thousand Dollars ($16,600,000), which amount
represents an agreed upon estimate of the total revenue that will be
recognizable by the Seller during the First Base Period, as calculated and
determined in accordance with GAAP, as a result of (a) the sale or provision by
the Seller to any Person of any products or document preparation services of the
type offered by the Seller as of the date of this Agreement; (b) the grant by
the Seller during the First Base Period to any Person of any right, license or
right to license, option, or right of first refusal or negotiation, to operate
franchises and businesses using the WTP Trademark.
1.105 "Software" shall mean all software programs, including all versions
of source code, object code, assembly language, compiler language, machine code,
and all other computer instructions, code, and languages embodied in computer
software of any nature whatsoever and whether for use in or in conjunction with
a mainframe computer, personal computer (desk top, lap top or hand held),
personal digital assistant or any other programmable hardware or device,
computer systems, computer hardware, network infrastructure and related
equipment, and all error corrections, updates, upgrades, enhancements,
translations, modifications, adaptations, further developments, derivative works
thereto, and other changes or functionality additions of any kind; and all
designs and design documents (whether detailed or not), technical summaries, and
documentation (including flow charts, logic diagrams, white papers, manuals,
guides and specifications), firmware and middleware associated with the
foregoing.
1.106 "▇▇▇▇▇ Agreements" shall mean the following Contracts: (a) letter
agreement, dated July 8, 2004, among the Seller, ▇▇▇, ▇▇▇▇▇ and New Media
Advertising, Inc. dba ▇▇▇▇▇ Literary Enterprises, Inc. with respect to ▇▇▇▇▇
Literary Enterprises, Inc.'s service as the ▇▇▇▇▇▇▇, ▇▇▇, and Linda's literary
agent with respect to a book tentatively titled "We the People's Step-by-▇▇▇▇
▇▇▇▇▇ to Bankruptcy"; (b) oral agreement, dated on or about July 8, 2004, among
the Seller, ▇▇▇, ▇▇▇▇▇ and New Media Advertising, Inc. dba ▇▇▇▇▇ Literary
Enterprises, Inc. with respect to ▇▇▇▇▇ Literary Enterprises, Inc.'s service as
the ▇▇▇▇▇▇▇, ▇▇▇, and Linda's literary agent with respect to a book tentatively
titled "We the People's Estate Planning Handbook," the terms and conditions of
which are identical to the terms and conditions of the letter agreement
identified in Section 1.106(a); and (c) oral agreement, dated on or about
September 13, 2004, among the Seller, ▇▇▇, ▇▇▇▇▇ and New Media Advertising, Inc.
dba ▇▇▇▇▇ Literary Enterprises, Inc. with respect to ▇▇▇▇▇ Literary Enterprises,
Inc.'s service as the ▇▇▇▇▇▇▇, ▇▇▇, and Linda's literary agent with respect to a
book tentatively titled "We the People's Step-by-▇▇▇▇ ▇▇▇▇▇ to Divorce," the
terms and conditions of which are identical to the terms and conditions of the
letter agreement identified in Section 1.106(a).
12
1.107 "Stipulated Judgment" shall mean the Stipulated Judgment and Order
for Permanent Injunction entered against the Seller in the United States
District Court for the Central District of California, Western Division, on
December 17, 2004, Civil Document for Case Number: 2: 04-CV-10075-GHK-FMO.
1.108 "Stock Consideration" shall have the meaning set forth in Section
2.3. -------
----
1.109 "Subsidiary" shall mean, with respect to any specified Person, any
other Person of which securities or other interests having (a) ordinary voting
power to select a majority of the board of directors or other persons serving
similar functions or (b) the right to receive at least fifty percent (50%) of
the profits and earnings or aggregate equity value are at the time directly or
indirectly owned by such specified Person.
1.110 "Tax Returns" shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed in connection with the calculation, assessment or collection of any
Taxes or, when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.111 "Taxes" shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign or (ii) any Liability for
the payment of any taxes, interest, penalty, addition to tax or like additional
amount resulting from the application of Treasury Regulation ss.1.1502-6 or
comparable Requirement of Law.
1.112 "Third Party Claim" shall have the meaning set forth in Section
9.4(b). -------
------
1.113 "Trademark Assignment" shall mean the Trademark Assignment to be
executed and delivered between the Seller and the Purchaser in the form attached
to this Agreement as Exhibit G.
1.114 "Trademarks" shall mean trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, uniform resource locators (URLs), domain names, trade dress, any other
names and locators associated with the Internet, other source of business
identifiers, whether registered or unregistered and whether or not currently in
use, and registrations, applications to register and all of the goodwill of the
business related to the foregoing.
1.115 "Transaction Documents" shall mean, collectively, this Agreement, the
Assignment and Assumption, the ▇▇▇▇ of Sale, the Copyright Agreement, the
Employment Agreements, the Escrow Agreement, the Noncompetition, Nonsolicitation
and Confidentiality Agreements, the Trademark Assignment, and such other
agreements and instruments that are executed and delivered by the Seller, the
Purchaser, the Shareholders, the Seller's Affiliates or any of them at the
Closing to effectuate the sale and purchase of the Purchased Assets and the
13
assumption of the Assumed Liabilities and the other transactions contemplated
hereby and thereby.
1.116 "Transactions" shall mean the transactions contemplated by the
Transaction Documents.
1.117 "Transfer Taxes" shall mean any applicable documentary, sales, use,
filing, transfer and similar Taxes payable as a result of the Transactions.
1.118 "Wiley Amounts" shall mean the aggregate amount of any payments made
or to be made at any time after January 1, 2005 pursuant to any of the
Publication Agreements.
1.119 "WTP Trademark" shall mean the United States trademark "WE THE
PEOPLE" and design, Registration No. 2,075,797 (paralegal and computerized legal
document preparation in Class 42).
ARTICLE 2
SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES
2.1 Agreement to Sell and Purchase Assets. In accordance with the terms and
subject to the conditions of this Agreement, the Seller shall sell, transfer,
assign and deliver to Purchaser, free and clear of all Encumbrances, other the
Assumed Liabilities, and Purchaser shall purchase, acquire and accept from the
Seller, upon delivery from Purchaser to Seller of the Cash Consideration and the
Stock Consideration, all right, title and interest of the Seller in and to all
of the assets, properties and rights, other than the Excluded Assets, owned,
held or used by the Seller in the conduct of the Business as of the Closing,
including, without limitation, the following assets (collectively, the
"Purchased Assets"):
(a) All Assigned Contracts;
(b) All Owned Intellectual Property;
(c) All of the interest of the Seller in the Licensed Intellectual
Property;
(d) All Inventory;
(e) All of the interest of the Seller in the Leased Real Property;
(f) All machinery, equipment, leasehold improvements, supplies, office
furniture and office equipment, computers and telecommunications equipment
and other items of tangible personal property, and interests therein, that
are owned by Seller and used in connection with the Business, including,
without limitation, the fixed assets listed on Schedule 2.1(f) attached to
this Agreement;
(g) All Accounts Receivable;
(h) The Books and Records and all other records relating to the
Business;
14
(i) All rights relating to any Prepaid Expenses;
(j) To the extent transferable or assignable, all Permits (the
"Assigned Permits");
(k) All rights acquired by the Seller pursuant to each of the
Franchise Repurchase Agreements including, without limitation, all rights
to develop, and sell franchises and operate in, all or any part of any
territory which is the subject matter of such Franchise Repurchase
Agreement, but specifically excluding (i) any rights to operate any of the
"We The People" centers which were, as of the date of such Franchise
Repurchase Agreement, located within such territory and (ii) any rights
under any of the leases relating to any such "We The People Center";
(l) The Wiley Amounts;
(m) To the extent not covered by paragraphs (a) through (l) above, all
Related and Incidental Assets; and
(n) All rights of the Seller under any claims, credits, causes of
action or rights of set-off against third parties including, without
limitation, all warranties, guarantees, sureties, indemnities and similar
rights in favor of the Seller arising out of or with respect to any of the
assets described in Sections 2.1(a) through Section 2.1(m) of this
Agreement.
2.2 Excluded Assets. The following property and assets of the Seller are
---------------
excluded from sale to Purchaser:
(a) All Owned Real Property;
(b) All cash and cash equivalents and all bank and deposit accounts;
(c) The Seller's general ledger, corporate franchise, corporate seals,
Organizational Documents, minute books, stock books and other records
having to do with the corporate organization and capitalization of the
Seller;
(d) The Seller's rights under the Contracts listed on Schedule 2.2(d)
---------------
attached to this Agreement (collectively, the "Excluded Contracts");
(e) The rights which accrue or will accrue to the Seller under this
Agreement or any of the other Transaction Documents;
(f) All Tax Returns of the Seller;
(g) All refunds in respect of Taxes paid or payable to the Seller or
any of its Affiliates;
(h) All Prepaid Expenses relating to any of the Retained Liabilities;
15
(i) All books and records of the Seller not related to any of the
Business, the Purchased Assets or the Assumed Liabilities;
(j) All of the Affiliated Accounts Receivable listed on Schedule
2.2(j) attached to this Agreement;
(k) All Pre-March Processing Receivables;
(l) All motor vehicles owned or leased by the Seller; and
(m) All of the Seller's interest under the insurance policies listed
on Schedule 3.15 attached to this Agreement and the coverages afforded
thereby.
2.3 Purchase Price. The aggregate purchase price to be paid by Purchaser
for the purchase of the Purchased Assets is (i) Twelve Million Dollars
($12,000,000) (the "Cash Consideration"), plus (ii) the Contingent
Consideration, if any, plus (iii) that number of restricted shares of DFC Common
Stock which is equal to Two Million Dollars ($2,000,000), calculated at a price
per share equal to the simple average of the daily closing prices of DFC Common
Stock on The Nasdaq National Market for the 10 consecutive trading days ending
on the trading day next preceding the Closing Date (the "Stock Consideration"),
plus (iv) the assumption by Purchaser of the Assumed Liabilities.
2.4 Pay-Off Amounts and Other Third Party Payments
----------------------------------------------
(a) Prior to the Closing, the Seller shall provide the Purchaser with
pay-off letters, in form and substance satisfactory to the Purchaser
(collectively, the "Pay-Off Letters"), from all (i) holders of any
Liabilities which will remain outstanding immediately prior to the Closing
and are secured by any Encumbrance on any of the Purchased Assets, whether
or not the Seller is liable for the payment of such Liabilities, and (ii)
holders of any Liabilities pertaining to any capitalized leases with
respect any of the Purchased Assets other than the American Express
Computer Lease and the Colonial Pacific Computer Lease (each such holder, a
"Pay-Off Amount Recipient," and all such holders, the "Pay-Off Amount
Recipients"). Each Pay-Off Letter shall state (x) the amount as being
sufficient to repay all Liabilities owing as of the Closing Date to the
applicable holder (the "Pay-Off Amount"), (y) that, effective upon the
Purchaser's tender to such holder of the Pay-Off Amount, all Encumbrances
in favor of such holder on the Seller's assets shall be terminated,
released and discharged and (z) authorizing the Purchaser to make all
filings necessary or desirable to terminate any financing statement or
other notice or evidence of any such Encumbrance.
(b) The Seller may, prior to the Closing, direct the Purchaser in
writing to deliver, in accordance with the written instructions provided by
the Seller, all or any portion of the Cash Consideration not otherwise
necessary to pay the Escrow Amount to the Escrow Agent pursuant to Section
2.5(a)(ii) and to satisfy in full the aggregate Pay-Off Amounts to certain
third parties (collectively, "Other Payment Recipients") for (i)
Liabilities owing as of the Closing Date and (ii) fees, expenses, costs and
other liabilities and obligations arising out of, relating to, or in
connection with the Transactions.
2.5 Payment of Cash Consideration; Issuance of Stock Consideration.
--------------------------------------------------------------
16
(a) The Cash Consideration will be paid as follows:
(i) the Purchaser shall pay, for and on behalf of the Seller, to
each Pay-Off Amount Recipient an amount equal to that set forth in
such Pay-Off Amount Recipient's Pay-Off Letter as being the Pay-Off
Amount owing to such Pay-Off Amount Recipient;
(ii) the Purchaser shall pay in cash by federal or other wire
transfer One Million Five Hundred Thousand Dollars
($1,500,000) (the "Escrow Amount") to the Escrow Agent;
(iii) the Purchaser shall pay, for and on behalf of the Seller,
to each Other Payment Recipient such amount as is directed by
the Seller in accordance with Section 2.4(b); and
--------------
(iv) the Purchaser shall pay to the Seller in cash by federal or
other wire transfer to an account designated by the Seller in
writing at least three (3) Business Days prior to the Closing
Date an amount equal to the difference between (A) the Cash
Consideration, minus (B) the aggregate Pay-Off Amounts, minus
(C) the Escrow Amount, minus (D) the aggregate amounts to be
paid to the Other Payment Recipients.
(b) The Purchaser shall deliver to American Stock Transfer & Trust
Co., DFC's stock transfer agent, DFC's written instructions to deliver to
the Seller stock certificates representing the Stock Consideration.
2.6 Escrow Amount.
-------------
The Escrow Amount shall be held and disbursed in accordance with the Escrow
Agreement.
2.7 Satisfaction of Purchaser's Obligations. Upon the Purchaser's tender of
the Cash Consideration to the Seller, the Escrow Agent, the Pay-Off Amount
Recipients and the Other Payment Recipients, as applicable, in accordance with
Section 2.5, the Purchaser shall be deemed to have satisfied its obligations to
make payments to or on behalf of the Seller pursuant to this Agreement other
than (a) the obligation of the Purchaser to pay the Contingent Consideration if,
when and as earned and payable pursuant to Section 2.8 and discharge of all
Assumed Liabilities and (b) the obligation of the Purchaser to indemnify the
Seller Indemnified Persons pursuant to Section 9.2.
2.8 Contingent Consideration.
------------------------
(a) In addition to the Cash Consideration and the Stock Consideration,
the Seller will be entitled to receive additional consideration (the
"Contingent Consideration") for the Purchased Assets in the form of cash
payments, to be paid by Purchaser if and to the extent earned, of (i) up to
One Million Five Hundred Thousand Dollars ($1,500,000) with respect to the
percentage increase in the Purchaser Total Revenue during the First
Measurement Period over the Seller Total Revenue and (ii) up to One Million
Five Hundred Thousand Dollars ($1,500,000) with respect to the percentage
increase in the Purchaser Total Revenue during the Second Measurement
Period over the Purchaser Total Revenue during the Second Base Period. The
amount of the Contingent Consideration earned with respect to each
Measurement Period
17
shall be the amount set forth in column B of the table below which is set forth
opposite the applicable "Percentage Increase Over Applicable Base Period" set
forth in column A of such table within which the actual percentage increase in
the Purchaser Total Revenue during the applicable Measurement Period over the
Seller Total Revenue or the Purchaser Total Revenue, as applicable, during the
applicable Base Period falls:
Percentage Increase Contingent
Over Applicable Base Period Consideration
(Column A) (Column B)
----------------------------------------------------------- --------------
Less than 10% $ 0
10% or more and less than 11% $ 750,000
11% or more and less than 12% $ 825,000
12% or more and less than 13% $ 900,000
13% or more and less than 14% $ 975,000
14% or more and less than 15% $ 1,050,000
15% or more and less than 16% $ 1,125,000
16% or more and less than 17% $ 1,200,000
17% or more and less than 18% $ 1,275,000
18% or more and less than 19% $ 1,350,000
19% or more and less than 20% $ 1,425,000
20% or more $ 1,500,000
(b) Within 60 days after the end of each Measurement Period, Purchaser
will prepare and deliver to the Seller a gross revenue statement (each a
"Revenue Statement") setting forth a calculation of the Purchaser Total
Revenue for such Measurement Period.
(c) If the Seller disagrees with the Revenue Statement or the
calculation of the Purchaser Total Revenue, then the Seller must deliver a
written notice to the Purchaser of any dispute the Seller has with respect
to the Revenue Statement or the calculation of the Purchaser Total Revenue
("Notice of Contingent Consideration Dispute"). The Notice of Contingent
Consideration Dispute must specify such dispute in reasonable detail. If
the Seller does not deliver to the Purchaser a Notice of Contingent
Consideration Dispute on or before 5:00 P.M., local Philadelphia,
Pennsylvania time on the date which is the 30th day following Seller's
receipt of the Revenue Statement (the "Contingent Consideration Dispute
Period"), then such Revenue Statement and the calculation of the Purchaser
Total Revenue will be final, conclusive and binding on the parties. If the
Seller delivers a Notice of Contingent Consideration Dispute before the
expiration of the Contingent Consideration Dispute Period, then the Seller
and Purchaser will
18
use reasonable efforts to negotiate a resolution of such dispute. If the
Seller and Purchaser, notwithstanding such good faith effort, fail to
resolve such dispute within 30 days after the Seller's delivery of the
Notice of Contingent Consideration Dispute then, neither the Seller nor the
Purchaser shall have any liability for failing to agree and the Purchaser
and the Seller jointly will engage the firm of Singer ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇ LLP (the "Accounting Firm") to resolve such dispute. If such firm
is unwilling or unable to act in such capacity, or if such firm would, as a
result of acting in such capacity, lose its independence from DFC under any
applicable Requirement of Law, then the Accounting Firm will be
PricewaterhouseCoopers LLC or, if both of such firms are unable or
unwilling to act in such capacity, or would, as result of acting in such
capacity, lose its independence from DFC under any applicable Requirement
of Law, then the Accounting Firm will be such other independent nationally
recognized accounting firm selected by agreement of the Seller and
Purchaser. In so acting, the Accounting Firm shall be an expert and not an
arbitrator. Each of the Seller and the Purchaser shall submit to the
Accounting Firm a form of determination, stating completely and in detail
the determination sought by such party with respect to each item in dispute
(the "Form of Determination"). The Accounting Firm's discretion to make its
decision with respect to any item in dispute shall be limited to accepting,
without modification, the Form of Determination submitted by either the
Seller or the Purchaser with respect to such item. The Accounting Firm's
decision shall be (i) in writing, (ii) furnished to the Seller and the
Purchaser as promptly as practicable after the dispute has been referred to
the Accounting Firm, (iii) made in accordance with this Agreement, and (iv)
final, conclusive and binding upon the Seller and the Purchaser. Each of
the Seller and the Purchaser will use reasonable efforts to cause the
Accounting Firm to render their decision as soon as reasonably practicable,
including without limitation by promptly complying with all reasonable
requests by the Accounting Firm for information, books, records and similar
items. The Seller and the Purchaser shall pay their own costs and expenses
incurred under this Section 2.8(c). The cost of such determination by the
Accounting Firm will be allocated between Purchaser and the Seller so that
the Seller's share of such cost is in the same proportion that the
aggregate amount of the disputed amounts submitted by the Seller that are
unsuccessfully disputed by the Seller (as finally determined by the
Accounting Firm) bears to the total amount of such disputed amounts
submitted by the Seller and the Purchaser's share of such cost is the
difference between the total cost, minus the cost so allocated to the
Seller.
(d) For purposes of complying with the terms set forth in this Section
2.8, each party shall reasonably cooperate with and make available to the
other party and its representatives all information, records, data and
working papers, and shall permit access to its facilities and personnel, as
may be reasonably required in connection with the preparation and analysis
of the Revenue Statement and the resolution of any disputes thereunder.
(e) Subject to the terms and conditions of this Agreement, the
Contingent Consideration, if any, will be paid by Purchaser to the Seller
within five Business Days of the final determination thereof by federal or
other wire transfer to the account designated by the Seller.
2.9 Cash Consideration and Stock Consideration Tax Allocation. The Cash
Consideration and the Stock Consideration shall be allocated among the Purchased
Assets as provided on Schedule 2.9 attached hereto. The allocation of the Cash
Consideration and Stock Consideration among the Purchased Assets provided on
Schedule 2.9 is intended to comply with
19
Section 1060 of the Code. The Purchaser shall prepare a completed United States
Internal Revenue Service Form 8594, in a manner consistent with Schedule 2.9, at
least sixty (60) days prior to the due date of such Forms. Seller and its
Affiliates, if necessary, shall report, act and file Tax Returns (including, but
not limited to Internal Revenue Service Form 8594) in all respects and for all
purposes consistent with such allocation. Seller shall not (unless compelled by
any Governmental or Regulatory Authority or required by applicable Requirement
of Law) take any position (whether in an audit, any Tax Return or otherwise)
which is inconsistent with the allocation provided on Schedule 2.9.
2.10 Assumption of Liabilities. At the Closing, the Purchaser will assume
only the following liabilities of the Seller (collectively, the "Assumed
Liabilities"):
(a) Seller's executory obligations arising after the Closing under
each of the Assigned Contracts, other than the Retained Franchising
Contracts Liabilities, except to the extent that any such executory
obligations result from, arise out of, relate to, or are caused by, any one
or more of the following: (i) any breach of any of the Assigned Contracts
occurring on or before the Closing Date, (ii) any breach of warranty,
infringement or violation of any Requirement of Law occurring on or before
the Closing Date, or (iii) any event or condition occurring or existing on
or before the Closing Date which through the passage of time or the giving
of notice or both would constitute a breach or default by the Seller under
any of the Assigned Contracts; and
(b) Seller's obligations to pay the balance of the purchase price
payable for the Seller's purchase of the franchise territories and
businesses that is outstanding as of the Closing Date under each of the
Franchise Repurchase Agreements up to the respective amounts identified on
Schedule 2.10(b) and that is not paid at the Closing (collectively, the
"Franchise Repurchase Obligations"); provided that, each Person to whom any
such obligation is owing shall have executed and delivered in favor of the
Purchaser a release in the form attached to this Agreement as Exhibit H.
2.11 Retained Liabilities. Except for the Assumed Liabilities, Purchaser
shall not, by virtue of its acquisition of the Purchased Assets or otherwise,
assume or become responsible for any Liabilities of the Seller, any Affiliate of
the Seller or the Business of any kind and nature that is not expressly included
within the definition of Assumed Liabilities (collectively, the "Retained
Liabilities"), including, without limitation, any of the following: (a) any
indebtedness for borrowed money of the Seller or of any other Person guaranteed
by the Seller or any other Person or secured by any of the Purchased Assets; (b)
any of the Seller's accounts payable; (c) any Liabilities arising out of any
breach by the Seller of any provision of any Contract; (d) any product liability
or similar claim for injury to any Person or property, regardless of when made
or asserted, that arises out of or is based upon any express or implied
representation, warranty, agreement or guarantee made by the Seller, or alleged
to have been made by the Seller, or which is imposed or asserted to be imposed
by operation of law, in connection with any service performed or product sold or
leased by or on behalf of the Seller on or before the Closing Date; (e) any
Taxes including, without limitation, any Liabilities on account of the matters
disclosed on Schedule 3.20; (f) any Liabilities of the Seller arising or
incurred in connection with the negotiation, execution and performance of this
Agreement, the other Transaction Documents and the Transactions including,
without limitation, any fees and
20
expenses of counsel, accountants and other experts engaged or retained by the
Seller in connection therewith except as otherwise provided herein or therein;
(g) any Environmental Liabilities; (h) any litigation against the Seller or any
of its Affiliates including, without limitation, any Liabilities on account of
the litigation listed on Schedule 3.5; (i) any violations, or noncompliance
with, of any Requirement of Law by the Seller or any Affiliate of the Seller
including, without limitation, any Franchising Laws including, without
limitation, any Liabilities on account of the matters disclosed on Schedule 3.7;
(j) all Liabilities in respect of employment with the Seller for any wages,
salary, vacation pay, sick leave pay or pay for time not worked, back pay,
severance or termination pay and any other compensation, Taxes or arising in
connection with or related to any Employee Benefit Plans including, without
limitation, pursuant to COBRA; (k) any Liabilities of the Seller arising under
any of the Franchise Repurchase Agreements other than the Franchise Repurchase
Obligations expressly assumed by the Purchaser pursuant to Section 2.10(b); (l)
any Liabilities of the Seller arising out of the Seller's operation of any "We
the People" center or franchise, whether before or after the Closing Date; (m)
all Liabilities of the Seller arising under any of the CLC Agreements; (n) all
Liabilities of the Seller arising under any Excluded Contract; (o) the Retained
Franchising Contracts Liabilities; (p) all Liabilities arising as a result of
the Seller's grant to any Person of any rights to use any of the Seller's
Trademarks in any territory in violation or contravention of the rights of any
other Person including, without limitation, on account of the matters described
on Schedule 3.28(n); and (q) all other Liabilities of the Seller or arising out
of the operations of the Seller or the Purchased Assets including, without
limitation, for any civil or criminal damages or penalties (including punitive
and exemplary damages and interest), imposed on or sought to be imposed on the
Seller or the Purchaser or any of the officers, directors, members or
stockholders of the Purchaser, on account of any tortious, fraudulent, criminal
or other act of the Seller, either Shareholder or any of their respective
directors, officers members or stockholders. Without limitation to the
foregoing, the intent and objective of the Seller and the Purchaser is that,
except for Assumed Liabilities, the Purchaser does not assume, and no transferee
or successor liability of any kind and nature shall attach to the Purchaser
pertaining to, any of the Retained Liabilities, all of which Retained
Liabilities shall be the sole responsibility of the Seller.
2.12 Certain Employee Matters. Neither the Purchaser nor any of its
Affiliates is under any obligation to employ any person in connection with the
acquisition of the Purchased Assets. If the Purchaser or any of the Purchaser's
Affiliates desires to hire any employee of the Seller, then the Purchaser shall
notify the Seller of the identity of that employee, and the Seller shall
cooperate with the Purchaser or the applicable Affiliate to facilitate the
hiring of that employee by the Purchaser or the applicable Affiliate. Any offer
of employment to any such Person may, but need not be (a) for the same position
as that he or she held with the Seller immediately before the Closing, or (b) at
the same rate of compensation as paid by the Seller to such Person immediately
before the Closing. All such offers of employment and the actual employment of
any such Person shall, at all times, be subject to the Purchaser's or the
applicable Affiliate's right, in its sole discretion, to establish and modify,
from time to time, the terms and conditions of its employees' employment and to
terminate such employment at any time. Except as the Purchaser or the applicable
Affiliate may otherwise expressly agree in writing, any former employee of the
Seller hired by the Purchaser or any of the Purchaser's Affiliates shall be
treated as a new, at-will employee of the Purchaser or the applicable Affiliate.
If and to the extent required, the Seller shall provide all notifications
required by any Requirement of Law to each of the Seller's employees who are not
offered employment by the Purchaser or any of its Affiliates
21
or who do not accept the Purchaser's or any of its Affiliates' offer of
employment and whose employment with the Seller is terminated on or after the
Closing Date including, without limitation, all notifications required under
COBRA.
2.13 Certain Transitional Matters. Notwithstanding anything to the contrary
contained in this Agreement, the ▇▇▇▇ of Sale or the Assignment and Assumption
Agreement, to the extent that the sale, assignment, transfer, or delegation by
any Seller, or the undertaking or assumption by the Purchaser, of any of the
Purchased Assets or the Assumed Liabilities requires the Consent of any third
party, this Agreement, the ▇▇▇▇ of Sale and the Assignment and Assumption
Agreement shall constitute the Seller's agreement to sell, assign, transfer, and
delegate, and the Purchaser's agreement to purchase, acquire, and assume, the
Purchased Assets and the Assumed Liabilities as promptly as practicable
following the obtainment of any necessary Consent; provided, that from and after
the Closing Date until the date on which such Consent is obtained, the Seller
shall (and the Shareholders shall cause the Seller to) make available to the
Purchaser the economic and practical benefits of such Purchased Assets and
Assumed Liabilities for no additional consideration. If and to the extent that
the Seller is making available to the Purchaser the economic and practical
benefits of such Purchased Assets, the risk of loss for such Purchased Assets
shall rest with the Purchaser. Nothing contained in this Section 2.13 is
intended to impair, reduce or otherwise modify any representation, warranty and
covenant contained in the this Agreement including, without limitation, those
relating to any of the Purchased Assets or to any of the Assumed Liabilities.
2.14 Pro-Rations. To the extent that the Purchaser shall make any
payment(s) on account of any rents, real estate taxes, personal property taxes,
water, utilities and other operating expenses of the Business that are
attributable, in whole or in part, to a period which includes a period of time
prior to the Closing Date, the Seller shall, within ten (10) days after the
Seller's receipt of the Purchaser's statement therefor pay to the Purchaser an
amount equal to the payment(s) made on account of such items which are
attributable to the period of time on or prior to the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
The Seller and the Shareholders hereby, jointly and severally, represent
and warrant to the Purchaser as follows:
3.1 Organization; Qualification; Good Standing.
------------------------------------------
(a) The Seller (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of California,
(ii) has the power and authority to own and operate its properties and
assets and to transact the Business and (iii) is duly qualified and
authorized to do business and is in good standing in all jurisdictions
where it is required to qualify and be authorized to do business. Attached
to this Agreement as Schedule 3.1(a) is a true and complete list of all
jurisdictions in which the Seller is qualified to do business.
22
(b) Attached to this Agreement as Schedule 3.1(b) is a true and
---------------
complete list of all jurisdictions in which the Seller has granted the
right to develop or operate franchises and businesses using any of the
Seller's Trademarks.
(c) There is no Legal Proceeding or Order pending or, to the Knowledge
of the Seller or any Shareholder, threatened against or affecting the
Seller revoking, limiting or curtailing, or seeking to revoke, limit or
curtail the Seller's power, authority or qualification to own, lease or
operate its properties or assets or to transact the Business.
(d) True and complete copies of the Seller's Organizational Documents
are attached to this Agreement as Schedule 3.1(d).
---------------
3.2 Authorization for Agreement.
---------------------------
(a) The Seller. The Seller's execution, delivery and performance of
----------
this Agreement and the consummation of the Transactions by the Seller:
(i) are within the Seller's corporate powers and duly authorized by all
necessary corporate and shareholder action on the part of the Seller and
(ii) do not and will not (A) require any action by or in respect of, or
filing with, any Governmental or Regulatory Authority (B) contravene,
violate or constitute, whether with or without the passage of time or the
giving of notice or both, a breach or default under, any of the Seller's
Organizational Documents, any Requirement of Law applicable to the Seller
or any of its properties or any Contract to which the Seller or any of its
properties is bound or subject or (C) result in the creation of any
Encumbrance or any obligation and liability on any of the Purchased Assets.
(b) The Shareholders. Each Shareholder has full capacity to execute
-----------------
and deliver this Agreement and the Transaction Documents to be
executed and delivered by such Shareholder and to perform such
Shareholder's obligations under this Agreement and such Transaction
Documents. Each Shareholder's execution, delivery and performance of this
Agreement and the consummation of the Transactions by the Shareholders (i)
are within the powers and authority of the Shareholders and (ii) do not and
will not (A) require any action by or in respect of, or filing with, any
Governmental or Regulatory Authority, or (B) contravene, violate or
constitute, whether with or without the passage of time or the giving of
notice or both, a breach or default under, any Requirement of Law
applicable to the Shareholders or any of their properties or any Contract
to which the Shareholders or any of their properties are bound or subject.
3.3 Ownership; Subsidiaries and Affiliates.
--------------------------------------
(a) Shareholders. Except as set forth on Schedule 3.3(a), no Person
------------ ---------------
other than the Shareholders owns record, beneficial or equitable
ownership of any of the Seller's securities, whether debt or equity, or any
securities which are convertible into or exercisable or exchangeable for,
any of the Seller's debt or equity securities.
(b) No Interest in Other Entities. The Seller does not own, directly
-----------------------------
or indirectly, any debt, equity or other ownership or financial
interest in any other Person. No shares or other ownership or other
interests, either of record, beneficially or equitably, in any Person are
included in the Purchased Assets.
23
(c) Affiliates. Attached to this Agreement as Schedule 3.3(c) is a
---------- ---------------
complete and accurate list of all Persons (other than the Shareholders
or any of the Persons described in the first sentence of Section 1.4,
subpart (iii)) that are Affiliates of the Seller, detailing the nature of
the relationship between the Seller and each such Person that causes such
Person to be an Affiliate of the Seller.
(d) No Acquisitions. Since January 1, 2000, the Seller has not
---------------
acquired, or agreed to acquire, whether by merger or consolidation, by
purchase of equity interests or assets, or otherwise, any business or any
other Person, or otherwise acquired, or agreed to acquire, any assets that
are material, either individually or in the aggregate, to the Seller.
3.4 Enforceability. This Agreement and each of the Transaction Documents
entered into or to be entered into and performed by the Seller or either
Shareholder are and shall be the legal, valid and binding obligations of the
Seller and the Shareholders, enforceable against each of them in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium or other law affecting the enforcement of creditors'
rights generally or by general equitable principles.
3.5 Legal Proceedings and Orders. Except as set forth on Schedule 3.5
attached to this Agreement, there is no Legal Proceeding or Order pending
against, or to the Seller's or any Shareholder's Knowledge, threatened against
or affecting, the Seller, the Business, the Purchased Assets or the Assumed
Liabilities including, without limitation any Legal Proceeding or Order that
could have a Material Adverse Effect or restrict the ability of the Seller to
consummate fully the Transactions or that in any manner could draw into question
the validity of this Agreement. Neither the Seller nor any Shareholder has any
Knowledge of any fact, event, condition or circumstance that may give rise to
the commencement of any Legal Proceeding or the entering of any Order against
the Seller or any of the Seller's properties including, without limitation, any
Legal Proceeding or Order that could have a Material Adverse Effect or restrict
the ability of the Seller to consummate fully the Transactions or that in any
manner could draw into question the validity of this Agreement. The Seller has
fully complied with all of the obligations under the Stipulated Judgment
required to be performed by the Seller on or before the Closing Date.
3.6 Title to the Purchased Assets and Related Matters. Except for (a) the
items of personal property (both tangible and intangible) leased or licensed by
the Seller and disclosed on Schedule 3.14(a)(iii) attached to this Agreement and
(b) the Leased Real Property disclosed on Schedule 3.12(b) attached to this
Agreement, and (c) the Licensed Intellectual Property disclosed on Schedule
3.16(a) attached to this Agreement, the Seller owns and has indefeasible and
marketable legal and beneficial title to all of the Purchased Assets, free and
clear of all Encumbrances. The Seller has a valid and enforceable lease, license
and right to use or occupy, as applicable, the leased or licensed personal
property, the Leased Real Property and the Licensed Intellectual Property. All
of the Purchased Assets are in the possession or under the control of the
Seller. Except as otherwise expressly set forth in the first sentence of this
Section 3.6, no other Person (including, without limitation, any Affiliate of
the Seller or either Shareholder) owns or has any right or interest in any of
the Purchased Assets.
24
3.7 Compliance with Laws. The Seller is operating and has operated in
compliance with all Requirements of Law applicable to it or any of its
properties or to which the Seller or its properties is bound or subject
including, without limitation, the Franchising Laws. Except as set forth on
Schedule 3.7 attached to this Agreement, since January 1, 2000, neither the
Seller nor any Shareholder has received any notice from any Person concerning
alleged violations of, or the occurrence of any events or conditions resulting
in alleged noncompliance with, any Requirement of Law applicable to the Seller
or any of its properties or to which the Seller or any of its properties is
bound or subject including, without limitation, any of the Franchising Laws.
3.8 Labor Matters.
-------------
(a) Attached to this Agreement as Schedule 3.8(a) is a complete and
---------------
accurate list of the names of each employee of the Sellers, together
with such employee's current position or function, the current rate of
hourly, monthly or annual compensation (as the case may be). Schedule
3.8(a) also identifies those employees with whom the Seller has entered
into an employment Contract or a Contract obligating the Seller to pay
severance or similar payments to any employee. The Sellers have delivered
or caused to be delivered to the Purchaser true and complete copies of such
Contracts.
(b) The Seller is not a party to or bound by any collective bargaining
agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated. To the Knowledge of the Seller or
any Shareholder, there are no threatened or contemplated attempts to
organize for collective bargaining purposes any of the employees of the
Seller.
(c) There is no, and since January 1, 2000 there has been no, work
stoppage, strike, slowdown, picketing or other labor disturbance or
controversy by or with respect to any of the Seller's employees or former
employees. In addition, no dispute with or claim against the Seller
relating to any labor or employment matter including, without limitation
employment practices, discrimination, terms and conditions of employment,
or wages and hours is outstanding or, to the Seller's or any Shareholder's
Knowledge, is threatened. There is no claim or petition pending before, and
at no time since January 1, 2000 has there been, any claim or petition made
to, any Governmental or Regulatory Authority including, without limitation,
the National Labor Relations Board or the Equal Employment Opportunity
Commission against the Seller with respect to any labor or employment
matter.
3.9 Employee Benefit Plans.
----------------------
(a) Schedule 3.9(a) attached to this Agreement sets forth a complete
---------------
and accurate list and description of each Employee Benefit Plan. With
respect to each Employee Benefit Plan, the Seller has delivered or caused
to be delivered to the Purchaser true and complete copies of (i) the plan
document, trust agreement and any other document governing such Employee
Benefit Plan, (ii) the summary plan description, (iii) all Form 5500 annual
reports and attachments, and (iv) the most recent IRS determination letter,
if any, for such plan.
25
(b) Each of the Employee Benefit Plans has been operated and
administered in compliance with their respective terms and all applicable
Requirements of Law including, without limitation, ERISA and the Code. The
Seller has not incurred any "accumulated funding deficiency" within the
meaning of ERISA or incurred any liability to the PBGC in connection with
any Employee Benefit Plan (or other class of benefits that the PBGC has
elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified
under the Code is identified as such on Schedule 3.9(c) attached to this
Agreement. Each such Employee Benefit Plan has received a favorable
determination letter from the IRS stating that such Employee Benefit Plan
meets the requirements of the Code and that any trust or trusts associated
therewith are tax exempt under the Code.
(d) The Seller does not maintain any "defined benefit plan" covering
employees of the Seller within the meaning of Section 3(35) of ERISA
subject to Title IV of ERISA or any "Multiemployer Plan" within the meaning
of Section 401(a)(3) of ERISA.
(e) Schedule 3.9(e) attached to this Agreement reflects: (i) each
---------------
individual who has elected or has a right to elect continuation
coverage under any Employee Benefit Plan pursuant to COBRA (29 U.S.C.
ss.ss.1161 to 1169), as amended; and (ii) the date and type of each such
individual's qualifying event (as defined in 29 U.S.C. ss.1163).
(f) All contributions and payments required to be made with
respect to the Employee Benefit Plans including, without limitation, the
payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to
cause any interest,penalties or other amounts that have not been
satisfied or discharged to be assessed against the Seller with respect
thereto.
(g) The Seller has complied with the reporting and disclosure
requirements of ERISA applicable to the Employee Benefit Plans and the
continuation coverage requirements of the Code and ERISA applicable to any
of the Employee Benefit Plans.
(h) There has been no "prohibited transaction" or "reportable event"
within the meaning of the Code or ERISA within the last sixty (60) months,
or breach of fiduciary duty with respect to any of the Employee Benefit
Plans that could subject the Purchaser or, the Seller to any Tax,
penalty or other liability under the Code or ERISA.
(i) No Employee Benefit Plan has been terminated within the past sixty
(60) months. There are no Legal Proceedings or claims with respect to any
of the Employee Benefit Plans (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course of
business) pending or, to the Knowledge of the Seller or any Shareholder
threatened, and to the Knowledge of the Seller or any Shareholder, there
are no facts, events, conditions or circumstances that could give rise to
any such Legal Proceeding or claim (other than routine claims for benefits
from eligible participants or beneficiaries in the normal and ordinary
course).
26
(j) Neither the Seller or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any
employee benefit plan subject to Title IV of ERISA or the minimum funding
requirements of Code Section 412.
(k) No Employee Benefit Plan provides post retirement medical
benefits, post retirement death benefits or any post retirement welfare
benefits of any fund whatsoever.
(l) There are no current or former employees of the Seller who are on
leave of absence under either of the Uniformed Services Employment or
Reemployment Rights Act or the Family Medical Leave Act.
(m) None of the Seller or any of its employees, officers or directors,
or any other Person has made any statement or communication or provided any
materials to any employee or former employee of the Seller that provides
for or could be construed as a contract, agreement or commitment by the
Purchaser or any of its Affiliates to provide for any pension, welfare, or
other employee benefit or fringe benefit plan or arrangement to any such
employee or former employee, whether before or after retirement or
separation or otherwise.
3.10 Financial Statements.
--------------------
(a) The Seller has delivered or caused to be delivered to the
Purchaser a copy of the Seller's audited balance sheets as of December 31,
2002 and 2003 and the related statements of operations, shareholders'
equity and cash flows for the years then ended, together with all proper
exhibits, schedules and notes thereto, audited by Singer Lewak ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, LLP (collectively, the "Financial Statements"). A true and
complete copy of the Financial Statements is attached to this Agreement as
Schedule 3.10(a). The Financial Statements have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods involved
(except with respect to the valuation and recordation of the issued
warrants to the extent set forth on Note 10 to the Financial Statements)
and present fairly the financial position of the Seller as of the date of
such Financial Statements and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby.
(b) The Seller has also delivered or caused to be delivered to the
Purchaser a true and complete copy of the Seller's unaudited interim
financial statements consisting of a balance sheet as of December 31, 2004,
and the related statements of operations, shareholders' equity and cash
flows for the period then ended (collectively, the "Interim Financial
Statements"). A true and complete copy of Interim Financial Statements is
attached to this Agreement as Schedule 3.10(b). The Interim Financial
Statements are in accordance with the Books and Records, all of which have
been maintained in accordance with good business practice and in the normal
and ordinary course of business, and present fairly the financial position
of the Seller as of the date thereof and the results of its operations and
changes in shareholders' equity and cash flows for the periods covered
thereby. Schedule 3.10(b) completely and accurately describes and details
(i) all material modifications that would be required to be made with
respect to the Interim Financial Statements to cause the Interim Financial
Statements to be in conformity with GAAP and (ii) the basis used in the
Interim Financial Statements for recognition of revenue and how such basis
departs from GAAP. Except with respect to the basis for recognition of
revenue, no change to the Interim Financial
27
Statements that would be required to cause the Interim Financial
Statements to be prepared in accordance with GAAP, and no note that would
have been required to be included on the Interim Financial Statements under
GAAP that is not so included, would disclose either individually or in the
aggregate any development, event, change, circumstance or condition,
whether considered alone or together any other one or more developments,
changes, circumstances or conditions, that has had, or could have, a
Material Adverse Effect. The Books and Records accurately and fairly
reflect, in reasonable scope and detail and in accordance with good
business practice, the transactions and assets and liabilities of the
Seller and such other information as is contained therein.
(c) Since December 31, 2003, the Seller has operated the Business in
the normal and ordinary course in a manner consistent with past practices
and pay and discharge, in accordance with past practice but not less than
on a timely basis, all of the Seller's payables and other Liabilities.
Since December 31, 2003, there has not been any development, event, change,
circumstance or condition, whether considered alone or together any other
one or more developments, changes, circumstances or conditions, that has
had, or could have, a Material Adverse Effect. Without limitation to any of
the foregoing, since December 31, 2003:
(i) there has not been any change in the accounting methods or
practices followed by the Seller, except as disclosed on Schedule
--------
3.10(c)(i) attached to this Agreement;
----------
(ii) the Seller has not sustained any material damage,
destruction, theft, loss or interference with the Purchased Assets,
whether or not covered by insurance;
(iii) the Seller has not (x) paid or declared any dividends or
made any distributions or payment in respect of, or made any payment
on account of, or set apart assets for a sinking or another analogous
fund for, the purchase redemption, defeasance, retirement or other
acquisition of, the Seller's securities, whether debt or equity, and
whether in cash or in property or in obligations the Seller or (y)
paid any management or similar fee to any Person;
(iv) no development, event, change, condition or circumstance
that constitutes, whether with or without the passage of time or the
giving of notice or both, a default under any of the Seller's
outstanding debt obligations has occurred;
(v) the Seller has not created, incurred, assumed or guaranteed
any indebtedness (except for the endorsement of negotiable instruments
for deposit or collection or similar transactions in the normal and
ordinary course of business) other than (x) for trade indebtedness
incurred by the Seller in the normal and ordinary course of business
and (y) as described on Schedule 3.10(c)(v) attached to this
Agreement;
(vi) the Seller has not made or committed to make any capital
expenditure or capital addition or betterments in excess of an
aggregate of $25,000;
(vii) the Seller has not entered into any Contract outside of the
ordinary course of business or which involves either (x) a commitment
of the Seller's assets or
28
the incurrence by the Seller of liabilities in any one
transaction or series of related transactions in excess of $25,000, or
(y) other than Franchising Contracts entered into in the ordinary
course of business, a term of more than one (1) year;
(viii) the Seller has not made or entered into any commitment to
make, any contribution (charitable or otherwise) to any Person;
(ix) the Seller has not entered into any transaction or series of
transactions or any Contract (including any Franchising Contract) with
any Shareholder or any of the Seller's or any Shareholder's respective
Affiliates except as set forth on Schedule 3.10(c)(ix) attached to
this Agreement;
(x) the Seller has not sold, leased, exchanged, transferred or
otherwise disposed of, or agreed to sell, lease, exchange, transfer or
otherwise dispose of, the any assets with an individual fair market
value of $5,000 or more, in each case, or $25,000 in the aggregate;
(xi) forgiven, cancelled, compromised, waived or released any
debts, claims or rights in excess of $25,000 individually or $50,000
in the aggregate;
(xii) accelerated collection of any of its Accounts Receivables;
and
(xiii) the Seller has not entered into any Contract or made any
commitment to do any of the foregoing.
3.11 Absence of Undisclosed Liabilities. Except as set forth on Schedule
3.11 attached to this Agreement, except as and to the extent reflected on, or
fully reserved against in, the balance sheet of the Seller at December 31, 2004
including, without limitation, all notes thereto (the "Seller Balance Sheet"),
the Seller has no Liabilities, except for those that were incurred consistently
with past business practice in or as a result of the normal and ordinary course
of business since the date of the Seller Balance Sheet, which do not result from
or arise out of any breach of Contract, breach of warranty, tort, infringement
or violation of any Requirement of Law and which, in the aggregate, do not have
a Material Adverse Effect.
3.12 Real Property.
-------------
(a) The real property identified on Schedule 3.12(a) attached to this
----------------
Agreement constitutes all of the real property owned by Seller
(collectively, the "Owned Real Property"). The Owned Real Property
consists solely of residential property. None of the Owned Real
Property is used by the Seller in the conduct of the Business.
(b) The real property identified on Schedule 3.12(b) attached to this
----------------
Agreement constitutes all of the real property leased by Seller
or any of the Seller's Affiliates which is used by the Seller in the
conduct of the Business (collectively, the "Leased Real Property").
Except as identified on Schedule 3.12(b), neither the Seller nor the
Seller's Affiliates has entered into any leases, subleases, licenses,
occupancy agreements, options, rights, concessions or other Contracts
or arrangements, written or oral, granting to any Person other than
29
the Seller or the Seller's Affiliates, as applicable, the right
to use any of the Leased Real Property.
(c) The buildings, structures, improvements and fixtures located on
the Leased Real Property are in good condition and repair and are
sufficient to carry on the Business as currently conducted, ordinary wear
and tear excepted and, to the Knowledge of the Seller or any Shareholder,
are structurally sound. All mechanical and other systems located therein
are in good condition and repair and are sufficient to carry on the
Business as currently conducted, ordinary wear and tear excepted. No
buildings, structures, improvements or fixtures on the Leased Real
Property, or the operation or maintenance thereof, violates any restrictive
covenant, or encroaches on the property owned or leased by any other
Person, which would impair the continued use of the Leased Real Property
for the use currently being made thereof. The Leased Real Property and the
buildings, structures, improvements and fixtures thereon are sufficiently
supplied with the utilities and other services as necessary for the
operation of the Leased Real Property and such buildings, structures,
improvements and fixtures, in each case, as currently operated, including,
without limitation, water, storm and sanitary sewer facilities, gas,
electric, cable and telephone facilities. The Leased Real Property
currently has access to public ways, duly laid out and accepted by the
appropriate local jurisdiction, either directly or over valid, recorded and
insurable easements over private ways or private property for (i) egress
and ingress from all such Leased Real Property and (ii) connections to
water supply, storm and sanitary sewer facilities, telephone, gas and
electrical connections, fire protection, drainage and other public
utilities, as is necessary for the conduct of the Business as is currently
conducted.
(d) The Seller has obtained all Governmental Permits required for the
use, occupancy and operation thereof. The Leased Real Property complies
with applicable Requirements of Law. Neither the Seller nor any Shareholder
has received any written notice of any violation of Law with respect to any
of the Leased Real Property which remains unremedied as of the Closing
Date. Neither the Seller nor any Shareholder has received any written
notice that any governmental or regulatory body or authority having
jurisdiction over any of the Leased Real Property intends to exercise the
power of eminent domain, condemnation, or similar power with respect to all
or any part of the Leased Real Property, and to the Knowledge of the Seller
or any Shareholder, no such action is threatened. To the Knowledge of the
Seller or any Shareholder, there are no proposed reassessments of any of
the Leased Real Property by any Governmental or Regulatory Authority.
Neither the Seller nor any Shareholder has received written notice of, and
the Seller is not, and to the Knowledge of the Seller or any Shareholder,
no other party thereto is in default in the performance, observance, or
fulfillment of any material obligation, covenant or condition contained in
any easement, restrictive covenant or any similar instrument or agreement
affecting any of the Leased Real Property.
(e) The Seller has delivered or caused to be delivered to the
Purchaser true and correct copies of all title reports; title policies;
surveys; use, occupancy, zoning and land use certificates; permits and
compliance letters; zoning opinions; leases; subordination and
non-disturbance agreements; and subleases currently in possession or
control of the Seller with respect to any of the Leased Real Property.
(f) Each Contract relating to or affecting the Leased Real Property
(i) is in full force and effect, (ii) affords the Seller peaceful,
undisturbed and exclusive possession of the
30
applicable Leased Real Property, free of all Encumbrances and (iii)
constitutes a valid and binding obligation of, and is enforceable in
accordance with its terms against the Seller and, to the Knowledge of the
Seller or any Shareholder, each of the other parties thereto, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium or
other law affecting the enforcement of creditors' rights generally or by
general equitable principles.
(g) The Seller has performed the obligations required to be performed
by it to date under all Contracts relating to or affecting the Leased Real
Property and is not in default or breach thereof, and no event or condition
has occurred, whether with or without the passage of time or the giving of
notice, or both, that would constitute such a breach or default. Neither
the Seller nor any other party to any such Contract has provided any notice
to the other party or to the Seller, as applicable, of its intent to
terminate, withdraw its participation in, or not renew any such Contract.
The Seller has not, and to the Knowledge of the Seller or any Shareholder
no other party to any such Contract has, threatened to terminate or not
renew any such Contract. To the Knowledge of the Seller or any Shareholder,
no other party to any such Contract is in breach or default under any
provision thereof, and no event or condition has occurred, whether with or
without the passage of time or the giving of notice, or both, that would
constitute such a breach or default.
(h) Except as set forth on Schedule 3.12(h), no Consent of any party
----------------
to any Contract related to or affecting the Leased Real Property is
required in connection with the Transactions.
(i) The execution, delivery and performance of this Agreement and the
consummation of the Transactions do not and will not (i) result in or give
to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Leased Real Property, (ii) result in or give
to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed rent or payments under any such
Contract or (iii) result in the creation or imposition of any obligation
and liability or any Encumbrance upon any such Leased Real Property or any
of the Purchased Assets under the terms of any such Contract.
3.13 Condition of Purchased Assets. The Purchased Assets including, without
limitation, all computer hardware and Software (including, without limitation,
all operating and application systems) are in good working, condition and
repair, ordinary wear and tear excepted and suitable to carry out the Business
as currently conducted. The Purchased Assets comply with all applicable
Requirements of Law, Orders and Permits. Except for the Excluded Assets, the
Purchased Assets include all assets and property necessary and appropriate to
carry on the Business as currently conducted.
3.14 Contracts.
---------
(a) Attached to this Agreement as Schedule 3.14(a) is a complete and
----------------
accurate list of each Contract described below to which the Seller or
any of its properties is party or is otherwise bound or subject (each, a
"Material Contract"):
31
(i) all Franchising Contracts, together with a description of the
territory applicable to each Franchising Contract;
(ii) all Contracts that create a partnership or a joint venture
or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
(iii) all Contracts relating to the acquisition, divestiture,
lease, management, service, supply and security of fixed assets,
including intangible assets, physical fixed assets (with the exception
of real estate and real estate-like rights) and financial assets whose
value exceeds $10,000 per item or collectively $20,000 per Contract;
(iv) all lease or rental Contracts to the extent that they
involve annual payments of $10,000 per item or collectively of $20,000
per Contract;
(v) all management, service, supply, security, maintenance and
similar Contracts, and all attornment Contracts, subordination
Contracts or similar Contracts affecting or relating to the use and
quiet and peaceful enjoyment of the Leased Real Property;
(vi) all Contracts for storage, transportation or similar
services with carriers or warehouses;
(vii) except for Franchising Contracts included on Schedule
3.14(a) --------
-------
all license Contracts entered into by the Seller, whether as licensor
or licensee;
(viii) all credit Contracts entered into by the Seller as lender,
or borrower, or guarantor, with the exception of the Seller's usual
and customary trade receivables or payables agreed to by the Seller in
the normal and ordinary course of business;
(ix) except for Franchising Contracts included on Schedule
3.14(a) pursuant to Section 3.14(a)(i), all Contracts involving a
commitment of the Seller's assets or the incurrence by the Seller of
liabilities in any one transaction or series of related transactions
in excess of $10,000, or that extend beyond one year from the date of
this Agreement;
(x) all Contracts with each supervising attorney in each
jurisdiction in which the Seller has granted any right to develop or
operate franchises or businesses using any of the Seller's Trademarks;
(xi) all employment Contracts which provide for an annual
aggregate remuneration of more than $20,000 and all Contracts with
advisors or consultants to the extent that they involve annual
payments exceeding $10,000;
(xii) all Contracts relating to fringe benefits, profit sharing,
commissions, or bonuses as well as similar agreements with the
exception of those already listed in Schedule 3.9(a) attached to this
Agreement;
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(xiii) all Contracts that purport to or has the effect of
limiting the Seller's right to engage in, or compete with any Person
in any business;
(xiv) all Contracts which have been entered into or assumed
outside the ordinary course of any of the Seller's Business;
(xv) all Contracts in which the Seller grants a
power-of-attorney;
(xvi) all Contracts pursuant to which the Seller acquired rights
to the WTP Trademark;
(xvii) all Contracts relating to the Seller's or any
Shareholder's creation, distribution, or selling of books and other
works of authorship in any form of media;
(xviii) all Contracts pursuant to which the Seller or any
Shareholder assigned or granted to any Person any Copyrights, Patents
or Trademarks, technology, trade secrets. know-how, inventions,
methods, techniques, or other intellectual property written, created,
invented, or developed by the Seller or such Shareholder;
(xix) all Contracts pursuant to which any Person has assigned or
granted to the Seller or any Shareholder any rights in any Copyrights,
Patents or Trademarks, technology, trade secrets. know-how,
inventions, methods, techniques, or other intellectual property
written, created, invented, or developed by such Person;
(xx) any Contract that either (x) does not fit within one of the
foregoing categories described in (i) through (xvii) above or (y) is
not otherwise identified in Schedule 3.12(a) or Schedule 3.21 and that
is material to any of the Seller's conduct of the Business, the use or
operation of the Purchased Assets or the marketing, promotion or
provision of the goods and document preparation services offered by
the Seller; and
(xxi) a description of any proposal for the Seller to enter into
any Contracts of the type listed in Section 3.14(a)(i) through Section
3.14(a)(xxi), inclusive.
(b) The Seller has provided true and complete copies of all of the
Material Contracts to the Purchaser. In addition, the Seller has provided
and Schedule 3.14(b)(i) attached to this Agreement attaches true and
complete copies of each of the eleven (11) forms of Franchising Contract
for which there are outstanding Franchising Contracts (the "Form
Franchising Contracts") included in the Franchise Offering Circular
provided to such franchisee. The Seller has provided to the Purchaser true
and complete copies of each of the forms of Franchise Offering Circular
provided to its franchisees. Except for the current Franchising Contracts
with the franchisees identified on Schedule 3.14(b)(ii) attached to this
Agreement, there are no differences between any actual outstanding
Franchise Contract and the corresponding Form Franchising Contract.
(c) Each of the Assigned Contracts is (i) in full force and effect,
(ii) a valid and binding obligation of, and is enforceable in accordance
with its terms against Seller and, to the Knowledge of the Seller or any
Shareholder, each of the other parties thereto, except
33
as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other law affecting the enforcement of creditors' rights
generally or by general equitable principles, (iii) was made in the normal
and ordinary course of business, and (iv) contains no provision or covenant
prohibiting or limiting the ability of the Seller to operate its Business
in the manner in which it is currently operated.
(d) The Seller has performed the obligations required to be performed
by it to date under each Assigned Contract and is not in default or breach
thereof, and no event or condition has occurred, whether with or without
the passage of time or the giving of notice, or both, that would constitute
such a breach or default. Neither the Seller nor any other party to any
Assigned Contract has provided any notice to the other party or to the
Seller, as applicable, of its intent to terminate, withdraw its
participation in, or not renew any such Assigned Contract. The Seller has
not, and to the Knowledge of the Seller or any Shareholder no other party
to any Assigned Contract has, threatened to terminate or withdraw from
participation in any such Assigned Contract. To the Knowledge of the Seller
or any Shareholder, no other party to any Assigned Contract is in breach or
default under any provision thereof, and no event or condition has
occurred, whether with or without the passage of time or the giving of
notice, or both, that would constitute such a breach or default.
(e) Except as set forth on Schedule 3.14(e), no Consent of any party
-----------------
to any Assigned Contract is required in connection with the
Transactions.
(f) The execution, delivery and performance of this Agreement and the
consummation of the Transactions does not and will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Assigned
Contract, (ii) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments
under any such Assigned Contract or (iii) result in the creation or
imposition of any obligation and liability or any Encumbrances upon any of
the Purchased Assets under the terms of any such Assigned Contract.
3.15 Insurance. Attached to this Agreement as Schedule 3.15 is a complete
and accurate list of all insurance policies held by the Seller identifying all
of the following for each such policy: (i) the type of insurance; (ii) the
insurer; (iii) the policy number; (iv) the applicable policy limits, (v) the
applicable periodic premium; and (vi) the expiration date. Each such insurance
policy is valid and binding and is and has been in effect since the date of its
issuance. All premiums due thereunder have been paid, and the Seller has not
received any notice of any cancellation, non-renewal or termination in respect
of any such policy. The Seller is not in default under any such policy. To the
Knowledge of the Seller or any Shareholder, no such insurer is the subject of
insolvency proceedings. The Seller has not received notice that any insurer
under any policy referred to in this Section 3.15 is denying liability with
respect to a claim thereunder or defending under a reservation of rights clause.
The Seller has notified its insurance carriers of all litigation, claims and
facts which could reasonably give rise to a claim, all of which are disclosed in
Schedule 3.15. The liability insurance maintained by the Seller is and has at
all times prior to the date of this Agreement been on an "occurrence" basis.
3.16 Intellectual Property.
---------------------
34
(a) Attached to this Agreement as Schedule 3.16(a) is a complete and
----------------
accurate list of all Owned Intellectual Property and all Licensed
Intellectual Property, together with the following information in the case
of any registrations or applications therefor: (i) applicable registration
number; (ii) filing, registration, issue or application date; (iii) record
owner; (iv) country; and (v) title or description. Each item of
Intellectual Property is valid and enforceable. None of the Intellectual
Property infringes or conflicts with the rights of any other Person.
(b) Schedule 3.16(b) attached to this Agreement identifies all
----------------
Contracts (other than the Franchising Contracts disclosed on Schedule
3.14(a)) pursuant to which Seller has granted to any third party, or
received from any third party, an assignment of, or grant of any license or
rights in, any of the Intellectual Property, except for "off-the-shelf" or
"shrink-wrap" software license agreements. No other Person has any rights
to any of the Owned Intellectual Property other than the non-exclusive
right to use the WTP Trademark, the Seller's Copyrights and the
confidential and proprietary techniques, know how, processes and methods
for operating an independent legal document preparation services business
and the promotion and marketing of such services granted to the Seller's
currently licensed franchisees pursuant to the Franchising Contracts
disclosed on Schedule 3.14(a). Upon execution and delivery by Seller to
Purchaser of the instruments of conveyance contemplated by this Agreement,
all of the Intellectual Property will be owned or available for use by
Purchaser on identical terms and conditions immediately following the
Closing. Seller has taken reasonable measures to protect the proprietary
nature of any Intellectual Property which constitute trade secrets and of
any confidential information that it owns or uses in the Business.
(c) All Intellectual Property was either (i) written, created,
invented or developed solely by either (x) employees of the Seller acting
within the scope of their employment or (y) third parties who have assigned
all of their rights therein to the Seller or (ii) licensed to the Seller
from a third party, which license remains in full force.
(d) The Seller is not infringing, and has not infringed upon, and is
not misappropriating, and has not misappropriated, the rights of any Person
in the conduct of the Business. Neither the Seller nor any Shareholder has
received any written notice of any alleged infringement or misappropriation
by Seller of the rights of any Person. To the Seller's or any Shareholder's
Knowledge, no Person is infringing or has infringed or is misappropriating
or has misappropriated any of the Intellectual Property.
(e) The Seller does not have any obligation to compensate others for
the use of any Intellectual Property. In addition, except for the
non-exclusive right to use the WTP Trademark, the Seller's Copyrights and
the confidential and proprietary techniques, know how, processes and
methods for operating an independent legal document preparation services
business and the promotion and marketing of such services granted to the
Seller's currently licensed franchisees pursuant to the Franchising
Contracts disclosed on Schedule 3.14(a), the Seller has not granted any
license or other right to use, in any manner, any of the Intellectual
Property, whether or not requiring the payment of royalties.
(f) None of the technology, trade secrets, know-how, inventions,
methods, techniques, and other intellectual property relating to the
Business, the value of which to the
35
Seller is contingent upon maintenance of the confidentiality thereof,
has been disclosed by the Seller or any Affiliate thereof to any Person
other than employees, representatives, agents and franchisees of the Seller
under an agreement of confidentiality.
(g) Each Contract relating to or affecting the Intellectual Property
(i) is in full force and effect and (ii) constitutes a valid and binding
obligation of, and is enforceable in accordance with its terms against, the
Seller and, to the Knowledge of the Seller or any Shareholder, each of the
other parties thereto, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other law affecting the enforcement
of creditors' rights generally or by general equitable principles.
(h) The Seller has performed the obligations required to be performed
by it to date under all Contracts relating to or affecting the Intellectual
Property and is not in default or breach thereof, and no event or condition
has occurred whether with or without the passage of time or the giving of
notice, or both, that would constitute a breach or default. Neither the
Seller nor any other party to any such Contract has provided any notice to
the other party or the Seller, as applicable, of its intent to terminate,
withdraw its participation in, or not renew any such Contract. The Seller
has not, and to the Knowledge of the Seller or any Shareholder no other
party to any such Contract has, threatened to terminate or not renew any
such Contract. To the Knowledge of the Seller or any Shareholder no other
party to any such Contract, is in breach or default under any provision
thereof, and no event or condition has occurred, whether with or without
the passage of time or the giving of notice, or both, that would constitute
such a breach or default.
(i) The execution, delivery and performance of this Agreement and the
consummation of the Transactions does not and will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give
to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Contract or
(iii) result in the creation or imposition of any obligation and liability
or any Encumbrances upon any of the Purchased Assets under the terms of any
such Contract.
3.17 Environmental Matters. To the Knowledge of the Seller or any
----------------------
Shareholder:
(a) The Seller and the operation of the Business is and has been in
compliance with all applicable Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions that may give
rise to any common law or statutory liability, or otherwise form the basis
of any Legal Proceeding, Order, remedial or responsive action, or study
involving or relating to the Seller, based upon or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substance or wastes.
36
(c) There is no asbestos contained in or forming a part of any
building, structure or improvement comprising a part of any of the Leased
Real Property. There are no polychlorinated byphenyls (PCBs) present, in
use or stored on any of the Leased Real Property. No radon gas or the
presence of radioactive decay products of radon are present on, or
underground at any of the Leased Real Property at levels beyond the minimum
safe levels for such gas or products prescribed by applicable Environmental
Laws.
3.18 Permits.
-------
(a) The Seller has obtained and holds in full force, and Schedule
3.18(a) sets forth a complete and accurate list of, all Permits that are
necessary for the Seller's operation of the Business. Each of the Seller's
employees, independent contractors and agents has obtained and holds in
full force all Permits that are necessary for them to provide their
respective services to, for, and on behalf of the Seller or the Business.
Neither the Seller nor any of its employees and to the Seller's or any
Shareholder's Knowledge, none of its independent contractors or agents is
in noncompliance with the terms of any such Permit. Any Permits held by the
Seller that cannot be transferred to the Purchaser are identified as such
on Schedule 3.18(a).
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in
or give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any Assigned Permit,
(ii) result in or give to any Person any additional rights or entitlement
to increased, additional, accelerated or guaranteed payments under any
Assigned Permit or (iii) result in the creation or imposition of any
Liability or any Encumbrance upon any of the Purchased Assets under the
terms of any Assigned Permit.
(c) Except as set forth in Schedule 3.18(c) attached to this Agreement,
----------------
there is no Order outstanding against the Seller, nor is there now
pending, or to the Seller's or any Shareholder's Knowledge, threatened, any
Legal Proceeding, which could adversely affect any Permit required to be
obtained and maintained by the Seller.
3.19 Regulatory Filings. The Seller has filed all registrations, filings,
reports, and submissions that are required by any Requirement of Law including,
without limitation, all Franchising Laws. All such registrations, filings,
reports and submissions were made in accordance and complied with applicable
Requirements of Law when filed and all information contained in such
registrations, filings, reports and submissions was true and complete when made.
Since the date of any such filing, there has been no development, event, change,
condition or circumstance that would require the Seller to amend or supplement
any such registration, filing, report or submission or otherwise make any
additional registration, filing, report or submission, other than the fact of
the consummation of the Transactions. No deficiencies have been asserted by any
Governmental or Regulatory Authority with respect to any such registrations,
filings, reports and submissions that have not been finally resolved. The Seller
has not conducted, directly or indirectly, any business in, nor has it entered
into any Franchising Contract with respect to, any territory or jurisdiction
located outside of the United States.
3.20 Taxes and Tax Returns.
---------------------
37
(a) The Seller has filed all Tax Returns required to have been filed
and, except as set forth in Schedule 3.20(a) attached to this Agreement,
has paid all Taxes that have become payable. All such Tax Returns are
complete and accurate and disclose all Taxes required to be paid by the
Seller for the periods covered thereby. All Taxes not yet due and payable
by the Seller which relate to periods ending on or before the date of the
Seller's Balance Sheet are reflected as a liability thereon. All Taxes not
due and payable by the Seller before the Closing Date with respect to
periods ending after the date of the Seller's Balance Sheet have been
withheld or reserved for and are reflected as liabilities on the Books and
Records of the Seller.
(b) Except as set forth in Schedule 3.20(b)(which sets forth the nature
----------------
of the proceeding, the type of Tax Return, the deficiencies proposed
or assessed and the amount thereof, and the taxable year in question), (i)
no deficiency for any Taxes has been proposed, asserted or assessed against
the Seller that has not been resolved and paid in full or fully reserved
for and identified on the Seller's Balance Sheet; (ii) the Seller nor any
Shareholder has received any outstanding and unresolved notices from the
IRS or any other Governmental or Regulatory Authority of any proposed
examination or of any proposed change in reported information relating to
the Seller; and (iii) no Legal Proceeding or audit or similar foreign Legal
Proceedings are pending or to the Seller's or any Shareholder's Knowledge,
threatened with regard to the Seller's Taxes or Tax Returns.
(c) No waiver or comparable consent given by the Seller regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns is outstanding, nor is any request for any such waiver or consent
pending.
(d) There are no Encumbrances of any kind for Taxes upon any of the
Purchased Assets other than for those Encumbrances for Taxes not yet due
and payable.
(e) The Seller has complied with all applicable Requirements of Law
relating to the payment and withholding of Taxes (including, without
limitation, withholding Taxes pursuant to Sections 1441 and 1442 of the
Code). All monies the Seller is required by applicable Requirement of Law
to collect or withhold from the employees of the Seller for income Taxes,
social security and other payroll Taxes, or from independent contractors,
shareholders or other third parties, have, within the time and manner
presented by applicable Requirement of Law, been collected or withheld, and
either paid to the respective Governmental or Regulatory Authority.
(f) The Seller has not, during the five-year period ending on the
Closing Date, been a personal holding company within the meaning of ss.541
of the Code.
(g) The Seller has never filed or been included in any combined or
consolidated Tax Return with any other Person or been a member of an
affiliated group of corporations within the meaning of Section 1504 of the
Code. The Seller does not otherwise have liability for the Tax of any other
Person under Treas. Reg. ss.1.1502-6 (or any comparable provisions of
state, local or foreign Tax Law) and the Seller is not a party to or bound
by any Contract with respect to Taxes (including any advance pricing
agreement, closing agreement or other agreement relating to Taxes with any
taxing Authority) and is not otherwise responsible by
38
Contract or any Requirement of Law (including theories of successor or
transferee liability) or otherwise, for the Taxes of any other Person.
(h) The Seller has not been at any time on or before the Closing Date,
a "United States real property holding corporation" within the meaning of
ss.897 of the Code; and the Seller will timely supply to Purchaser such
documentation as may be required to relieve the Purchaser of the obligation
to withhold Taxes pursuant to ss.ss.897 and 1445 of the Code.
(i) Neither the Seller nor the Purchaser will, as a result of any or
the Transactions, be obligated to make a payment that would be a "parachute
payment" to a "disqualified individual" as those terms are defined in
ss.280G of the Code, without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the
future.
(j) The Seller has not filed a consent under ss.341(f) of the Code or
any comparable provision of a state statute.
(k) None of the Purchased Assets is required to be treated as owned by
any other Person pursuant to the "safe harbor lease" provisions of former
Section 168(f)(8) of the Code.
(l) To the Knowledge of the Seller or any Shareholder, no state of
facts exists or has existed that would constitute grounds for the
assessment of Tax liability with respect to periods that have not been
audited by the IRS or any other Taxing Authority.
3.21 Affiliate Transactions. Schedule 3.21 attached to this Agreement lists
each written and fully describes each Contract, transaction or series of
transactions, whether written or oral (other than for the compensation
arrangements described in Schedule 3.8(a) and Schedule 3.9(a)), pursuant to
which the Seller is a party or otherwise bound with any Affiliate of any or all
of the Seller and the Shareholders (an "Affiliate Transaction"). Each Affiliate
Transaction has been entered into the normal and ordinary course of the Business
and pursuant to the reasonable requirements thereof.
3.22 Reserved.
--------
3.23 Accounts Receivable. All Accounts Receivable owing to the Seller as of
the date of this Agreement are completely and accurately listed and aged on
Schedule 3.23 attached to this Agreement and all Accounts Receivable owing to
the Seller as of the Closing Date will be completely and accurately listed and
aged on an update to Schedule 3.23 to be delivered by the Seller to the
Purchaser at the Closing. The Accounts Receivable arose from bona fide
transactions in the normal and ordinary course of business and reflect credit
terms consistent with past practice. The Seller has not sold, factored,
securitized, or consummated any similar transaction with respect to any of its
Accounts Receivable. Subject to proper reserves taken into account consistently
in accordance with the Seller's prior practice as reflected on Schedule 3.23,
each Accounts Receivable is fully collectable in the normal and ordinary course
of business (i.e., without resort to litigation or assignment to a collection
agency), and are not subject to any dispute, counterclaim, defense, set-off or
other claim.
39
3.24 Solvency. On and as of the date of this Agreement, and after giving
effect to the Closing and any other Transactions contemplated by the Transaction
Documents, (i) the sum of the Seller's Liabilities is not greater than all of
the assets of the Seller at a fair valuation, (ii) the present fair salable
value of the Seller's assets is not less than that will be required to pay the
probable liability of the Seller on its Liabilities as they become absolutely
mature, (iii) the Seller has not incurred, will not incur, does not intend to
incur and does not believe that it will incur, Liabilities beyond the Seller's
ability to pay such Liabilities as they mature, (iv) the Seller is not engaged
in, and is not about to engage in, a business or transaction for which the
Seller's assets constitutes or would constitute unreasonably small capital, and
(v) the Seller is not insolvent as defined in, or otherwise in a condition which
could in any circumstances then or subsequently render any transfer or
conveyance made by it voidable or fraudulent pursuant to, any Requirements of
Law pertaining to bankruptcy, insolvency or creditors' rights generally
including, without limitation the Bankruptcy Code of 1978, 11 U.S.C. ss.101, et
seq., as amended, the Uniform Fraudulent Transfer Act as enacted in the State of
California, as amended, or any other applicable Requirements of Law relating to
fraudulent conveyances, fraudulent transfers or preferences. The Seller is
receiving reasonably equivalent value and consideration from the Purchaser for
the Purchased Assets and is not selling the Purchased Assets to the Purchaser
with intent to hinder, delay or defraud any of its creditors.
3.25 Officers and Directors.
----------------------
(a) Except as set forth on Schedule 3.25(a) attached to this Agreement,
----------------
neither of the Shareholders nor any of the current directors, current
executive officers or current significant employees of the Seller has,
within the past five (5) years:
(i) been convicted of, or pled guilty or no contest to, any crime
(other than traffic offenses and other minor offenses);
(ii) been named as a subject of any criminal Legal Proceeding
(other than for traffic offenses and other minor offenses);
(iii) been the subject of any Order or sanction relating to an
alleged violation of, or otherwise found by any Governmental or
Regulatory Authority to have violated: (A) any Requirement of Law
relating to securities or commodities, (B) any Requirement of Law
respecting financial institutions, insurance companies, or fiduciary
duties owed to any Person, (C) any Requirement of Law prohibiting
fraud (including, without limitation, mail fraud or wire fraud) or (D)
any Franchising Laws;
(iv) been the subject of any Order enjoining or otherwise
prohibiting him or her from engaging in any type of business activity;
or
(v) been the subject of any Order or sanction by (A) a
self-regulatory organization (as defined in Section 3(a)(26) of the
Exchange Act), (B) a contract market designated pursuant to Section 5
of the Commodity Exchange Act, as amended, or (C) any substantially
equivalent foreign authority or organization.
(b) Except as set forth on Schedule 3.25(b) attached to this Agreement,
----------------
during the past five (5) years, (i) no petition under the Federal
bankruptcy laws or any state
40
insolvency or similar law has been filed by or against, and (ii)
no receiver, conservator, fiscal agent or similar officer has been
appointed for, any Shareholder or any of the current directors,
current executive officers or current significant employees of the
Seller or any partnership in which any of the foregoing individuals
was a general partner or any Person of which any of the foregoing
individuals was a director or an executive officer or had a position
having similar powers and authority at or within two (2) years of the
date of such filing or appointment.
(c) Schedule 3.25(c) attached to this Agreement is an accurate
---------------
and complete list of all Persons (other than any of the persons
described in the first sentence of Section 1.4, subpart (iii)) that
are Affiliates of any Shareholder, any of the current directors, any
of the current officers or current significant employees of the
Seller, detailing the nature of the relationship between each such
individual and each such Person that causes such Person to be an
Affiliate of each such individual.
3.26 Brokers or Finders. Except as set forth in Schedule 3.26 attached to
this Agreement, neither the Seller nor the Shareholders have engaged the
services of any broker or finder with respect to any of the Transactions, and no
Person acting on behalf of the Seller or any Shareholder has or will have, as a
result of the consummation of any of the Transactions, any right, interest or
valid claim against or upon the Purchaser for any commission, fee or other
compensation as a finder or broker thereof. Without degradation to any of the
foregoing, the Seller is are solely responsible for the payment of the
commissions, fees and other compensation payable to the Person having any such
right, interest or claim including, without limitation, the Persons identified
on Schedule 3.26.
3.27 No Other Agreements to Sell Assets. Neither the Seller nor any
Shareholder has granted, and there is not outstanding, any option, right,
agreement, Contract or other obligation or commitment pursuant to which any
other Person could claim a right to acquire in any way any of the Purchased
Assets or any ownership or other material interest in either the Seller or the
Business.
3.28 Franchises.
----------
(a) Schedule 3.28(a) attached to this Agreement accurately and
---------------
completely lists the names and addresses of all of the Seller's
franchises and details separately (i) the Seller's total initial license
and franchise fee revenue, (ii) total processing fee revenue, and (iii)
total other revenue attributable to each such franchise during each of the
fiscal years ended 2002, 2003 and 2004. There has been no adverse change in
the Seller's business relationship with any such franchise that, in the
aggregate, could have a Material Adverse Effect.
(b) Except as set forth on Schedule 3.28(b) attached to this Agreement,
----------------
(i) the Seller does not own or operate any legal document preparation
services business other than the Seller's provision of such services to its
currently licensed franchisees under the Franchising Contracts disclosed on
Schedule 3.14(a) and (ii) neither Shareholder, nor any of the Seller's or
either Shareholder's respective Affiliates is a party to any Franchising
Contract or otherwise owns or operates any legal document preparation
service business other than the Shareholders' ownership of the Seller.
41
(c) Schedule 3.28(c) attached to this Agreement accurately and
----------------
completely identifies, with respect to each presently outstanding and
unexpired right to license, option, or right of first refusal or
negotiation, to operate franchises and businesses using any of the Seller's
Trademarks: (i) the territories to which such right or options applies;
(ii) the Persons to whom any such right or option is granted; and (iii) the
amounts paid by such Persons for such right or option. Except as set forth
on Schedule 3.28(c), there is no presently outstanding and unexpired right
to license, option, or right of first refusal or negotiation, to operate
franchises and businesses using any of the Seller's Trademarks.
(d) Except as set forth on Schedule 3.28(d) attached to this Agreement,
----------------
none of the Franchising Contracts provides for a duration which is
different than the duration expressly set forth in the Form Franchising
Contract included as part of the Uniform Offering Circular provided to the
applicable franchisee.
(e) Schedule 3.28(e) attached to this Agreement accurately and
----------------
completely identifies all presently outstanding and unexpired rights
granted to any Person to sell or sub-franchise all or any portion of any
territory granted to such Person pursuant to a Franchising Contract.
(f) Schedule 3.28(f) attached to this Agreement accurately and
----------------
completely identifies all agreements and arrangements between the
Seller and any Person party to a Franchising Contract which obligates the
Seller to indemnify such Person or to maintain any type of insurance and,
in the case of any obligation to maintain insurance, Schedule 3.28(f) also
sets forth the type of insurance and coverage amounts so required to be
maintained.
(g) Schedule 3.28(g) attached to this Agreement accurately and
----------------
completely quantifies, by franchisee, all unsatisfied and ongoing
commitments made by the Seller to pay for any advertising expenditures made
by such franchisee.
(h) Schedule 3.28(h) attached to this Agreement accurately and
----------------
completely identifies all agreements and commitments made by the
Seller pursuant to any Franchising Contract in respect to participation in
the management of the Seller, whether as a member of the Seller's board of
directors, any advisory board or committee, as an officer of the Seller, or
otherwise.
(i) Schedule 3.28(i) attached to this Agreement completely and
----------------
accurately lists and quantifies, with respect to each Person which is a
party to a Franchising Contract, each Contract pursuant to which the
Seller agreed, directly or indirectly, to be responsible for the payment or
performance of any obligation incurred for or on behalf of such Person,
whether for any loan, line of credit, lease or other obligation of such
Person.
(j) Schedule 3.28(j) attached to this Agreement accurately and
----------------
completely lists the address of each "We the People" center that is
presently being operated by the Seller for or on behalf of any Person which
is a party to a Franchising Contract and the identity of such Person.
(k) Schedule 3.28(k) attached to this Agreement accurately and
----------------
completely lists each Franchising Contract which purports to restrict
the right of the Seller or any
42
Person acquiring the Seller or the Seller's assets or any of their
respective Affiliates from engaging in any business activities in a manner
which is more restrictive than those restrictions otherwise expressly
provided for in the Form Franchising Contract included as part of the
Uniform Offering Circular provided to the applicable franchisee.
(l) The Franchise Repurchase Obligations identified on Schedule
2.10(b) completely and accurately reflect the balance of the purchase price
payable for the purchase of the franchise territories and businesses that
is outstanding as of the date of this Agreement under each of the Franchise
Repurchase Agreements.
(m) Schedule 3.28(m)attached to this Agreement accurately and completely
----------------
lists all obligations (other than the Franchise Repurchase
Obligations) arising under or in connection with any Franchising Agreement
to repay or refund any franchising fee or other amount paid by a Person to
obtain rights to any territory or any obligation to repurchase any
territory or rights from any Person.
(n) Except as set forth on Schedule 3.28(n), no grant by the Seller to
----------------
any Person of any right to use any of the Seller's Trademarks in any
territory violates or contravenes on the rights of any other Person.
3.29 Investment Company. The Seller is not an "investment company" within
the meaning of the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder, as amended from time to time, or any successors thereto.
3.30 Business Practices. Neither the Seller nor any Shareholder nor any of
the Seller's directors, officers, agents, employees or representatives in their
capacities as such has: (a) used any funds for unlawful contributions, unlawful
gifts, unlawful entertainment or other unlawful expenses relating to political
activity; (b) directly or indirectly paid or delivered any fee, commission or
other sum of money or item of property, however characterized, to any finder,
agent or other party acting on behalf of or under the auspices of a governmental
official or Governmental or Regulatory Authority, in any jurisdiction, which is
in any manner related to the Business that was illegal under any Requirements of
Law; (c) made any payment to any customer or subcontractor of the Business or to
any officer, director, partner, employee or agent of any such customer or
subcontractor, for the unlawful influence of any such customer or subcontractor
or any such officer, director, partner, employee or agent; (d) engaged in any
other unlawful reciprocal practice, or made any other unlawful payment or given
any other unlawful consideration to any such customer or subcontractor or any
such officer, director, partner, employee or agent, in respect of the Business;
or (e) violated any Requirement of Law pertaining to campaign finance, elections
or similar areas.
3.31 Accuracy and Completeness of Information. To the Knowledge of the
Seller or any Shareholder, all information furnished, to be furnished or caused
to be furnished to the Purchaser or the Guarantor by any or all of the Seller
and the Shareholders with respect to any of the Purchased Assets, the Assumed
Liabilities, the Business, the Seller and the Shareholders for the purposes of
or in connection with this Agreement or any of the Transactions is or, if
furnished after the date of this Agreement, shall be true and complete in all
material respects and does not, and, if furnished after the date of this
Agreement, shall not, contain any
43
untrue statement of material fact or fail to state any material fact necessary
to make such information not misleading.
3.32 Compliance with Securities Laws. The Seller is acquiring all DFC
Common Stock being received as a part of the Stock Consideration pursuant to
Section 2.3 for its own account without a view to or for the resale or other
disposition thereof, except that the Seller may, by way of dividend or
distribution, transfer all or any portion of such DFC Common Stock to the
Shareholders in their respective capacities as such. Neither the Seller nor any
Shareholder shall offer, sell, transfer, assign, pledge or hypothecate all or
any portion of the such DFC Common Stock unless such shares are registered under
the Securities Act and applicable state securities laws or exempt therefrom. The
Seller and each of the Shareholders is an "accredited investor," as such term is
defined under the Rule 501 of Regulation D promulgated under the Securities Act
and has such experience in financial and business matters (or the Seller's and
the Shareholders' respective professional advisors or purchaser's representative
has such financial experience) such that it is a capable of evaluating the
merits and risks of an investment in the DFC Common Stock. The Seller and each
of the Shareholders acknowledge that it and he and she have been given a full
opportunity to examine such instruments, documents and other information and
materials relating to the Purchaser as the Seller or the respective Shareholder
deemed necessary or appropriate to make an informed decision relating to an
acquisition of the DFC Common Stock and such securities' suitability as an
investment for the Seller or such Shareholder. The Seller and each of the
Shareholders further acknowledge that the Seller and such Shareholder have been
afforded a full opportunity to ask questions and to obtain any additional
information necessary to verify the accuracy of any information furnished and
that the Seller and such Shareholder has, in fact, asked all such questions and
reviewed all such instruments, documents and other information and materials as
the Seller and such Shareholder has so deemed necessary and appropriate,
including, without limitation, the following reports filed by DFC with the
Securities and Exchange Commission: report on Form 10-K for DFC's fiscal year
ended June 30, 2004; 10-Q for each of DFC's fiscal quarters ended September 30,
2004 and December 31, 2004; all reports on Form 8-K filed since June 30, 2004
and the final prospectus from DFC's initial public offering. The Seller and each
Shareholder acknowledges that the shares of DFC Common Stock issued as Stock
Consideration under this Agreement cannot be pledged, hypothecated, sold or
transferred without registration under the Securities Act or an exemption
therefrom and that each certificate representing any such Shares shall be
stamped or otherwise imprinted conspicuously with a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW OR AN EXEMPTION THEREFROM UNDER
SUCH ACT OR ANY SUCH LAW.
44
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1 Organization. The Purchaser (i) is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation; (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where it is required to qualify and be authorized to do
business.
4.2 Authorization for Agreement. The execution, delivery and performance of
this Agreement and the consummation of the Transactions by the Purchaser (i) are
within the Purchaser's corporate powers and duly authorized by all necessary
corporate and, if necessary, shareholder action on the part of the Purchaser and
(ii) do not and will not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, except as set forth in this
Agreement or (B) contravene, violate or constitute, whether with or without the
passage of time or the giving of notice or both, a breach or default under, any
of the Purchaser's Organizational Documents, any Requirement of Law applicable
to Purchaser or any of its properties or any Contract to which the Purchaser or
any of its properties is bound, except as set forth in Schedule 4.2.
4.3 No Consents. No Consent of any party to any Contract with the Purchaser
is required in connection with the Transactions, the failure of which to obtain
would have a material adverse effect on the Purchaser.
4.4 Enforceability. This Agreement and each of the Transaction Documents to
which the Purchaser is a party have been duly executed and delivered by the
Purchaser and constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other law affecting the enforcement of creditors' rights generally
or by general equitable principles.
4.5 Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser, threatened against or affecting, the
Purchaser or any of its properties or otherwise that could adversely affect or
restrict the ability of the Purchaser to consummate fully the Transactions or
that in any manner draws into question the validity of this Agreement.
4.6 DFC Common Stock. The DFC Common Stock to be issued pursuant to this
Agreement will, on the Closing Date, be duly and validly issued, fully paid and
non-assessable, and free of any preemptive rights. Assuming the accuracy of the
representations and warranties set forth in Section 3.32 and the Seller's and
Shareholders' compliance with their respective obligations under all applicable
Requirements of Law with respect to such DFC Common Stock, the DFC Common Stock
to be issued pursuant to this Agreement will be issued pursuant to an exemption
from the registration requirements of the Securities Act.
4.7 Brokers or Finders. Except as set forth in Schedule 4.7 attached to
this Agreement, neither the Purchaser nor any Purchaser Affiliated Entity has
engaged the services of any broker or finder with respect to any of the
Transactions, and no Person acting on behalf of
45
the Purchaser has or will have, as a result of the consummation of any of the
Transactions, any right, interest or valid claim against or upon the Seller for
any commission, fee or other compensation as a finder or broker thereof. Without
degradation to any of the foregoing, the Purchaser is solely responsible for the
payment of the commissions, fees and other compensation payable to the Person
having any such right, interest or claim including, without limitation, the
Persons identified on Schedule 4.7.
ARTICLE 5
COVENANTS
5.1 Approvals. Each of the Seller, the Shareholders and the Purchaser shall
use their respective commercially reasonable efforts to obtain all Regulatory
Approvals and Consents from such other third parties including, without
limitation, Consents required under any Contract, Permit or Requirement of Law,
that are necessary for such party to be able to perform its, his or her
obligations under this Agreement. The Shareholders shall cause the Seller to
cooperate with the Purchaser to the fullest extent practicable in seeking to
obtain all such Regulatory Approvals and Consents, and shall provide, and shall
cause the Seller to provide, such information and communications to all
Governmental or Regulatory Authorities as they or the Purchaser may reasonably
request from time to time in connection therewith. Nothing contained herein
shall require either of the Seller or the Purchaser to amend the provisions of
this Agreement, to pay or cause any of their respective Affiliates to pay any
money not otherwise already required to be paid or payable by such Person under
all applicable Requirements of Law and Contracts, or to provide or cause any of
its Affiliates to provide any guaranty to obtain any such Regulatory Approvals
or Consents.
5.2 Cooperation; Access to Books and Records. The Seller will, and the
Shareholders will and will cause the Seller to, cooperate with the Purchaser in
connection with the Transactions, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Seller will, and the Shareholders will and will cause the Seller to, afford to
the Purchaser, its agents, legal advisors, accountants, auditors, commercial and
investment banking advisors and other authorized representatives, agents and
advisors reasonable access to all of the properties and books and records of the
Seller (including those in the possession or control or their accountants,
attorneys and any other third party), as the case may be, for the purpose of
permitting the Purchaser to make such investigation and examination of the
business and properties of the Seller as the Purchaser, in its discretion, shall
deem reasonably necessary. Any such investigation, access and examination shall
be conducted during normal business hours, at the Purchaser's sole cost and
expense, upon reasonable prior written notice by the Purchaser and on terms not
disruptive to the business, operation or employees of the Seller or any of the
Seller's Affiliates. The Seller will, and the Shareholder will cause the Seller
to, cause each of their respective directors, officers, employees and
representatives, including, without limitation, their respective counsel and
accountants, to cooperate fully with the Purchaser in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Purchaser's sole benefit, and shall not (i) impair or
reduce any representation or warranty made by any or all of the Seller and the
Shareholders in this Agreement or (ii) relieve the Seller or any Shareholder
from its or their obligations with
46
respect to such representations and warranties (including, without limitation,
the indemnification obligations under Article 9).
5.3 Duty to Supplement.
------------------
(a) Promptly upon the Seller's or any Shareholder's discovery of the
occurrence of any development, event, change, circumstance or condition,
whether considered alone or together any other one or more developments,
events, changes, circumstances or conditions, that has had, or could have,
a Material Adverse Effect , the Seller and the Shareholders shall, as the
case may be, notify the Purchaser of such development, event, change,
circumstance or condition. In the event that the Purchaser receives such
notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of
written notice to the Seller to that effect.
(b) Promptly upon the Seller's or any Shareholder's discovery of any
development, event, change, condition or circumstance that causes any
representation or warranty made by any or all of the Seller or the
Shareholders to the Purchaser in this Agreement to become untrue or
inaccurate at any time after the date of this Agreement, the Seller and the
Shareholders shall notify the Purchaser of such development, event, change,
condition or circumstance. No such notification or disclosure by the Seller
or any Shareholder to the Purchaser shall in any manner be deemed to be a
waiver by the Purchaser of the Seller's and the Shareholders' duty to
satisfy the condition that the applicable representation or warranty as
originally made in this Agreement be true and correct in all material
respects at the Closing.
5.4 Confidentiality.
---------------
(a) Each party to this Agreement shall not disclose any Confidential
Information about any other party to any Person unless the party desiring
to disclose such Confidential Information receives the prior written
consent of the party about whom such Confidential Information pertains,
except (i) to any party's employees, agents and representatives who have a
need to know such Confidential Information for the performance of their
duties as employees, agents or representatives, (ii) to the extent strictly
necessary to obtain any Consents including, without limitation, any
Regulatory Approvals, that may be required or advisable to consummate the
Transactions, (iii) to enforce such party's rights and remedies under this
Agreement, (iv) with respect to disclosures that are compelled by any
Requirement of Law or pursuant to any Legal Proceeding; provided, that the
party compelled to disclose Confidential Information pertaining to any
other party shall notify such other party thereof and use his or its
commercially reasonable efforts to cooperate with such other party to
obtain a protective order or other similar determination with respect to
such Confidential Information; (v) made to any party's legal counsel,
independent auditors, investment bankers or financial advisors under an
obligation of confidentiality; or (vi) as otherwise permitted by Section
5.9 of this Agreement.
(b) In the event that the Closing shall not occur, each party shall,
upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by
such requesting party, except (i) for such documents,
47
notes, memoranda, analyses, computations, studies and other writing
prepared by the party returning or destroying such Confidential Information
and (ii) to the extent that such party deems such Confidential Information
necessary to enforce his or its rights under this Agreement.
(c) The obligation of confidentiality contained in this Section 5.4
-----------
shall, (i) from and after the date of this Agreement, supersede all of
the obligations contained in that certain Non-Disclosure Agreement between
the Purchaser and the Seller dated January 28, 2004, and (ii) survive the
termination of this Agreement, or the Closing, as applicable, for a period
of five (5) years after the date of such termination or the Closing Date,
respectively; provided, that, if the Closing shall occur, then the
Purchaser's obligation of confidentiality shall terminate upon the Closing,
except to the extent relating to the Excluded Assets and personal
information related to the Shareholders.
5.5 Performance of Conditions. The Seller, the Shareholders and the
Purchaser shall, and the Shareholders shall cause the Seller to, take all
reasonable steps necessary or appropriate and use all commercially reasonable
efforts to effect as promptly as practicable the fulfillment of the conditions
required to be obtained that are necessary or advisable for the Seller and the
Purchaser to consummate the Transactions including, without limitation, all
conditions precedent set forth in Article 6.
5.6 Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Seller shall, and the Shareholders
shall cause the Seller to, operate the Business in the normal and ordinary
course in a manner consistent with past practice. Without limitation to the
foregoing, the Seller shall and the Shareholders shall cause the Seller to, do
the following:
(a) maintain the Seller's corporate existence and all Permits, bonds,
franchises and qualifications to do business;
(b) comply with all applicable Requirements of Law;
(c) preserve intact the Seller's material business relationships with
its agents, customers, franchisees, employees, creditors and others with
whom the Seller has a business relationship;
(d) preserve the Seller's assets, properties and rights (including,
without limitation, the Purchased Assets) necessary or advisable to the
profitable conduct of the Business;
(e) pay when due all Taxes lawfully levied or assessed against the
Seller before any penalty or interest accrues on any unpaid portion thereof
and to file all Tax Returns when due (including after applicable
extensions);
(f) maintain in full force and effect all policies of insurance
adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies
of established repute engaged in the same or a similar business; and
48
(g) perform all material obligations under all Contracts to which the
Seller is a party or by which it or its properties are bound or subject.
5.7 Negative Covenants. During the period from and after the execution and
delivery of this Agreement until the Closing, the Seller shall not, and the
Shareholders shall not cause or permit the Seller to, directly or indirectly,
take or cause to be taken any action, omit to take any action or enter into any
transaction that would result in any of the representations and warranties made
by any of the Seller or the Shareholders to become untrue or incorrect or to do
any of the following, in any case, without the express prior written consent of
the Purchaser, which consent shall not be unreasonably withheld:
(a) make or adopt any changes to or otherwise alter the Seller's
Organizational Documents;
(b) purchase or enter into any Contract or commitment to purchase or
lease any real property;
(c) grant any salary increase or permit any advance to any director,
officer or employee or enter into any new, or amend or otherwise alter, any
Employee Benefit Plan, or any employment or consulting Contract, or any
Contract providing for the payment of severance;
(d) make any borrowings or otherwise create, incur, assume or guaranty
any indebtedness (except for the endorsement of negotiable instruments for
deposit or collection or similar transactions in the normal and ordinary
course of the Business), issue any commercial paper or refinance any
existing borrowings or indebtedness;
(e) enter into any Permit other than in the normal and ordinary course
of business;
(f) enter into any Contract, other than in the normal and ordinary
course of the Business; provided that any Contract permitted to be entered
into pursuant to this Section 5.7(f) shall not (i) involve a commitment of
the Seller's assets or the incurrence by the Seller of liabilities in any
one transaction or series of related transactions in excess of $5,000 and
cause the aggregate commitment under all such new Contracts to exceed
$25,000, or (ii) except for any Franchising Contract, involve a term of
more than one (1) year;
(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
(h) except for transactions with franchises owned by the Shareholders
or any of the Seller's directors and officers on the date of the Agreement
which are completed on the same basis and manner as Seller's similar
transactions with all other franchises, enter into any transaction with any
Affiliate of the Seller, any Shareholder or any of the Seller's directors,
officers or significant employees, including, without limitation the
purchase, sale or exchange of property with, the rendering of any service
to, or the making of any loans to, any such Affiliate;
(i) (x) declare or pay any dividend, distribution or payment in
respect of, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for,
49
the purchase, redemption, defeasance, retirement or other acquisition
of, any of the Seller's securities, whether debt or equity, and whether in
cash or property or in obligations of the Seller, or (y) pay any royalty or
management fee;
(j) grant or issue any subscription, warrant, option or other right to
acquire any of the Seller's securities, whether debt or equity, and whether
by conversion or otherwise, or make any commitment to do so;
(k) merge or consolidate, or agree to merge or consolidate, with or
into any other Person or acquire or agree to acquire or be acquired by any
Person;
(l) mortgage, pledge, hypothecate or grant a security interest in, or
otherwise permit or suffer to exist any Encumbrance upon, any of the
Purchased Assets;
(m) sell, lease, license, exchange, transfer or otherwise dispose of,
or agree to sell, lease, license, exchange, transfer or otherwise dispose
of, any of the Purchased Assets with an individual fair market value of
$5,000 or more in each case or $25,000 in the aggregate;
(n) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate
of $10,000;
(o) cause or permit the Seller or any such Subsidiary to (i) terminate
any Employee Benefit Plan, (ii) permit any "prohibited transaction"
involving any Employee Benefit Plan, (iii) fail to pay to any Employee
Benefit Plan any contribution which it is obligated to pay under the terms
of such Employee Benefit Plan, whether or not such failure to pay would
result in an "accumulated funding deficiency" or (iv) allow or suffer to
exist any occurrence of a "reportable event" or any other event or
condition, which presents a material risk of termination by the PBGC of any
Employee Benefit Plan. As used in this Agreement, the terms "accumulated
funding deficiency" and "reportable event" shall have the respective
meanings assigned to them in ERISA, and the term "prohibited transaction"
shall have the meaning assigned to it in the Code and ERISA;
(p) not compromise, settle, grant any waiver or release relating to or
otherwise adjust any Legal Proceeding or claim asserted against the Seller,
which results in (x) any admission of liability on the part of, or the
entering of any judgment against the Seller, (y) the Seller's being
required to take any action or any imposition of any restrictions on the
part of any of the Seller or (z) the payment of money by the Seller in
excess of $25,000 or the release by the Seller of any right or claim having
a value in excess of $50,000;
(q) accelerate collection of any of its Accounts Receivables;
(r) enter into any transaction or conduct any operations not in the
normal and ordinary course of business; or
(s) enter into any Contract or make any commitment to do any of the
foregoing.
50
5.8 Exclusive Negotiation. Neither the Seller nor any Shareholder shall:
(i) provide any information about the Seller or the Business to any Person
(other than the Purchaser and its representatives) with a view to sell, lease,
license, exchange, transfer or otherwise dispose or solicit an offer for the
acquisition of any of the Purchased Assets or any ownership or other material
interest in the Seller or the Business; (ii) solicit or accept any other offers
for the sale, lease, license, exchange or transfer or other disposition of any
of the Purchased Assets or any ownership or other material interest in the
Seller or the Business; (iii) negotiate or discuss with any Person (other than
the Purchaser and any of its representatives) the possible sale, lease, license,
exchange, transfer or other disposition of any of the Purchased Assets or any
ownership or other material interest in the Seller or the Business; or (iv)
sell, lease, license, exchange, transfer or otherwise dispose of any of the
Purchased Assets or any ownership or other material interest in the Seller or
the Business, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Seller shall,
and the Shareholders shall and shall cause the Seller to, advise the Purchaser
promptly of its or their receipt of any written offer or written proposal
concerning any of the Purchased Assets, the Seller, or the Business or any
material interest therein, and the terms thereof.
5.9 Public Announcements. None of the parties shall issue any public
report, statement, press release or similar item or make any other public
disclosure with respect to the execution or substance of this Agreement or the
Closing prior to the consultation with and approval of the other parties, except
that the Purchaser may, after the Closing, or if the Purchaser or its counsel
deem it necessary to comply with the Purchaser's obligations under applicable
federal or state securities laws, prior to the Closing, issue any such report,
statement, press release or similar item or make any such public disclosure.
5.10 Monthly Financial Statements.. The Seller will, and the Shareholders
will cause the Seller to, deliver to the Purchaser as soon as available and in
any event within twenty (20) days after the end of each calendar month,
statements of operations of the Seller and the Business for such month and for
that part of the fiscal year ending with such month, and the related balance
sheet as at the end of such month, certified by the chief financial officer of
the Seller to present fairly the financial position of the Seller and the
Business as at the end of such month and the results of its operations for the
periods then ended and to have been prepared in accordance with GAAP
consistently applied, except that such financial statements need not include
full financial footnotes.
5.11 Reserved.
---------
5.12 New Franchising Contracts and Arrangements. In the event that the
Seller proposes to (a) enter into any new Franchising Contract, (b) amend, grant
any concession, or waive any rights under any existing Franchising Contract, (c)
consent to any assignment or transfer of any existing Franchising Contract, or
(d) amend, grant any concession or waive any rights in relation to the Seller's
standard terms and conditions with respect to the sale of goods or the provision
of any services to or for the benefit of any of its franchisees, the Seller
shall (and the Shareholders shall cause the Seller to) provide prior written
notice to the Purchaser thereof. Such notice shall contain a true and complete
copy of all Contracts pertaining thereto and detailed description of any oral
understandings and arrangements pertaining thereto. The Seller shall (and the
Shareholders shall cause the Seller to) furnish as promptly as practicable all
such
51
additional information and documents as the Purchaser shall reasonably request
in connection therewith.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1 Conditions Precedent to Purchaser's Obligations. The Purchaser's
obligation to consummate the Transactions is subject to the satisfaction of, or
waiver in writing by the Purchaser of, prior to or at the Closing, each and
every of the following conditions precedent:
(a) Due Diligence. The Purchaser's completion and satisfaction with
-------------
the results of its due diligence review in connection with the
Transactions, including, without limitation, its completion and review of
lien searches on the Seller's assets.
(b) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Seller and the Shareholders contained in this
Agreement shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
Each of the Seller and the Shareholders shall execute and deliver to the
Purchaser a certificate dated the Closing Date, certifying that all of the
Seller's and the Shareholders' representations and warranties contained in
this Agreement are true and correct in all material respects on and as of
the Closing Date as though such representations and warranties had been
made on and as of the Closing Date.
(c) Compliance with Covenants and Conditions. Each of the Seller and
----------------------------------------
the Shareholders shall have performed and complied in all material
respects with each and every covenant, agreement and condition required by
this Agreement to be performed or satisfied by the Seller and the
Shareholders, as the case may be, at or prior to the Closing Date. Each of
the Seller and the Shareholders shall execute and deliver to the Purchaser
a certificate dated as of the Closing Date, certifying that the Seller and
the Shareholders have fully performed and complied in all material respects
with all the duties, obligations and conditions required by this Agreement
to be performed and complied with by them at or prior to the Closing Date.
(d) Delivery of Documents. The Seller and the Shareholders shall have
---------------------
executed and delivered to the Purchaser all Contracts, documents,
certificates, instruments and items required to be delivered by it or them
prior to the Closing Date pursuant to this Agreement as set forth in
Section 7.3 hereof.
(e) Consents. All proceedings, if any, to have been taken and all
--------
Consents including, without limitation, all Regulatory Approvals,
necessary or advisable in connection with the Transactions shall have been
taken or obtained.
(f) Lender Approval. The Purchaser shall have obtained, on terms
---------------
satisfactory to it in its sole discretion, approval by its lender for
its acquisition of the Purchased Assets.
(g) Names. The Seller and each Affiliate of the Seller, any Shareholder
-----
or any of the Seller's directors, officers or significant employees
shall have completed all requisite
52
documents and taken all actions necessary to effect a change in their
respective names so as to remove any reference therein to the WTP Trademark
or to any name similar to the WTP Trademark and to permit the Purchaser's
use of the WTP Trademark.
(h) No Legal Proceeding Affecting Closing. There shall not have been
-------------------------------------
instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of Purchaser to acquire or hold or to
exercise full rights of ownership of any of the Purchased Assets; (ii)
imposing or seeking to impose limitations on the ability of the Purchaser
to combine and operate the Business or the Purchased Assets with the
Purchaser's business, operations and assets; (iii) imposing or seeking to
impose other sanctions, damages or liabilities arising out of the
Transactions on the Purchaser or any of the Purchaser's directors, officers
or employees; (iv) requiring or seeking to require divestiture by the
Purchaser of all or any material portion of the Business or the Purchased
Assets; or (v) restraining, enjoining or prohibiting or seeking to
restrain, enjoin or prohibit the consummation of the Transactions.
(i) Secretary's Certificate. The Seller shall have delivered to the
-----------------------
Purchaser a certificate or certificates dated as of the Closing Date
and signed on its behalf by its Secretary to the effect that (i)(A) the
copy of the Seller's articles or certificate of incorporation attached to
the certificate is true, correct and complete, (B) no amendment to such
articles or certificate of incorporation has occurred since the date of the
last amendment annexed (such date to be specified), (C) a true and correct
copy of the Seller's bylaws as in effect on the date thereof and at all
times since the adoption of the resolution referred to in (D) is annexed to
such certificate, (D) the resolutions by the Seller's board of directors
and shareholders authorizing the actions taken in connection with the sale
of the Purchased Assets, including, without limitation, the execution,
delivery and performance of this Agreement, were duly adopted and continue
in force and effect (a copy of such resolutions to be annexed to such
certificate); (ii) setting forth the specimen signatures on such
certificate or certificates of the incumbent officers of the Sellers
executing this Agreement and any of the other Transaction Documents on
behalf of the Seller as their genuine signatures; and (iii) the Seller is
in good standing in all jurisdictions where it is required to be qualified
and authorized to do business. The certification referred to above in (iii)
shall attach certificates of good standing certified by the Secretaries of
State or other appropriate officials of such states, dated as of a date not
more than a five (5) days prior to the Closing Date.
(j) Opinion of Counsel of the Seller. Paul, Hastings, ▇▇▇▇▇▇▇▇ &
--------------------------------
▇▇▇▇▇▇ LLP, special counsel for the Seller and the Shareholders, shall
have delivered to the Purchaser its opinion, dated the Closing Date and in
the form attached hereto as Exhibit I.
(k) Pay-Off Amounts. The Pay-Off Amounts due to the Pay-Off Amount
---------------
Recipients and the Other Payment Recipients by the Seller on the
Closing Date shall not exceed Ten Million Five Hundred Thousand Dollars
($10,500,000), representing the Cash Consideration less the Escrow Amount.
(l) New Franchising Contracts and Arrangements. Seller shall not
------------------------------------------
have (i) entered into any new Franchising Contract, (ii) amended,
granted any concession, or waived any rights under any existing Franchising
Contract, (iii) consented to any assignment or transfer of any existing
Franchising Contract, or (iv) amended, granted any concession or waived any
53
rights in relation to the Seller's standard terms and conditions with
respect to the sale of goods or the provision of any services to or for the
benefit of any of its franchisees, in any case, in a manner or pursuant to
any terms and conditions that are unsatisfactory to the Purchaser in its
reasonable discretion.
(m) Warrantholder Release. The Seller shall have delivered to the
---------------------
Purchaser an executed release from each of ▇▇▇▇▇▇▇▇ Partners LLC and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ in favor of the Purchaser and its Affiliates in form and
substance acceptable to the Purchaser in its reasonable discretion.
(n) Stipulated Judgment. The Seller shall have satisfied in full its
-------------------
obligations under Section III and Section VIII of the Stipulated
Judgment.
(o) Lock-Up Agreement. The Seller and each Shareholder shall have
-----------------
executed and delivered such Seller's and Shareholder's duly executed
counterpart to the lock-up agreement in the form attached to this Agreement
as Exhibit I.
(p) Escrow Agreement. Purchaser, Seller, Shareholders, and the Escrow
Agent shall have entered into the Escrow Agreement.
6.2 Conditions Precedent to the Seller's Obligations. The Seller's
obligation to consummate the Transactions is subject to the satisfaction of, or
waiver in writing by the Seller of, prior to or at the Closing, each and every
of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Purchaser contained in this Agreement shall be true
and correct in all material respects on and as of the date of the Closing
Date with the same force as though such representations and warranties had
been made on and as of the Closing Date. The Purchaser shall execute and
deliver to the Seller a certificate dated as of the Closing Date,
certifying that all of its representations and warranties contained in this
Agreement are true and correct in all material respects on and as of the
Closing Date as though such representations and warranties had been made on
and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser shall have
----------------------------------------
performed and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement to be
performed or satisfied by the Purchaser at or prior to the Closing Date.
The Purchaser shall execute and deliver to the Seller a certificate dated
as of the Closing Date, certifying the Purchaser has fully performed and
complied in all material respects with all the duties, obligations and
conditions required by this Agreement to be performed and complied with by
it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser shall have executed and
---------------------
delivered to the Shareholders all Contracts, documents, certificates,
instruments and items required to be delivered by it at or prior to the
actual Closing pursuant to this Agreement including, without limitation,
those set forth in Section 7.2.
(d) Secretary's Certificate. The Purchaser shall have delivered to the
-----------------------
Seller a certificate or certificates dated as of the Closing Date and
signed on its behalf by its
54
Secretary to the effect that (i)(A) the copy of the Purchaser's
articles or certificate of incorporation attached to the certificate is
true, correct and complete, (B) no amendment to such articles or
certificate of incorporation has occurred since the date of the last
amendment annexed (such date to be specified), (C) a true and correct copy
of the Purchaser's bylaws as in effect on the date thereof and at all times
since the adoption of the resolution referred to in (D) is annexed to such
certificate, (D) the resolutions by the Purchaser's board of directors and,
if required, shareholders authorizing the actions taken in connection with
the purchase of the Purchased Assets including, without limitation, the
execution, delivery and performance of this Agreement were duly adopted and
continue in force and effect (a copy of such resolutions to be annexed to
such certificate) and (ii) setting forth the specimen signatures on such
certificate or certificates of the incumbent officers of the Purchaser
executing this Agreement and any of the other Transaction Documents on
behalf of the Purchaser as their genuine signatures.
ARTICLE 7
CLOSING
7.1 Closing. Subject to the satisfaction of the conditions set forth in
Article 6 of this Agreement, the consummation of the Transactions (the
"Closing") shall occur at the offices of Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP,
Counsel to the Seller and Shareholders, at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇-▇▇▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, commencing at 10:00 A.M. on March 7, 2005. If all
of the conditions precedent set forth in Article 6 of this Agreement shall not
have been satisfied on or prior to such time, then the party whose conditions
have not been satisfied may, at its option, extend the date on which the Closing
is to take place for such reasonable periods as are necessary to satisfy such
conditions, but in no event beyond March 31, 2005.
7.2 Obligations of Purchaser. On the Closing Date, the Purchaser shall
deliver to the Seller (and execute, as applicable), the following items and
documents:
(a) Purchase Price.
--------------
(i) The aggregate amount to be paid at the Closing in accordance
with Section 2.5;
-----------
(ii) DFC's written instructions to American Stock Transfer &
Trust Co. to deliver certificates representing the Stock Consideration
to the Sellers;
(iii) The amount of $26,250, which amount represents one-half of
the fees and expenses incurred by the Seller in connection with the
audit and preparation of the Financial Statements,to the account
designated by the Seller.
(b) Documents. Each of the Transaction Documents to which it is a
---------
party; and
(c) Other. All such documents, certificates and instruments as are
-----
required to be provided by the Purchaser at the Closing.
55
7.3 Obligations of the Sellers and the Shareholders. On the Closing Date,
the Seller and the Shareholders, as applicable, shall deliver to the Purchaser
(and execute, as applicable), the following items and documents:
(a) Documents. The Seller and the Shareholders shall execute and
---------
deliver each of the Transaction Documents to which it, he or she is
contemplated to be a party; and
(b) Other. All such endorsements, assignments and other instruments of
-----
transfer and conveyance including, without limitation, waivers or
consents of lessors and other third Persons, and estoppels, releases,
satisfactions, termination statements from secured parties, certificates
and instruments, all as are required to be provided by the Seller and the
Shareholders, as applicable at the Closing.
ARTICLE 8
SURVIVAL
8.1 Survival of Representations and Warranties. Subject to the last two (2)
sentences of this Section 8.1, the respective rights of the Purchaser
Indemnified Parties and the Seller Indemnified Parties to assert any
indemnification claims with respect to any breach of any of the representations
and warranties of the Seller and the Shareholders on the one hand, and the
Purchaser on the other hand, contained in this Agreement and in any certificate,
document or instrument delivered at the Closing with respect thereto shall
survive the Closing until 5:00 P.M., local Philadelphia, Pennsylvania time, on
the second anniversary of the Closing Date, except that the right of the
Purchaser Indemnified Parties to assert indemnification claims with respect to
any breach of any of the representations and warranties set forth in any of
Section 3.6, Section 3.9, Section 3.20, and Section 3.26 shall survive until the
date which is ninety (90) days after the date on which the statute of
limitations applicable to the subject matter addressed thereunder expires. Any
right to assert any indemnification claims with respect to any breach of any
representation or warranty that would otherwise terminate in accordance with
this Section 8.1 will continue to survive if an Indemnity Notice or a Claim
Notice (as applicable) shall have been given on or prior to the date on which
such representation or warranty would have otherwise terminated, until the
related claim for indemnification has been satisfied or otherwise resolved as
provided in Article 9. The right of any party to assert any indemnification
claim with respect to any representation or warranty contained in this Agreement
or in any certificate, document or instrument delivered at the Closing with
respect thereto made by any party fraudulently or with intent to defraud or
mislead or recklessly or with gross negligence shall indefinitely survive the
Closing.
ARTICLE 9
INDEMNIFICATION
9.1 Seller's and Shareholders' Indemnification. From and after the Closing
Date, the Seller and each Shareholder shall, jointly and severally, indemnify
and hold harmless the Purchaser and any of the Purchaser's Affiliates, and each
Person who controls (within the meaning of the Securities Act) the Purchaser or
any such Affiliate, and each of their respective directors, officers, employees
and agents and the successors and assigns and executors and estates of any of
the foregoing (collectively, the "Purchaser Indemnified Parties"), from and
56
against all Indemnifiable Losses that may imposed upon, incurred by or asserted
against any of them resulting from, related to, or arising out of:
(a) any misrepresentation or breach of any warranty by the Seller or
any Shareholder contained in this Agreement or any document, instrument, or
certificate delivered by the Seller or any Shareholder to the Purchaser at
the Closing with respect thereto;
(b) any breach or non-fulfillment of any covenant or agreement to be
performed by the Seller or any Shareholder under this Agreement;
(c) any and all Liabilities, other than the Assumed Liabilities,
arising out of or relating to the conduct of the Business prior to the
Closing;
(d) any and all Retained Liabilities;
(e) any non-compliance with applicable Requirements of Law relating to
bulk sales, bulk transfers and the like or to fraudulent conveyances,
fraudulent transfers, preferential transfers and the like;
(f) any action, claim or demand by any holder of the Seller's
securities, whether debt or equity, or any securities which are convertible
into, or exercisable or exchangeable for, any of the Seller's debt or
equity securities, in such holder's capacity as such, whether now existing
or hereafter arising or incurred;
(g) any non-compliance with the Worker Adjustment and Retraining Act,
29 U.S.C. ss.2101, any similar Requirement of Law; and
(h) any Third Party Claim or Order arising out of any of the
foregoing.
9.2 Purchaser's Indemnification. From and after the Closing Date, the
Purchaser shall indemnify and hold harmless the Seller and the Shareholders and
each of their respective directors, officers, employees and agents and the
successors and assigns and executors and estates of any of the foregoing
(collectively, the "Seller Indemnified Parties"), from and against all
Indemnifiable Losses imposed upon, incurred by or asserted against, the Sellers
or the Shareholders resulting from, related to, or arising out of:
(a) any misrepresentation or breach of any warranty by the Purchaser
under this Agreement or any document, instrument, or certificate delivered
by the Purchaser to the Sellers or the Shareholders at the Closing with
respect thereto;
(b) any breach or non-fulfillment of any covenant or agreement to be
performed by the Purchaser under this Agreement;
(c) any and all of the Assumed Liabilities; and
(d) any Third Party Claim or Order arising out any of the foregoing.
57
9.3 Special Indemnity. In addition and without limitation to any Purchaser
Indemnified Parties' rights under Section 9.1, the Seller and each Shareholder
shall, jointly and severally, indemnify and hold harmless the Purchaser
Indemnified Parties from and against all Indemnifiable Losses that may be
imposed upon, incurred by or asserted against any of them resulting from,
related to, or arising out of any misrepresentation or breach of any warranty
contained in any of Section 3.7, Section 3.19 or Section 3.28. The determination
of whether an Indemnifiable Loss has been suffered or sustained by any Purchaser
Indemnified Party with respect to the representations and warranties contained
in Section 3.28(i) and Section 3.28(n) shall be made without giving effect to
any disclosure made in Schedule 3.28(i) or Schedule 3.28(n), respectively.
9.4 Payment; Procedure for Indemnification.
--------------------------------------
(a) In the event that any Indemnified Party shall suffer an
Indemnifiable Loss that does not involve any Third Party Claim, such
Indemnified Party shall give written notice to the party from whom
indemnification under this Article 9 is sought (the "Indemnifying Party")
of the amount of the Indemnifiable Loss (the "Indemnity Notice"). The
failure of any Indemnified Party to give the Indemnifying Party the
Indemnity Notice shall not release the Indemnifying Party of liability
under this Article 9; provided, however that the Indemnifying Party shall
not be liable for Indemnifiable Losses incurred by the Indemnified Party
that would not have been incurred but for the delay in the delivery of, or
the failure to deliver, the Indemnity Notice. Within thirty (30) days after
the receipt by the Indemnifying Party of the Indemnity Notice, the
Indemnifying Party shall either (i) pay to the Indemnified Party an amount
equal to the Indemnifiable Loss or (ii) object to such claim, in which case
the Indemnifying Party shall give written notice to the Indemnified Party
of such objection together with the reasons therefor, it being understood
that the failure of the Indemnifying Party to so object shall preclude the
Indemnifying Party from asserting any claim, defense or counterclaim
relating to the Indemnifying Party's failure to pay any Indemnifiable Loss.
The Indemnifying Party's objection shall not relieve the Indemnifying Party
from its obligations under this Article 9.
(b) In the event the facts giving rise to the claim for
indemnification under this Article 9 shall involve any claim or demand by
any third party against the Indemnified Party (a "Third Party Claim"), the
Indemnified Party, within the earlier of, as applicable, ten (10) days
after receiving a written notice of the commencement of a Legal Proceeding
or sixty (60) days after receiving notice of the existence of a Third Party
Claim giving rise to the claim for indemnification, shall send written
notice of such claim to the Indemnifying Party (the "Claim Notice"). The
failure of the Indemnified Party to give the Indemnifying Party the Claim
Notice shall not release the Indemnifying Party of liability under this
Article 9; provided, however, that the Indemnifying Party shall not be
liable for Indemnifiable Losses incurred by the Indemnified Party that
would not have been incurred but for the delay in the delivery of, or the
failure to deliver, the Claim Notice. Except as otherwise provided in this
Section 9.4(b), the Indemnifying Party shall be entitled to defend such
Third Party Claim in the name of the Indemnified Party at the Indemnifying
Party's own expense and through counsel which is reasonably satisfactory to
the Indemnified Party; provided, that if the applicable Third Party Claim
is against, or if the defendants in any such Third Party Claim shall
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party reasonably concludes that there are defenses available to
it that are different or additional to those available to the Indemnifying
Party or if the
58
interests of the Indemnified Party may be reasonably deemed to
conflict with those of the Indemnifying Party, then the Indemnified Party
shall have the right to select separate counsel and to assume and control
the defense of such Third Party Claim with the reasonable fees, expenses
and disbursements of such counsel to be reimbursed by the Indemnifying
Party as incurred. The Indemnifying Party shall give the Indemnified Party
notice in writing within ten (10) days after receiving the Claim Notice
from the Indemnified Party in the event of litigation, or otherwise within
thirty (30) days, of its intent to defend such Third Party Claim.
Notwithstanding the foregoing, if the Third Party Claim (i) seeks an
injunction, specific performance or other equitable relief against the
Indemnified Party or (ii) involves or potentially involves criminal
proceedings against the Indemnified Party, then the Indemnified Party shall
have the sole right to control the defense thereof through counsel of the
Indemnified Party's choosing with the reasonable fees, expenses and
disbursements of such counsel to be reimbursed by the Indemnifying Party as
incurred. In addition, if any Indemnified Party is a Purchaser Indemnified
Party and the Third Party Claim involves the Purchaser's or any of its
Affiliates' respective customers, franchises, suppliers, employees, agents
or independent contractors, then the Purchaser or any of the Purchaser's
Affiliates shall have the sole right to control the defense thereof through
counsel of the Purchaser's or such Affiliate's choosing with the reasonable
fees, expenses and disbursements of such counsel to be reimbursed by the
Indemnifying Party as incurred. Whenever the Indemnifying Party is entitled
to defend any Third Party Claim under this Section 9.4(b), the Indemnified
Party may elect, by notice in writing to the Indemnifying Party, to
continue to participate through its own counsel, at its expense, but the
Indemnifying Party shall have the right to control the defense of the Third
Party Claim.
(c) Notwithstanding any other provision contained in this Agreement,
in no event shall either the Indemnified Party or Indemnifying Party admit
any liability with respect to any Third Party Claim or settle or compromise
any Third Party Claim without the prior written consent of the other party;
provided, that if the Indemnified Party shall have negotiated a settlement
of any Third Party Claim, which proposed settlement contains terms that are
reasonable under the circumstances, then the Indemnifying Party shall not
withhold or delay the giving of such consent. In the event that the
Indemnifying Party shall have negotiated a settlement of any Third Party
Claim, which proposed settlement is substantively final and unconditional
as to the parties thereto (other than the consent of the Indemnified Party
required under this Section 9.4(c)) and contains an unconditional release
of the Indemnified Party and does not require the Indemnified Party to pay
or guaranty the payment of any amounts or include the taking of any actions
by, or the imposition of any restrictions on the part of, the Indemnified
Party and the Indemnified Party shall refuse to consent to such settlement,
the liability of the Indemnifying Party under this Article 9, upon the
ultimate disposition of such Third Party Claim, shall be limited to the
amount of the proposed settlement; provided, however, that in the event the
proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any
other obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the foregoing limitation of the
Indemnifying Party's liability as provided for in this Section 9.4(c), and
the Indemnifying Party shall continue to be liable to the full extent of
such Third Party Claim.
9.5 Limitations on Indemnification Obligations.
------------------------------------------
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(a) The Seller's and the Shareholders' obligation to make
indemnification payments to the Purchaser Indemnified Parties on account of
Indemnifiable Losses claimed under Section 9.1(a) shall not arise until the
aggregate amount of all Indemnifiable Losses claimed under Section 9.1(a)
exceeds One Hundred Thousand Dollars ($100,000) (the "Threshold Amount").
Once the aggregate amount of Indemnifiable Losses claimed by the Purchaser
Indemnified Parties under Section 9.1(a) exceeds the Threshold Amount, the
Purchaser Indemnified Parties shall then be entitled to recover all such
Indemnifiable Losses, except those Indemnifiable Losses that were used to
reach the Threshold Amount. The foregoing Threshold Amount limitation shall
not apply to, and the determination of whether the Threshold Amount has
been reached shall not include, any Indemnifiable Losses which (i) relate
to a breach by the Seller and the Shareholders of any of the
representations and warranties contained in any of Section 3.6, Section
3.9, Section 3.20 and Section 3.26, or (ii) arise from any
misrepresentation or breach of warranty made fraudulently or with intent to
defraud or mislead or recklessly or with gross negligence.
(b) The Purchaser's obligation to make indemnification payments to the
Seller Indemnified Parties on account of Indemnifiable Losses claimed under
Section 9.2(a) shall not arise until the aggregate amount of all
Indemnifiable Losses claimed under Section 9.2(a) exceeds the Threshold
Amount. Once the aggregate amount of Indemnifiable Losses claimed by the
Seller Indemnified Parties as a result of the events and circumstances
described in Section 9.2(a) exceeds the Threshold Amount, then the Seller
Indemnified Parties shall then be entitled to recover all such
Indemnifiable Losses, except those Indemnifiable Losses that were used to
reach the Threshold Amount. The foregoing Threshold Amount limitation shall
not apply to, and the determination of whether the Threshold Amount has
been reached shall not include, any Indemnifiable Losses arising from any
misrepresentation or breach of warranty made fraudulently or with intent to
defraud or mislead or recklessly or with gross negligence.
(c) The Seller's and the Shareholders' aggregate obligation to make
indemnification payments to the Purchaser Indemnified Parties on account of
Indemnifiable Losses claimed under Section 9.1(a) shall not exceed an
amount equal to Four Million Five Hundred Thousand Dollars ($4,500,000)
(the "Cap"). The foregoing Cap limitation shall not apply to, and the
determination of whether the Cap has been reached shall not include, any
Indemnifiable Losses which (i) relate to a breach by the Seller and the
Shareholders of any of the representations and warranties contained in any
of Section 3.6, Section 3.9, Section 3.20 and Section 3.26 or (ii) arise
from any misrepresentation or breach of warranty made fraudulently or with
intent to defraud or mislead or recklessly or with gross negligence. In
addition, the foregoing Cap limitation shall not apply to, and the
determination of whether the Cap has been reached shall not include, any
Indemnifiable Losses which are due under Section 9.3 and satisfied by a
payment from the Escrow Amount.
(d) The Purchaser's aggregate obligation to make indemnification
payments to the Seller Indemnified Parties on account of Indemnifiable
Losses claimed under Section 9.2(a) shall not exceed an amount equal to the
Cap. The foregoing Cap limitation shall not apply to, and the determination
of whether the Threshold Amount has been reached shall not include, any
Indemnifiable Losses arising from any misrepresentation or breach of
warranty made fraudulently or with intent to defraud or mislead or
recklessly or with gross negligence.
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9.6 Set-Off. Should any one or more claims by any of the Purchaser
Indemnified Parties be or have been made at any time any amount is payable to
the Seller under the Escrow Agreement or this Agreement including, without
limitation, amounts, if any, due under Section 2.8 in respect of Contingent
Consideration and amounts, if any, under Section 9.2, the payment of such amount
shall be deferred and such amount shall not be paid unless and until all such
claims have been finally resolved. Any Indemnifiable Losses including, without
limitation, any such Indemnifiable Losses in relation to any such claim, that
have not been paid to the Purchaser Indemnified Party to which it is due shall
reduce and offset (a) any right of the Seller to receive any disbursement under
the Escrow Agreement, and the amount of such reduction shall be paid to the
Purchaser, and (b) any amount payable to the Seller under this Agreement, in
each case, without regard to whether the time periods set forth in Section 8.1
have expired or the limitations set forth in Section 9.5(c) have been reached.
Any amounts payable to the Seller under the Escrow Agreement or this Agreement
that has been so deferred and not paid after any such reduction and offset under
this Section 9.6 shall be promptly paid by the Purchaser or the Escrow Agent, as
applicable, to the Seller.
9.7 Other Rights and Remedies Unaffected. The indemnification rights of the
parties under this Article 9 are independent of and in addition to such rights
and remedies as the parties may have under this Agreement, at law or in equity
or otherwise, all of which shall be cumulative.
ARTICLE 10
TERMINATION AND REMEDIES
10.1 Termination. This Agreement may be terminated, and the Transactions
-----------
may be abandoned:
(a) at any time before the Closing, by the mutual written agreement
among the Seller, the Shareholders and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to
Section 5.3(a), or if any of the Seller's or the Shareholders'
representations or warranties contained in this Agreement were untrue or
incorrect when made or become untrue or incorrect;
(c) at any time before the Closing, by the Seller if any of the
Purchaser's representations or warranties contained in this Agreement were
untrue or incorrect when made or become untrue or incorrect;
(d) at any time before the Closing, by the Seller and the Shareholders
on the one hand, or by the Purchaser, on the other hand, upon any material
breach by other(s) of such other party's covenants or agreements contained
in this Agreement and the failure of such other party to cure such breach,
if curable, within fifteen (15) days after written notice thereof is given
by the non-breaching party to the breaching party; or
(e) at any time after March 31, 2005, by the Seller and the
Shareholders on the one hand, or by the Purchaser on the other hand, upon
notification to the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating
party.
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10.2 Effect of Termination.
---------------------
(a) Subject to Section 10.2(b) of this Agreement, if this Agreement is
---------------
validly terminated pursuant to Section 10.1, then this Agreement shall
forthwith become void, and, subject to such Section 10.2(b), there shall be
no liability under this Agreement on the part of the Seller, the
Shareholders or the Purchaser and all rights and obligations of each party
to this Agreement shall cease; provided, that (i) the provisions with
respect to expenses in Section 13.6 shall indefinitely survive any such
termination, (ii) the provisions with respect to confidentiality of Section
5.4 shall survive any such termination until it, by its own terms, is no
longer operative; and (iii) this Section 10.2 shall indefinitely survive
such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such
party's covenants or agreements contained in this Agreement, or, if all
conditions to the obligations of a party at Closing contained in Article 6
of this Agreement have been satisfied (or waived by the party entitled to
waive such conditions) and such party does not proceed with the Closing,
then any and all rights and remedies available to the non-breaching
parties, whether under this Agreement, at law or in equity or otherwise
shall be preserved and shall survive the termination of this Agreement.
ARTICLE 11
POST-CLOSING COVENANTS
11.1 Further Cooperation. From and after the Closing Date, each of the
Seller and the Shareholders on the one hand, and the Purchaser on the other
hand, shall assist and cooperate with the other party in effecting the orderly
transfer of the Purchased Assets to the Purchaser. In addition, at the Seller's
or the Shareholders' request, on the one hand, or the Purchaser's request, on
the other hand, from time to time, the other party shall execute and deliver to
the requesting party such further endorsements, assignments and instruments of
transfer and conveyance and take such other actions as the Purchaser reasonably
requests to transfer, vest or perfect the Purchaser's rights in and to the
Purchased Assets free and clear of all Encumbrances and otherwise to accomplish
the orderly transfer of the Purchased Assets to the Purchaser and to consummate
the Transactions. In addition, the Seller and each Shareholder shall (i) provide
or cause to be provided such written information with respect to themselves and
(ii) take or cause to be taken such actions, in each of the foregoing cases, as
the Purchaser, or any auditor reasonably deems necessary to complete any audit
of the Seller's financial statements. From and after the Closing, Seller shall
cooperate with the Purchaser in the preparation of any filing with the
Securities and Exchange Commission which may be required by Purchaser related to
this Agreement and the Transactions, including without limitation, the filing of
a current report on Form 8-K announcing the Closing, and any amendment to such
current report thereto, and the filing of financial statements, in accordance
with Regulation S-X of the Securities Exchange Act of 1934, as amended.
11.2 Maintenance of Books and Records.
--------------------------------
(a) For a period of six (6) years after the Closing Date, the
Purchaser shall maintain all Books and Records maintained by the Seller on
or prior to the Closing Date and,
62
subject to the execution of an agreement regarding the confidentiality
and use thereof in form and substance reasonably satisfactory to the
Purchaser, shall permit any or all of the Seller or the Shareholders or
their respective representatives and agents access during normal business
hours, at the Seller's or either of the Shareholder's sole cost and
expense, to all such Books and Records, upon reasonable prior written
notice by the Seller or the Shareholders, as applicable, and on terms not
disruptive to the business, operation or employees of the Purchaser or any
of the Purchaser's Affiliates to assist the Seller or the Shareholders, as
applicable, in (i) completing any tax or regulatory filings or financial
statements required to be made by the Seller after the Closing Date; (ii)
complying with requests made of the Seller by any Taxing Authority or any
Governmental or Regulatory Authority conducting an audit, investigation or
inquiry relating to the Seller's activities during periods prior to the
Closing Date or (iii) defending any Third Party Claim controlled by the
Seller or any Shareholder pursuant to Section 9.4(b).
(b) For a period of six (6) years after the Closing Date, the Seller
shall, and Shareholders shall cause the Seller to, retain all Books and
Records possessed or controlled or to be possessed or controlled by the
Seller or either Shareholder that relate to the Business before the Closing
Date, other than the Books and Records included as part of the Purchased
Assets. The Seller shall, and the Shareholders shall and shall cause the
Seller to, permit the Purchaser or its representatives and agents access
during normal business hours, at the Purchaser's sole cost and expense, to
all of such Books and Records upon reasonable prior written notice for any
reasonable business purpose (including defending any Third Party Claim
controlled by the Purchaser or any of the Purchaser's Affiliates pursuant
to Section 9.4(b)), and on terms not disruptive to the business, operation
or employees of the Seller.
11.3 Use of Name. From and after the Closing Date, the Seller shall, and
the Shareholders shall cause the Seller to: (i) sign such consents and take such
other actions as the Purchaser shall reasonably request to permit the Purchaser
to use the WTP Trademark and all variants thereof (the "Name"); (ii) cease to
use the Name; and (iii) take all necessary action to change its corporate and
trade names by March 11, 2005 to such name or names that are substantially
different from and not confusingly similar to the Name.
11.4 Discharge of Obligations. From and after the Closing Date, the Seller
shall, and the Shareholders shall cause the Seller to, pay, perform, satisfy and
discharge diligently, in accordance with past practice but not less than on a
timely basis, all of the Seller's Liabilities (other than the Assumed
Liabilities) including, without limitation, any Liabilities to employees, trade
creditors and customers and all other Retained Liabilities.
11.5 Receivables.
-----------
(a) If, at any time after the Closing Date, the Seller or the
Shareholders shall receive any payments on account of any of the Accounts
Receivable or other rights to payment constituting a part of the Purchased
Assets, then the Seller or the Shareholders, as applicable, shall hold such
funds in trust for, and shall promptly remit (and the Shareholders shall
cause the Seller to remit promptly) such funds to the Purchaser immediately
upon receipt thereof. The Seller hereby, effective from and after the
Closing Date, authorizes and grants to the Purchaser (acting through any
one or more of the Purchaser's authorized representatives or agents) a
power of attorney to endorse the Seller's name on any check or any other
remittances
63
received by the Purchaser on account of the Accounts Receivable. The
foregoing power of attorney is coupled with an interest and is irrevocable.
(b) If, at any time after the Closing Date, the Purchaser shall
receive any payments on account of any of the Pre-March Processing
Receivables, then the Purchaser shall hold such funds in trust for, and
shall promptly remit such funds to the Seller immediately upon receipt
thereof.
11.6 No Distributions to Shareholders. The Seller shall not make any
distributions to any of its shareholders if the Seller is, or as a result
thereof would be, (a) insolvent as defined in any Requirements of Law pertaining
to bankruptcy, insolvency or creditors' rights generally including, without
limitation, the Bankruptcy Code of 1978, 11 U.S.C. ss.101, et seq., as amended,
the Uniform Fraudulent Transfer Act as enacted in the State of California, as
amended, or (b) likely to be unable to meet the Seller's obligations and
liabilities (except those whose payment is either validly assumed by either
Shareholder or otherwise adequately provided for) as they mature.
ARTICLE 12
TAXES RELATING TO PURCHASED ASSETS
The Seller shall, and the Shareholders shall cause the Seller to pay, and
the Seller and the Shareholders shall jointly and severally indemnify and hold
harmless the Purchaser from and against all Transfer Taxes. All Taxes on the
ownership or use of the Purchased Assets (specifically excluding Taxes measured
by the net income of any party) that accrue on or prior to the Closing Date
shall be paid by the Seller, and all such Taxes that accrue after the Closing
Date shall be paid by the Purchaser; provided, that all such Taxes shall be
prorated to the Closing Date.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. All notices required to be given to any of the parties to
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 13.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
If to the Seller (before We the People Forms and Service Centers, USA, Inc.
the Closing Date): ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Facsimile: 805.962.9602
64
If to the Seller (after c/o ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
the Closing Date): ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: 805.962.9602
In each case, with a copy Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
to: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esquire
Facsimile: 213.627.0705
If to the Shareholders: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (as applicable)
▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: 805.962.9602
With a copy to: Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esquire
Facsimile: 213.627.0705
If to the Purchaser c/o Dollar Financial Corp.
or the Guarantor: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Facsimile: 610.296.0991
With a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
Facsimile: ▇▇▇.▇▇▇.▇▇▇▇
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
13.2 Risk of Loss. The risk of loss for the Purchased Assets shall rest
with the Seller until the Closing. If before the Closing, all or any of the
Purchased Assets shall be damaged or destroyed by fire or other casualty, then
the Seller and the Shareholders shall notify
65
the Purchaser promptly thereof. In the event of the damage or destruction of any
of the Purchased Assets, the Seller shall and the Shareholders shall cause the
Seller to, repair or restore such Purchased Assets before the Closing Date at no
cost or expense to the Purchaser. If any of the Purchased Assets are so damaged
or destroyed and cannot be repaired or restored before the Closing Date then the
Purchaser shall have the right and option either to terminate this Agreement or
to elect nevertheless to proceed to Closing. If the Purchaser elects to proceed
to Closing, then (i) at the Closing, the Seller shall sell the Purchased Assets
to the Purchaser, as so damaged or destroyed and shall assign to the Purchaser
all of the Seller's rights to all damages or insurance proceeds theretofore paid
to the Seller or thereafter payable to the Seller by reason of such damage or
destruction and (ii) from and after the Closing, the Purchaser shall have the
sole right and option, to negotiate for, claim, contest and receive all damages
and all insurance proceeds on account of such damage or destruction. To the
extent that any damages, insurance proceeds or awards are not available or
sufficient to cover any such damage or destruction, the Cash Consideration shall
be reduced at the Closing to reflect such damage or destruction.
13.3 Guaranty. The Guarantor hereby guarantees all obligations, warranties
and representations of the Purchaser (collectively, "Guaranteed Obligations")
set forth in this Agreement or any other Transaction Document. In the event of a
default in the performance of any Guaranteed Obligation, the Seller, in its sole
discretion, shall have the right to proceed first and directly against the
Guarantor without proceeding against the Purchaser or exhausting any other
remedies which it may have. The Guarantor hereby expressly waives: (a) notice of
acceptance of the guaranty set forth in this Section 13.3; (b) notice of the
existence or creation of all or any of the Guaranteed Obligations; and (c)
presentment, demand, notice of dishonor, protest, and all other notices
whatsoever. The Guarantor further waives any defense arising by reason of the
Purchaser's disability, the Purchaser's lack of corporate authority or power, or
the Purchaser's bankruptcy or insolvency. Except as expressly provided in
clauses (a) through (c), inclusive, of the next preceding sentence, the
Guarantor's obligations under this Section 13.3 shall be subject to all rights,
claims, counterclaims, causes of action, defenses and remedies to which the
Guarantor or the Purchaser may be entitled.
13.4 No Third Party Beneficiaries. Except for the indemnification rights of
the Purchaser Indemnified Parties and the Seller Indemnified Parties pursuant to
Article 9 of this Agreement, this Agreement is not intended to, and does not,
create any rights in or confer any benefits upon anyone other than the parties
hereto.
13.5 Schedules. All schedules attached to this Agreement are incorporated
---------
by reference into this Agreement for all purposes.
13.6 Expenses. Except as expressly provided in the last sentence of this
Section 13.6, the parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel. Notwithstanding the foregoing, the
Purchaser shall pay to Seller, at the Closing, 50% of the costs of the audit of
the Seller's Financial Statements (the "Audit Expenses").
13.7 Further Assurances. Any or all of the Seller or the Shareholders on
-------------------
the one hand,and the Purchaser on the other hand, shall, at their own respective
expense, from time
66
to time upon the request of the other party, execute and deliver, or cause to be
executed and delivered, at such times as may reasonably be requested by such
other party, such other documents, certificates and instruments and take such
actions as such other party deem reasonably necessary to consummate more fully
the Transactions.
13.8 Bulk Sales Waiver. Subject to the provisions of Section 9.1(e), the
----------------- ---------------
parties hereby waive compliance with any applicable bulk sale laws in connection
with the Transactions.
13.9 Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
13.10 Section and Paragraph Titles. The section and paragraph titles used
-----------------------------
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
13.11 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Seller, the Shareholders nor the Purchaser shall have the right to assign this
Agreement without the prior written consent of the others, provided, that (a)
the Purchaser may assign any or all of its rights and interests under this
Agreement to one or more of the Purchaser's Affiliates and (b) any or all of the
rights and interests of the Purchaser under this Agreement (i) may be assigned
to any purchaser of all or substantially all of the assets of the Purchaser and
any of the Purchaser's Affiliates, (ii) may be assigned to any purchaser of all
or substantially all of the Purchased Assets or the business acquired by the
Purchaser to this Agreement, (iii) may be assigned as a matter of law to the
surviving entity in any merger, consolidation, share exchange or reorganization
involving the Purchaser, and (iv) may be assigned as collateral security to any
lender or lenders (including any agent for any such lender or lenders) of the
Purchaser or any of its Affiliates or to any assignee or assignees of such
lender, lenders or agent.
13.12 Counterparts. This Agreement may be executed in any number of
counterparts (including by facsimile), and each such counterpart shall be deemed
to be an original instrument, but all such counterparts together shall
constitute one and the same instrument.
13.13 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or such provision, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
67
13.14 Governing Law. This Agreement shall be governed and construed as to
-------------
its validity, interpretation and effect by the laws of the State of California
notwithstanding the choice of law rules of California or any other jurisdiction.
13.15 Jury Trial Waiver. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES, TO THE FULLEST EXTENT SUCH PARTY MAY LEGALLY AND EFFECTIVELY DO SO,
TRIAL BY JURY IN ANY LITIGATION ARISING UNDER THIS AGREEMENT OR ANY OF THE
TRANSACTION DOCUMENTS OR IN CONNECTION WITH OR RELATING TO ANY OF THE
TRANSACTIONS.
[Signature Page Follows]
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Execution Version
IN WITNESS WHEREOF, the Shareholders, the Purchaser, the Seller and the
Guarantor have caused this Agreement to be duly executed as of the date first
written above.
WE THE PEOPLE FORMS AND SERVICE
CENTERS USA, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
-------------------------------
Title:CEO
-------------------------------
/s/ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Individually
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Individually
WTP ACQUISITION CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Title:President
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DOLLAR FINANCIAL GROUP, INC.,
solely for purposes of Section 13.3
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Title:President
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[Signature Page to Asset Purchase Agreement]