EXECUTION COPY
ASSET PURCHASE AGREEMENT
AGREEMENT, dated as of September 1, 2002, by and among PINNACLE TAXX
ADVISORS LLC, a Delaware limited liability company with its principal place of
business at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ("Pinnacle"), and
▇▇▇▇▇▇ + ▇▇▇▇▇▇, INC., a Delaware corporation with its principal place of
business at ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ("GTAX").
WHEREAS, GTAX in engaged in the business of providing accounting and
tax preparation services; and
WHEREAS, GTAX is the sole owner of a broker-dealer named Prime Capital
Services, Inc. ("Prime") through which licensed employees of GTAX sell
securities and other financial products; and
WHEREAS, GTAX is a joint venturer in GTAX Career Brokerage ("Career")
and Insurmark and licensed employees of GTAX sell insurance and annuity products
through Career and Insurmark; and
WHEREAS, GTAX conducts its business and provides services from several
branch offices; and
WHEREAS, GTAX and the principals of Pinnacle, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇▇▇ (Messrs. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ are collectively referred to herein
as the "▇▇▇▇▇▇▇▇▇ Group"), are parties to a binding agreement dated August 8,
2002 (the "Agreement", a copy of which is annexed hereto as Exhibit 1) pursuant
to which Pinnacle was granted an option to purchase certain of GTAX's offices
upon the terms set forth therein; and
WHEREAS, by written notification dated September 5, 2002, the ▇▇▇▇▇▇▇▇▇
Group exercised its option to purchase certain offices of GTAX (the "Option
Exercise"); and
WHEREAS, Pinnacle desires to purchase the GTAX offices identified
below, and GTAX desires to sell such offices to Pinnacle, all in accordance with
the terms set forth in the Agreement and the Option Exercise;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements set forth in the Agreement, the parties enter into this Asset
Purchase Agreement to effectuate the terms of the Agreement:
1. Sale of Assets
1.1 Purchase and Sale of Assets. GTAX hereby sells, transfers,
assigns, conveys and delivers to Pinnacle, and Pinnacle, is purchasing,
acquiring and accepting from GTAX, all of GTAX's right, title and interest in
and to the business conducted at all of the GTAX offices listed on Schedule 1.1
hereto (each such office is referred to herein as a "Purchased Office") and all
assets, real or personal, tangible or intangible, of every kind and description
and wherever situated, which are used by GTAX in, or are otherwise associated
with, the operation of such Purchased Offices or the conduct of business
therefrom (hereafter collectively referred to as the "Assets"), including, but
not limited to, the following:
(a) The office lease relating to each Purchased Office,
which shall be assigned to, and assumed by, Pinnacle;
(b) The telephone numbers used in connection with the
business conducted by each Purchased Office, other than (914) 397-GTAX, as set
forth on Schedule 1.1(b);
(c) All of the equipment and other tangible assets used
in, or otherwise related to, each Purchased Office as set forth on Schedule
1.1(c);
(d) All of the customer lists, supplier lists, books and
records used in, or otherwise related to, the business conducted in each
Purchased Office;
(e) All of the material contracts, agreements,
instruments, licenses, arrangements and understandings used in, or otherwise
related to, the business conducted in each Purchased Office, including, without
limitation, the leases, license agreements and other contracts listed on
Schedule 1.1(e) hereto;
(f) All of the prepaid expenses relative to the business
conducted in each Purchased Office;
(g) All employee personnel files relating to employees of
the Purchased Offices provided that each employee sends written authorization to
GTAX permitting the release of the file;
(h) All marketing literature used in connection with the
Purchased Offices (it being agreed that Pinnacle may use the content thereof in
Pinnacle's marketing literature, provided that Pinnacle does not use the GTAX
name or logo and such use does not conflict with or interfere with GTAX's
marketing literature);
(i) All telephone numbers used in connection with the
telemarketing center which are designated to an individual Purchased Office and
the telemarketing contact database designated to an individual Purchased Office
as set forth on Schedule 1.1(i);
(j) All existing software licenses relating to each
computer workstation used in the Purchased Offices, Pinnacle expressly
acknowledging that GTAX has no responsibility or
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obligations to purchase any software licenses;
(k) Accounts receivable which accrue on or after
September 1, 2002.
1.2 Assumed Liabilities. Pinnacle shall assume the GTAX liabilities
listed on Schedule 1.2 (the "Assumed Liabilities"). Except as otherwise
expressly set forth herein, other than the Assumed Liabilities and the
liabilities described in Section 7.9, Pinnacle shall not assume nor be bound by
any duties, responsibilities, obligations or liabilities of GTAX of any kind or
nature, known, unknown, contingent or otherwise, including, without limitation,
any obligations to ▇▇▇▇ ▇▇▇▇▇▇▇▇.
1.3 Excluded Assets. GTAX shall retain all right, title and
interest in and to the following assets:
(a) Cash on hand and in banks on the date of the Closing
solely to the extent such cash on hand is attributable to business conducted by
the Purchased Offices prior to September 1, 2002 as indicated by the daily
lockbox activity reports relating to such time period;
(b) All master software licenses for the software listed
on Schedule 1.3(b) hereto; provided, however, that Pinnacle shall be entitled to
the information, files, reporting structures and reports created or used in
conjunction with such software which relate to the Purchased Offices as
designated in Schedule 9.5.
(c) All accounts receivable and all income which accrued
prior to September 1, 2002.
2. Purchase Price. Set forth on Schedule 2 hereto is a listing of the earnings
of each Purchased Office before interest, taxes, depreciation and amortization
("EBITDA") for the fiscal year ended June 30, 2002. Except as set forth on
Schedule 2.1, the purchase price for the Assets (the "Purchase Price")
represents the aggregate of: (i) with respect to each Purchased Office which had
a positive EBITDA for the fiscal year ended June 30, 2002, thirty (30%) percent
of the gross revenues of such Purchased Office for the fiscal year ended June
30, 2002; and (ii) with respect to each Purchased Office which had a negative
EBITDA for the fiscal year ended June 30, 2002, twenty five (25%) percent of the
gross revenues of such Purchased Office for the fiscal year ended June 30, 2002
(the "Purchase Price Percentages"). The parties agree that the Purchase Price,
calculated in the manner set forth above, is Five Million Ten Thousand One
($5,010,001) Dollars. The Purchase Price shall be subject to adjustment as set
forth in Section 4 below (the "Adjusted Purchase Price"). The Purchase Price has
been discounted and reflects the liabilities and payments being assumed by
Pinnacle and the limited representations being made by GTAX.
3. Payment of Adjusted Purchase Price. The Adjusted Purchase Price for the
Assets shall be payable by Pinnacle to GTAX as follows:
(i) Three Million Four Hundred Twenty-Two Thousand One
Hundred Eight (3,422,108) Dollars, representing fifty (50%) percent of the
unadjusted Purchase Price as
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adjusted by the net adjustments in Section 4(a) only (the "Closing Payment"),
shall be paid pursuant to a Promissory Note, in the form of Exhibit 3(i), with
interest at ten (10%) percent commencing thirty (30) days from the Closing, with
payments made directly by Royal Alliance Associates ("Royal") to GTAX by
Pinnacle's assignment to GTAX of the following payments: seventy five (75%)
percent of the Target Date Payments and Hold Back Payments (as such terms are
defined in the applicable agreement with Royal) to be received from Royal; and
each month, commencing in November, 2002, seventy five (75%) percent of the
revenue to be received by Pinnacle from Royal up to $250,000, payable at the end
of the month. In the event the total revenue received by Pinnacle is less than
$250,000.00 in any month, Pinnacle must make up the difference in cash from
other sources. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ shall personally guarantee the
Promissory Note and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall assign his GTAX stock as collateral
for the Note. The Note may be prepaid without penalty. The assignments from
Royal, Career and Insurmark require such entities to send commission statements
to GTAX each month. The Note shall be paid in full on or before the earlier of
ninety (90) days from the date of the Closing, or the date of the closing of
Pinnacle's debt or equity financing.
(ii) The balance of the Adjusted Purchase Price of One
Million Three Hundred Twenty-Three Thousand Three Hundred Fifty-Five
($1,323,355) Dollars (which represents the Purchase Price less the payments in
(i) above and less or plus the net adjustments in Section 4 below, the
"Balance") shall be paid in three (3) equal consecutive annual installments,
with interest thereon at the prime rate of Pinnacle's Bank in effect as of the
date of the Closing, on the first, second and third anniversaries of the date of
the Closing; provided, however, that Pinnacle may prepay the Balance, or any
portion thereof, without penalty. The Balance shall be paid pursuant to a
Promissory Note in the form of Exhibit 3(ii) which shall be secured by a UCC
lien against the tangible and intangible personal assets of Pinnacle and a
collateral assignment of the revenue to be paid to Pinnacle from Royal. The
parties agree that the amount of the Balance has not been determined and that,
at such time as the Balance is determined and agreed to by the parties or
determined in arbitration, Pinnacle shall deliver a Promissory Note in the form
of Exhibit 3(ii) in such amount. In the event that a financing arrangement to be
entered into by Pinnacle requires that GTAX's security interest be subordinated,
Pinnacle will seek GTAX's written consent to such subordination and GTAX may
grant or withheld its consent for any reason.
(iii) In the event that the Closing Payment is not paid in
full on or before January 11, 2003, then the Purchase Price shall increase by
$37,500 for each month thereafter until paid in full (including January, 2003
and the month of payment in full), which shall be added to the Closing Payment
and the Closing Payment Promissory Note.
(iv) Until the Adjusted Purchase Price is paid in full,
the securities and insurance commissions pay out to registered representatives
of Pinnacle shall not exceed fifty (50%) percent. Notwithstanding the foregoing,
Schedule 3(iv) sets forth the names of certain registered representatives who
receive a higher pay out rate and the amount of such higher pay out rate. GTAX
and Pinnacle agree that, solely to maintain the status quo, the registered
representatives identified on Schedule 3(iv) shall be paid at the higher pay out
rate set forth thereon, consistent with past practice.
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4. The Purchase Price shall be adjusted by the following adjustments to
accomplish the economic effect of a September 1, 2002 effective Closing date:
(a) The portion of the Purchase Price represented by the
Closing Payment has been adjusted as follows: (A) any amounts owed for (i) rent
for the Purchased Offices, and (ii) payroll and benefits for the employees of
the Purchased Offices for periods prior to September 1, 2002, and (iii) income
received by GTAX or Prime accrued after September 1, 2002 have been treated as a
reduction to the Purchase Price; and (B) any amounts of (i) rent for the
Purchased Offices, and (ii) payroll and benefits for the employees of the
Purchased Offices, for periods after September 1, 2002 and which have actually
been paid by GTAX, and the sum of $65,852 for utilities, have been treated as an
increase to the Purchase Price. Notwithstanding the foregoing, the parties
acknowledge and agree that, to the extent that the amount of rent, utilities,
payroll and/or benefits actually paid by GTAX for periods after September 1,
2002 could not be definitively confirmed as of the date hereof, such amounts
shall apply as adjustments to the Balance.
(b) The adjustments listed in Schedule 4.1.
(c) The parties shall cooperate to mutually quantify all
adjustments prior to the Closing. Any adjustment which the parties cannot agree
upon prior within forty-five (45) days following the Closing shall be resolved
by binding arbitration after the Closing in accordance with Section 22.4.
5. Application of Purchase Price. GTAX agrees that the Balance shall be paid
to First Union to retire its debt and then to Travelers to retire its debt. Any
remaining Balance shall be retained by GTAX for general corporate purposes. GTAX
agrees to use commercially reasonable efforts to have First Union remove ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ from his personal guarantee. GTAX will provide ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ with
monthly reports delineating the status of the First Union and Travelers loans
and copies of any correspondence between GTAX and First Union or Travelers
regarding the status of the loans, unless such correspondence is confidential
and not permitted to be disclosed. Such monthly reports shall include sufficient
detail to support the calculations relating to the debt covenants. After the
Closing, GTAX and the ▇▇▇▇▇▇▇▇▇ Group will attempt to obtain refinancing of the
First Union and Travelers loans. GTAX agrees that the ▇▇▇▇▇▇▇▇▇ Group will be
compensated for their efforts or introductions in a commercially reasonable
manner (ie. the ▇▇▇▇▇▇ formula) if any refinancing obtained by or otherwise
referred to GTAX by the ▇▇▇▇▇▇▇▇▇ Group closes; provided that the refinancing is
with a third party whom GTAX was not in discussions with at the time the
refinancing was obtained, or the introduction was made, by the ▇▇▇▇▇▇▇▇▇ Group.
6. Closing.
6.1 The effective date of the closing will be September 1, 2002 (the
"Effective Date"). The Closing shall be deemed to have been held at the offices
of ▇▇▇▇▇ & Gold LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ November 25,
2002. At the Closing and thereafter, the parties shall deliver such documents as
they mutually agree are reasonably necessary, including:
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a) duly executed bills of sale;
b) duly executed assignments and assumptions of equipment
leases;
c) duly executed office lease assignments and assumptions;
d) any and all other assignments and assumptions, together with
any required consents to such assignments, which may be necessary to effect the
assignment, conveyance and transfer of any of the Assets;
e) any other instruments which may be necessary to effect the
sale, assignment, conveyance and transfer of the Assets and the assumptions and
indemnifications by Pinnacle; and
f) the Closing Date Promissory Note, guarantees, assignments,
UCC liens and collateral assignments delineated in Section 3.
6.2 [Intentionally Omitted]
6.3 Equipment Sublease. Simultaneous with the execution and delivery
of this Agreement, the parties shall enter into a sublease agreement of all
leased equipment in the Purchased Offices. The sublease fee shall be computed
based upon the estimated value of the lease equipment in the Purchased Offices
as compared to the estimated total value of all leased equipment. The agreement
will include a sublease of all software licenses on the leased computers,
including volume licenses. The lease fee shall include a pro rata allocation of
the financing payments being paid by GTAX on the software licenses. The fee
shall be due on the fifth day of each month with a 1 1/2 % penalty on the
balance due after the tenth day of the month. The fee will be collateralized in
the same manner as provided in Section 3 (ii).
7. Representations of GTAX. GTAX hereby represents that, to the knowledge of
its current officers:
7.1 Organization, Standing and Qualification. GTAX is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite power and authority to carry on its
business as now conducted, and is duly qualified to do business and is in good
standing in each other jurisdiction in which the ownership or operation of
GTAX's properties or assets or the conduct of its business requires such
qualifications. GTAX has all requisite corporate power and lawful authority and
all necessary licenses and permits to own, lease and operate the Assets and
properties related to its business and to carry on the business of GTAX in the
manner in which such business is now being conducted.
7.2 Power and Authority. GTAX has full power and authority to sell,
assign, convey and transfer the Assets as contemplated by this Agreement. GTAX
has all requisite power, authority and approval required to execute, deliver and
perform this Agreement, to consummate
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the transactions contemplated hereby and to perform fully its obligations
hereunder. The execution, delivery and performance of this Agreement by GTAX has
been duly authorized by all necessary corporate action and has been approved by
GTAX's Board of Directors, including, without limitation, a majority of the
independent directors. This Agreement and each document and instrument
contemplated by this Agreement constitute a valid and binding obligation of
GTAX, enforceable against GTAX in accordance with their respective terms.
7.3 No Violations. The execution, delivery and performance of this
Agreement by GTAX does not, and the performance by it of its obligations
hereunder in accordance with its terms and conditions will not: (i) violate or
conflict with any provision of the Certificates or Articles of Incorporation or
By-laws of GTAX, or any amendments thereto or restatements thereof; (ii) violate
any of the terms, conditions or provisions of any law, statute, rule,
regulation, order, writ, injunction, judgment or decree of any court,
governmental authority, or regulatory agency, by which GTAX or the Assets are
bound.
7.4 Compliance with Laws. GTAX has complied in all material respects
with and is in compliance with all material federal, state, county, local and
foreign laws, rules, ordinances, regulations, judgments, injunctions, writs,
awards, decrees, orders and other requirements of any governmental or regulatory
body, court or arbitrator applicable to GTAX.
7.5 Contracts. GTAX has listed on Schedule 1.1(e) hereto all
material contracts, agreements, arrangements, proposals or letters of intent
(hereinafter, "Contracts") relating, directly or indirectly, to the business of
each Purchased Office or by which the Assets are bound together with all
amendments thereof, including, without limitation, all office leases relating to
the Purchased Offices. All Contracts were entered into in the ordinary course of
business.
7.6 Operations of Purchased Offices. Since August 8, 2002, GTAX has
not: (a) entered into or amended in any material respect any employment
agreement or arrangement with, or incurred any severance or termination pay
liability to, any employee or registered representative of any Purchased Office;
(b) made any wage or salary increase or bonus, or increase in any other direct
or indirect compensation, for or to any officer, director, employee, registered
representative, consultant or agent of any Purchased Office, or any accrual for
or commitment or agreement to make or pay the same; (c) offered any special
compensation or inducements to any registered representative employed in any of
the Purchased Offices; or (d) except in the ordinary course of business,
incurred or assumed any obligation or liability (whether absolute or contingent
and whether or not currently due and payable) relating to any Purchased Office.
7.7 Indemnification for Fees of Brokers and Finders. No broker,
finder, agent or similar intermediary has acted on behalf of GTAX in connection
with this Agreement or the transactions contemplated hereby, and there are no
brokerage commissions, finders' fees or similar fees or commissions payable in
connection therewith based on any agreement, arrangement or understanding with
GTAX, or any action taken by GTAX. GTAX agrees to indemnify and hold Pinnacle
harmless from any claim or demand for commission or other compensation by any
broker, finder, agent or similar intermediary claiming to have been employed by
or on behalf of GTAX, and to bear the cost of legal expenses incurred in
defending against any such claim.
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7.8 Satisfaction of Agreement Obligations. GTAX has completely
satisfied all of its obligations as set forth on pages 4 and 5 of the Agreement.
7.9 Title to Assets. The Assets are transferred "As Is" and
Pinnacle accepts the Assets " As Is". However, GTAX represents that it has no
knowledge of any liens other than:
(a) The liens of First Union and Travelers.
(b) The liens of the sellers of businesses and assets
purchased by GTAX to secure the acquisition payments being made by GTAX.
(c) The liens under personal property leases and installment
purchase contracts.
7.10 Litigation. Attached as Schedule 7.10 are schedules of pending
litigation and customer complaints.
8. Representations and Warranties of Pinnacle and ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇.
Pinnacle hereby represents and warrants, in addition to all the other
representations and warranties of Pinnacle contained herein, as follows:
8.1 Organization, Standing and Qualification. Pinnacle is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware, and is duly qualified to do business and is
in good standing in each other jurisdiction in which the ownership or operation
of Pinnacle's properties or assets or the conduct of its business requires such
qualifications.
8.2 Power and Authority. Pinnacle has full power and authority to
purchase the Assets, and assume the Assumed Liabilities and other obligations
herein, as contemplated by this Agreement. Pinnacle has all requisite power,
authority and approval required to execute, deliver and perform this Agreement,
to consummate the transactions contemplated hereby and to perform fully its
obligations hereunder. The execution, delivery and performance of this Agreement
by Pinnacle has been duly authorized by all necessary corporate action. This
Agreement and each document and instrument contemplated by this Agreement
constitutes a valid and binding obligation of Pinnacle, enforceable against
Pinnacle in accordance with their respective terms
8.3 No Violations. The execution, delivery and performance of this
Agreement by Pinnacle does not, and the performance by it of its obligations
hereunder in accordance with its terms and conditions will not: (i) violate or
conflict with any provision of the Certificate of Formation or Operating
Agreement of Pinnacle, or any amendments thereto or restatements thereof; (ii)
violate any of the terms, conditions or provisions of any law, statute, rule,
regulation, order, writ, injunction, judgment or decree of any court,
governmental authority, or regulatory agency, by which Pinnacle is bound.
8.4 Consents and Approvals. Pinnacle has obtained the consent
and approval of the
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office manager of each Purchased Office to the purchase of such Purchased
Office.
8.5 Indemnification for Fees of Brokers and Finders. No broker,
finder, agent or similar intermediary has acted on behalf of Pinnacle in
connection with this Agreement or the transactions contemplated hereby, and
there are no brokerage commissions, finders' fees or similar fees or commissions
payable in connection therewith based on any agreement, arrangement or
understanding with Pinnacle, or any action taken by Pinnacle. Pinnacle agrees to
indemnify and hold GTAX harmless from any claim or demand for commission or
other compensation by any broker, finder, agent or similar intermediary claiming
to have been employed by or on behalf of Pinnacle, and to bear the cost of legal
expenses incurred in defending against any such claim.
8.6 Representations of ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
acknowledge that they were the CEO and CFO respectively of GTAX until September
24, 2002. However, they effectively did not materially participate in management
decisions or have decision making authority after August 8, 2002. GTAX shall not
be liable to indemnify or hold Pinnacle harmless under Section 14 for any
damages it may incur if ▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇ had actual knowledge of the
information, event, transaction or misrepresentation which resulted in the
damages being incurred.
9. Covenants and Agreements of GTAX. GTAX hereby covenants and agrees, in
addition to all the other covenants and agreements of GTAX contained herein, as
follows:
9.1 Payment of Registered Representatives.
(a) Subsequent to the Closing, GTAX shall pay, or shall cause
Prime to pay, to all registered representatives of Purchased Offices who were
transferred to Royal Alliance Associates on or prior to the Effective Date, all
commissions, including, without limitation, trailing commissions, due or which
become due to such registered representatives during the year ending August 31,
2003. All override payments shall be retained by Prime. Such commissions shall
be paid bi-monthly simultaneous with Prime's ordinary commission runs,
consistent with past practice, but on a 1099 basis. GTAX hereby agrees that
Pinnacle, at Pinnacle's expense, shall have the right to examine and audit the
books and records of GTAX and Prime to verify the accuracy of all commissions
and overrides paid pursuant to this Section using a reputable independent CPA
firm which executes a confidentiality agreement with GTAX. GTAX further agrees
that Pinnacle's examination and audit of the books and records of GTAX and Prime
may be performed simultaneously with the quarterly reviews performed by Prime's
independent auditors in connection with Prime's financial statement reviews. The
audit procedure to be used by the CPA firm is annexed as Schedule 9.1(a).
(b) Subsequent to the Closing, Pinnacle shall pay to GTAX as
additional consideration all overrides due to GTAX or Prime for any business
that should have properly been accrued prior to September 1, 2002. GTAX and
Prime shall have the right, once during the ninety (90) days immediately
following the Closing, to audit Pinnacle's books and records to verify the
proper accrual date of such business. Further, during this ninety (90) day
period, Pinnacle shall provide GTAX with copies of all commission statements
received from Royal,
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Insurmark and Career. The audit shall be at GTAX's expense in accordance with
the audit procedure annexed as Schedule 9.1(b).
9.2 Regulatory Filings and Approvals. GTAX will make all filings
with such regulatory and self-regulatory agencies as may be necessary and
appropriate to effectuate the transactions contemplated herein.
9.3 Medical and Dental Insurance. The parties acknowledge that some
or all of the employees of the Purchased Offices intend to receive COBRA health
insurance coverage. GTAX hereby covenants and agrees that it will comply with
all laws, rules and regulations concerning said COBRA coverage, and will take no
action to terminate said COBRA coverage. Also, GTAX agrees that it will
cooperate with Pinnacle in seeking to obtain one ▇▇▇▇ for all COBRA employees of
Pinnacle. Set forth on Schedule 9.3 hereto is a list of all employees of the
Purchased Offices who participate in GTAX's medical and/or dental insurance
plans, the coverage received by each such employee and the cost of each such
employee's coverage.
9.4 Retirement Plan. GTAX hereby covenants and agrees that has taken
all action necessary to remove ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ as a trustee of GTAX's 401(k)
plan.
9.5 Computer Files. GTAX hereby covenants and agrees, as soon as
possible after the Closing, to provide Pinnacle with working copies of the
software, and complete copies of the computer files, databases, scripts,
passwords, reports and other items, described on Schedule 9.5 hereto. GTAX
further agrees that Pinnacle shall have the perpetual right to use all code
which was created for ▇▇▇▇▇▇▇▇.▇▇▇, but not the domain name ▇▇▇▇▇▇▇▇.▇▇▇ or any
similar or confusing name.
9.6 Bank Accounts; Lockboxes. GTAX hereby covenants and agrees,
immediately following the Closing, to transfer to Pinnacle title to the bank
accounts and lockboxes relating to the Purchased Offices and set forth on
Schedule 9.6 hereto.
9.7 Section 125 Plan. GTAX hereby covenants and agrees that it will
fully refund to each employee of the Purchased Offices any and all funds held on
account in GTAX's Section 125 Plan for the benefit of such employee to the
fullest extent permitted under applicable law.
9.8 E&O Insurance Refund. GTAX and Pinnacle hereby acknowledge that
all of the registered representatives employed in the Purchased Offices have
paid for errors and omissions insurance coverage on GTAX's policy for the year
ending December 31, 2002, and that, as a result of the cancellation of such
coverage, GTAX may receive a refund of the prepaid premiums attributable to each
such registered representative which relate to the last quarter of 2002 (the
"E&O Refund"), or that additional amounts may be due from the representatives.
In the event that GTAX claims that additional amounts are due, GTAX shall
provide Pinnacle with evidence that such determination was made by the E&O
carrier and/or broker and an explanation from the E&O carrier and/or broker of
how such determination was made. The parties agree that, in making such
determination, payments shall not be allocated in any manner inconsistent with
past practice. GTAX hereby covenants and agrees that it will cooperate with
Pinnacle to obtain cost-effective tail coverage for the registered
representatives of the Purchased Offices. In addition,
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GTAX and Pinnacle will cooperate with each other concerning the refund or the
additional amounts due.
9.9 Litigation. GTAX agrees that, if subsequent to the Closing it
becomes involved in litigation which may in any manner affect or relate to the
Assets or the business conducted by any Purchase Office, it will notify Pinnacle
in writing as soon as possible and Pinnacle may participate in the defense of
the litigation.
9.10 Transition Items. GTAX and Pinnacle agree that they will
cooperate with each other to the fullest reasonable extent following the Closing
to accomplish the transition tasks set forth on Section 9.10 in an expeditious
and business-like manner.
10. General Releases. Simultaneous with the execution of this Agreement, GTAX
shall deliver to Pinnacle and the members of the ▇▇▇▇▇▇▇▇▇ Group a duly executed
general release in the form annexed hereto as Exhibit 10(a). Additionally,
simultaneous with the execution of this Agreement, Pinnacle, ▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇ shall deliver to GTAX a duly executed general release in the form
annexed hereto as Exhibit 10(b), provided that GTAX has delivered to ▇▇▇▇▇▇ a
mutually acceptable clarification letter concerning the Form 8K it filed
concerning its change in auditors to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
11. Non-Solicitation
(a) Each of GTAX and Pinnacle hereby agree that, for a period of two
(2) years following the date hereof, neither entity, nor any affiliates
controlled by such entity, shall directly or indirectly, (i) solicit, employ or
otherwise engage, as an employee, registered representative, independent
consultant or otherwise, any employee or registered representative who is, or
prior to September 1, 2002 was, employed by GTAX, Prime, or Career on the one
hand, or by any of the Purchased Offices on the other hand; or (ii) in any
manner, induce or attempt to induce any employee or registered representative to
terminate such person's employment, engagement or business dealings with the
other party.
(b) Should GTAX or Pinnacle, or any of their affiliates or
employees, directly or indirectly benefit from the separation of service of a
registered representative, tax or accounting professional during the 24 months
subsequent to the date hereof, GTAX and Pinnacle respectively agree to pay to
the other 50% of the trailing 12 months gross dealer concession and tax and
accounting billing generated by said registered representative or employee. Said
payments to be in cash with half due within 30 days after the severance of the
individual's employment with the respective entity, and the balance due within
one year.
12. Non-Disparagement and Non-Interference. Each of GTAX and Pinnacle agrees
that it will not make, or cause to be made, any statement or observation, or
articulate any opinion, or communicate any information (whether oral or written)
that disparages or reflects negatively on the reputation or business of the
other party or any of its officers, directors or employees. Each of GTAX and
Pinnacle agrees that it will not take any action which would interfere with or
cause confusion with the other party's name, logo or trademarks, including the
name "GTAX" and the names "Prime" and "Prime Financial Services". As soon as
possible after the Closing, Pinnacle
11
shall change all GTAX office signs and office directory listings to Pinnacle and
shall cease using GTAX business cards and stationery.
13. Injunctive Relief and Reasonable Scope. GTAX and Pinnacle each acknowledges
and agrees that, in the event of an actual or threatened breach of Section 12
above, the non-breaching party will suffer irreparable damages and, in addition
to any other remedies which are available to such non-breaching party, the
non-breaching party shall be entitled to injunctive or other equitable relief
without the necessity of posting a bond or other security. Each party
acknowledges that the provisions of Sections 11 and 12 are necessary for the
protection of each party, are reasonable in scope and content and that such
provisions are a material inducement to the parties to enter into this
Agreement.
14. Indemnification.
14.1 Indemnification by Pinnacle. Pinnacle shall hold harmless and
indemnify GTAX from and against any and all damages, losses, liabilities
obligations, fees, costs and expenses, including but not limited to, the payment
of reasonable attorneys' fees, resulting from, or incurred in connection with,
(i) the breach by Pinnacle of one or more of Pinnacle's representations,
warranties, covenants, and agreements set forth in this Agreement; (ii) the
Assumed Liabilities; and (iii) the operation of the Purchased Offices after the
date hereof. In addition, Pinnacle shall indemnify and hold GTAX harmless from
any damages which GTAX suffers as a direct result of the negligent of wrongful
acts of any registered representative employed in a Purchased Office solely to
the extent that GTAX is not covered for such damages under its E&O policy.
14.2 Indemnification by GTAX. Except as provided in Section 8.6, GTAX
shall hold harmless and indemnify Pinnacle from and against any and all damages,
losses, liabilities obligations, fees, costs and expenses, including but not
limited to, the payment of reasonable attorneys' fees, resulting from, or
incurred in connection with, (i) the breach by GTAX of one or more of GTAX's
representations, warranties, covenants, assumptions and agreements set forth in
this Agreement; (ii) any liabilities of GTAX other than the Assumed Liabilities,
the liabilities described in Section 7.9 and any other liabilities and
obligations expressly assumed by Pinnacle pursuant to this Agreement; and (iii)
the operation of the Purchased Offices prior to the date hereof. In addition,
GTAX and its subsidiary, Prime Capital Services, Inc., shall, jointly and
severally, hold harmless and indemnify Pinnacle from and against any and all
damages, losses, liabilities obligations, fees, costs and/or expenses
(including, without limitation, the payment of reasonable attorneys' fees), up
to Two Hundred Thousand ($200,000) which Pinnacle may incur as a direct or
indirect result of any wrongful actions of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ and/or
any other agents of GTAX or Prime Capital Services, Inc.concerning ▇▇▇▇▇ ▇▇▇▇▇▇
for two years after the Closing.
14.3 Notice to the Indemnitor. Promptly after the assertion of any
claim by a third party or occurrence of any event which may give rise to a claim
for indemnification from an indemnitor (the "Indemnitor") under this Section, an
indemnified party (the "Indemnified Party") shall notify the Indemnitor in
writing of such claim and shall describe in reasonable detail the facts and
circumstances with respect to the subject matter of such claim or action and the
basis
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on which indemnification is sought pursuant to this Agreement.
14.4 Rights of Parties to Settle or Defend. The Indemnitor shall have
the right to direct, through counsel of its own choosing, the defense or
settlement of any claim or proceeding at its own expense for which the
Indemnified Party is seeking indemnification pursuant to this Agreement. If the
Indemnitor elects to assume the defense of such claim, the Indemnified Party
shall have the right to be represented, at its own expense by its own counsel
and accountants, their participation to be subject to the reasonable direction
of the Indemnitor. In either case, the Indemnified Party shall make available to
the Indemnitor and its attorneys and accountants, at all reasonable times during
normal business hours, all books, records, and other documents in its possession
relating to such claim and shall otherwise cooperate with the Indemnitor in the
defense or settlement thereof. If the Indemnitor elects to direct the defense of
any such claim or proceeding, the Indemnified Party shall not, pay, or permit to
be paid, any part of any claim or demand arising from such asserted liability,
unless the Indemnitor consents in writing to such payment or unless a final
judgment from which no appeal may be taken by or on behalf of the Indemnitor is
entered against the Indemnified Party for such liability. If the Indemnitor
shall fail to defend, or if, after commencing or undertaking any such defense,
the Indemnitor fails to prosecute or withdraws from such defense, the
Indemnified Party shall have the right to undertake the defense or settlement
thereof.
15. Completion of Schedules. The parties acknowledge and agree that all of the
schedules and exhibits contemplated hereby have not been completed as of the
date hereof. The parties hereby covenant and agree to cooperate with each other
and to use their respective best efforts to complete all such schedules and
exhibits as expeditiously as possible. The parties further agree that any
disputes relating to the completion or, or the substance of, such schedules
and/or exhibits shall be submitted to binding arbitration as set forth in
Section 22.4 below; provided, however that the parties agree that such disputes
shall be submitted to binding arbitration upon the expiration of the forty-five
day period set forth in Section 4(c).
16. Survival of Representations, Warranties and Covenants. The representations,
warranties and covenants included herein shall survive the Closing and the
consummation of the transactions contemplated hereby irrespective of any
investigation which any party shall have made.
17. Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or upon deposit with a
nationally recognized overnight courier providing evidence of delivery with next
business day delivery charges prepaid and addressed to the addresses set forth
on page 1 of this Agreement.
By notice complying with the foregoing provisions of this Section 17,
each party shall have the right to change the mailing address for future notices
and communications to such party.
18. Restrictions on ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇
(a) For a period of two (2) years from the date hereof, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ and
13
▇▇▇▇▇ ▇▇▇▇▇▇ covenant and agree that neither of them will, directly or
indirectly, file, participate in, or otherwise support the filing of any proxy
statement, tender offer, or consent solicitation seeking to gain control of or
otherwise affect GTAX.
(b) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ agree that they will not
run for or accept elections for a board seat if they are an owner, employee,
officer or director of a competing company.
19. Cooperation with Prime. Pinnacle agrees that:
(a) After the Closing, Pinnacle and its employees and
representatives will cooperate with Prime in any regulatory audits of Prime
concerning employees and representatives of Pinnacle while they were registered
representatives of Prime.
(b) Simultaneous with the execution hereof, or as soon
thereafter as possible, Pinnacle will deliver copies of all customer files,
branch office records and other documents required to be held by Prime pursuant
to NASD and SEC regulations.
(c) Pinnacle has provided, or will as soon as possible will
provide, GTAX and Prime with a Quick Books upload to give GTAX and Prime the
data and records it needs from the Purchased Offices.
20. Transfer of Registered Representatives Subsequent to Closing. As a
condition to Closing, GTAX and Prime agree to enter into and deliver a Transfer
Agreement with Royal in the form annexed hereto as Exhibit 20 simultaneous with
the execution of this Agreement. Prime further covenants and agrees that it
shall use its best efforts to cooperate with Royal and Pinnacle to effectuate
the transfer of registered representatives from Prime to Royal as expeditiously
as possible.
21. Insurance and Annuity Business. Until the Closing Payment is paid in full,
Pinnacle and its employees must use Career and Insurmark to process all
insurance and annuity business, other than variable products in the nature of
securities.
22. Miscellaneous.
22.1 Entire Agreement. This Agreement (together with the Schedules
and Exhibits annexed hereto) contains, and is intended as, a complete statement
of all of the terms of the arrangements between the parties with respect to the
matters provided for, and supersedes any previous agreements and understandings
between the parties with respect to those matters, including, but not limited
to, any and all prior versions of this Asset Purchase Agreement and the
Agreement.
22.2 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of New York,
without regard to its principles of conflicts of law.
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22.3 Jurisdiction. The parties hereby irrevocably submit to the
exclusive jurisdiction of any court (state or federal) located within New York,
New York in any action, suit, or proceeding (i) for injunctive relief relating
to or in connection with this Agreement or any transaction contemplated hereby,
or (ii) to enforce the terms of any arbitration award relating to or in
connection with this Agreement or any transaction contemplated hereby. To the
extent permitted by applicable law, each party hereby waives and agrees not to
assert by way of motion, as a defense or otherwise, in any such suit, action or
proceeding, any claim that either it is not personally subject to the
jurisdiction of such courts, that the suit, action, or proceeding is brought in
an inconvenient forum, that the venue of the suit, action, or proceeding is
improper, or that this Agreement or any instrument, agreement, or document
referred to herein or the subject matter hereof may not be litigated in or by
such courts.
22.4 Arbitration. In the event of any dispute, controversy, or claim
related to or arising from the terms of this Agreement, other than injunctive
relief, the parties hereto agree that any such dispute, controversy or claim
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. Said arbitration shall be conducted in New York, NY by a single
arbitrator. Such dispute resolution shall be in accordance with the applicable
substantive laws of the State of New York. The parties hereby agree to share
equally in the costs of said arbitration.
22.5 Headings. The section headings of this Agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
22.6 Separability. If at any time any of the covenants or the
provisions contained herein shall be deemed invalid or unenforceable by the laws
of the jurisdiction wherein it is to be enforced, by reason of being vague or
unreasonable as to duration, geographic scope, scope of activities restricted or
for any other reason, such covenants or provisions shall be considered divisible
as to such portion and such covenants or provisions shall become and be
immediately amended and reformed to include only such covenants or provisions as
are enforceable by the court or other body having jurisdiction of this
Agreement; and the parties agree that such covenants or provisions, as so
amended and reformed, shall be valid and binding as though the invalid or
unenforceable portion had not been included herein.
22.7 Amendment; Waiver. No provision of this Agreement may be amended
or modified except by an instrument or instruments in writing signed by the
parties hereto. Any party may waive compliance by another with any of the
provisions of this Agreement. No waiver of any provision hereof shall be
construed as a waiver of any other provision. Any waiver must be in writing.
22.8 Assignment and Binding Effect. Neither party may assign any o
its rights or duties under this Agreement, in whole or in part, without the
prior written consent of the other party. All of the terms and provisions of
this Agreement shall be binding on, and shall inure to the benefit of, the
respective successors and permitted assigns of the parties.
15
22.9 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their respective successors and permitted assigns and they
shall not be construed as conferring and are not intended to confer any rights
on any other persons.
22.10 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and each party thereto may become a
party hereto by executing a counterpart hereof. This Agreement and any
counterpart so executed shall be deemed to be one and the same instrument.
22.11 Expenses. Each of the parties shall pay all costs and expenses
incurred or to be incurred by it in negotiating and preparing this Agreement and
in closing and carrying out the transactions contemplated hereby.
22.12 Further Assurances. Each of the parties hereto agrees, without
any further consideration, to execute and deliver such other documents and to
take such other actions as the other may reasonably request in order to
effectuate the purposes of this Agreement and to consummate the transactions
contemplated hereby.
22.13 First Union and Travelers. As a condition precedent to the
closing of the transactions contemplated in this Agreement, GTAX has delivered
to Pinnacle the written consent of First Union to the transactions contemplated
hereby. Additionally, as a condition precedent to the closing of the
transactions contemplated in this Agreement, GTAX has delivered to Pinnacle a
legal opinion that the consent of Travelers to the transactions contemplated
hereby is not legally required.
In addition: (i) First Union must review and approve the agreements
assigning to GTAX the direct payments to be made to GTAX by Royal or any other
party or person, and Royal must approve such assignment agreements in writing
prior to the closing; and (ii) all of Pinnacle's payment and indemnification
obligations toGTAX, including but not limited to, the payments of the Adjusted
Purchase Price in Section 3(ii), the Equipment Sublease payments in Section 6.3,
the payments of rent and additional rent under the assignment and assumption
agreements of office leases, and the indemnification payments in Sections 6.3
and 14, must be secured by a UCC lien in favor of GTAX against the tangible and
intangible personal assets of Pinnacle and by a collateral assignment in favor
of GTAX of the revenue to be paid to Pinnacle from Royal, Career and Insurmark.
First Union must review and approve the agreements making these collateral
assignments and Royal must approve such collateral assignments in writing prior
to the closing.
16
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
PINNACLE TAXX ADVISORS LLC
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
President, Member
▇▇▇▇▇▇ + ▇▇▇▇▇▇, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇,
Vice President
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇▇▇▇▇, Board Member
17
LIST OF SCHEDULES/EXHIBITS
--------------------------
Schedule 1.1 - Purchased Offices
Schedule 1.1(b) - Telephone Numbers
Schedule 1.1(c) -- Equipment and Tangible Assets;
Schedule 1.1(e) -- Contracts
Schedule 1.1(i) - Telemarketing Center phone Numbers
Schedule 1.2 - Assumed Liabilities
Schedule 1.3(b) - Software
Schedule 2 - EBITDA of each Purchased Office for fiscal year ended June 30, 2002
Schedule 2.1 - Special Purchase Price calculations
Schedule 3(iv) - Registered Representatives receiving pay out rates greater
than 50%
Schedule 4.1 - Adjustments
Schedule 7.10 - Litigations and Customer Complaints
Schedule 9.1(a) - Audit procedures
Schedule 9.1(b) - Audit procedures
Schedule 9.3 - Medical and Dental Insurance list
Schedule 9.5 - Computer related items to be delivered to Pinnacle
Schedule 9.6 - Bank accounts and lockboxes
Schedule 9.10 -- Transition Items
Exhibit 1 - The Agreement
Exhibit 3(i) - Closing Payment Promissory Note
Exhibit 3(ii) - Balance Promissory Note
Exhibit 10(a)- GTAX General Release of Pinnacle
18
Exhibit 10(b)-Pinnacle General Release of GTAX
Exhibit 20 - Transfer Agreement
19
