Exhibit 10.1
ASSET AND FRANCHISE PURCHASE AGREEMENT
(Roth & Pelan Enterprises, LLC)
THIS ASSET AND FRANCHISE PURCHASE AGREEMENT (“Agreement”) is made and entered into on February 17, 2015, by and among The Joint Corp., a Delaware corporation (“TJC”), Roth & Pelan Enterprises, LLC, a Nebraska limited liability company (“Seller”), Timothy Roth, an individual (“Roth,” or a “Member”), Blue Sky & Sunny Days, Inc., an Arizona corporation (“BSSD” or a “Member”) and Thomas Pelan (“Pelan” or a “Member” and together with Roth and BSSD, the “Members”).
Background:
A. Seller is a franchisee under franchise agreements with TJC for two Joint franchises (Numbers 48018 (the “7thAvenue and McDowell Franchise”), and 48025 (the “Tucson Northwest Franchise, and together with the 7th Avenue and McDowell Franchise, the “Subject Franchises”)).
B. Seller will sell to TJC and TJC will purchase from Seller all of Seller’s interest in the Subject Franchises.
C. Roth is also the franchisee under a franchise agreement with TJC for Joint franchise number 48021 (the “License”), which franchise agreement is being terminated in accordance with Section 15(1) of such agreement.
D. BSSD and Pelan own all of the issued and outstanding membership interests of Seller, and Roth is the sole director and officer of BSSD and the ultimate beneficiary of BSSD.
E. For purposes of clarity, any reference to a “franchise” or a “Subject Franchise,” unless the context clearly requires otherwise, shall refer to the business being operated under the applicable franchise agreement.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and undertakings herein contained and other valuable consideration, the adequacy of which is acknowledged by all parties, the parties hereby agree as follows:
| 1. | Purchase and Sale |
(a) At the Closing (as hereinafter defined) of the transactions contemplated hereby, Seller shall sell, assign, transfer and deliver to TJC, and TJC shall purchase and accept from Seller, the Assets, free and clear of any liens, claims (including, without limitation, title claims and claims of taxing authorities), encumbrances, pledges, security interests or charges of any kind whatsoever, for the purchase price set forth in Section 2 hereof.
| 5 |
| (b) | For purposes of this Agreement, “Assets” shall mean: |
| (i) | the franchise agreements between Seller and TJC for the Subject Franchises, copies of which are attached hereto asExhibits 1 and 2 and made a part hereof, |
| (ii) | all equipment, machinery, tools, maintenance supplies, office equipment, leasehold improvements, furniture, fixtures, inventories and supplies and other similar items of tangible personal property (together the “Personal Property”) used by Seller in the Subject Franchises which is more particularly listed and described inSchedule 1(b)(ii)attached hereto and made a part hereof; |
| (iii) | all of Seller’s interest in any membership agreements, prepaid services packages and other agreements or arrangements Seller has made with patients of the Subject Franchises, together with any deposits or prepayments made by any patients covered by such agreements or arrangements to the extent related to services to be performed after Closing; |
| (iv) | the trademarks, trade names, copyrights and all other intellectual property rights of Seller associated with the Subject Franchises and all of Seller’s goodwill attributable to the Subject Franchises; |
| (v) | all telephone numbers and domain names associated with the Subject Franchises; |
| (vi) | copies of all medical records with respect to patients of the Subject Franchises and all documents and records in the possession of Seller pertaining to patients and employees of the Subject Franchises; |
| (vii) | to the extent transferable, all licenses, government approvals and permits and all other approvals and permits relating to the Subject Franchises; |
| (viii) | all of Seller’s interest as tenant (including leasehold improvements) under its leases for the premises occupied by the Subject Franchises, copies of which are attached hereto asExhibits 3 and 4and made a part hereof; and |
| (ix) | the agreements and contracts which TJC has expressly agreed to assume and which are listed onSchedule 1(b)(ix) (together, the “Assumed Contracts”); |
| 2. | Excluded Assets |
Notwithstanding anything to the contrary contained in this Agreement, it is expressly acknowledged by TJC that Seller will not be conveying to TJC any cash, cash equivalents, working capital, or accounts receivable (other than accounts receivable under membership agreements or other arrangements described in Section 1(b)(iii) above, relating to periods after Closing), and any other assets, properties or rights of Seller owned or used by Seller but not used in or directly related to the Subject Franchises (collectively, the “Excluded Assets”).
| 6 |
| 3. | No Assumption of Liabilities |
Except as expressly provided in this Agreement, TJC shall not assume any debts, liabilities or obligations of either Seller or its shareholders, members, affiliates, officers, employees or agents of any nature, whether known or unknown, fixed or contingent, including, but not limited to, debts, liabilities or obligations with regard or in any way relating to any contracts (including, without limitation, any employee agreements), leases for real or personal property, trade payables, tax liabilities, disclosure obligations, product liabilities, liabilities to any regulatory authorities, liabilities relating to any claims, litigation or judgments, any pension, profit-sharing or other retirement plans, any medical, dental, hospitalization, life, disability or other benefit plans, any stock ownership, stock purchase, deferred compensation, performance share, bonus or other incentive plans, or any other similar plans, agreements, arrangements or understandings which Seller, or any of its affiliates, maintain, sponsor or are required to make contributions to, in which any employee of Seller participates or under which any such employee is entitled, by reason of such employment, to any benefits (collectively the (“Excluded Liabilities”). For the avoidance of doubt, any liability under any lease for real property for a Subject Franchise, whether or not assumed by TJC, which relates to the period before Closing, shall be an Excluded Liability.
| 4. | Payment of Purchase Price |
(a) The purchase price to be paid by TJC for the Assets (the “Purchase Price”) is $935,000.00, subject to adjustment as set forth in Section 4(d). $467,500.00 of the Purchase Price is payable to Seller for the Tucson Northwest Franchise and $467,500.00 of the Purchase Price is payable to Seller for the 7th Avenue and McDowell Franchise;
(b) TJC will pay to Seller the amount of $780,000.00 in cash at Closing;
(c) At Closing, TJC shall deliver to Seller a promissory note (the “Note”), a copy of which is attached hereto asExhibit 5, in the principal amount of $155,000, with interest on the unpaid balance at the rate of 1.5% per year. The principal amount of $25,000 of the Note (with interest thereon) shall be payable 120 days after Closing (provided that Seller complies with Section 25(b) herein), and the remaining principal amount of the Note (and the interest thereon) shall be payable in full on the second anniversary of Closing; and
(d) At Closing, the cash portion of the Purchase Price shall be adjusted by appropriate pro-rations for rent, state and local real estate taxes and transfer taxes, sales tax, prepaid customer contracts (including but not limited to membership agreements and service packages), service and utility contracts, payroll and employee related payments in respect of periods prior to Closing (the “Adjustments”). The Parties shall cooperate to determine the amounts of the Adjustments, and shall agree to such amounts prior to Closing.
| 5. | Closing |
Subject to the satisfaction or waiver of the conditions described in Sections 9 and 10 the closing of the transactions described herein shall take place no later than February 20, 2015, at such time as the parties agree, and shall occur at the offices of TJC. The date on which the Closing takes place is referred to in this Agreement as the “Closing Date.” At the Closing, Seller shall deliver such bills of sale, assignments, certificates and other documents and instruments as may reasonably be requested by TJC to carry out the transfer and assignment to TJC of the Assets. Following the Closing, the parties shall cooperate fully with each other and shall make available to the other, as reasonably requested and at the expense of the requesting party, and to any taxing or regulatory authority, all information, records or documents relating to tax obligations and regulatory compliance matters of Seller for all periods on or prior to the Closing, and shall preserve all such information, records and documents until the expiration of any applicable statute of limitations and extensions thereof.
| 7 |
| 6. | Representations and Warranties of Seller and the Members |
Seller and Roth hereby jointly and severally represent and warrant to TJC as follows:
(a) Organization. Seller is a limited liability company duly organized and validly subsisting under the laws of the State of Nebraska, and Seller has full power and authority to conduct its business as it is now being conducted, and to execute, deliver and perform this Agreement.
(b) Authority. Seller is not a party to, subject to, or bound by any agreement, judgment, order, writ, injunction, or decree of any court or governmental body that prevents or impairs the carrying out of this Agreement. The execution, delivery and performance of this Agreement and all other documents, instruments and agreements contemplated hereby have been duly authorized by all required company or limited partnership action of Seller. All other actions (including all action required by state law and by the organizational documents of Seller) necessary to authorize the execution, delivery and performance by Seller of this Agreement, the bills of sale transferring the Assets, the assignments in connection herewith and the other documents, instruments and agreements necessary or appropriate to carry out the transactions herein contemplated, have been taken by Seller. Upon the execution of this Agreement and the other documents and instruments contemplated hereby by Seller and the Members, this Agreement and such other documents and instruments will be the valid and legally binding obligations of Seller and the Members, enforceable against each of them in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).
(c) No Consent or Approval Required. Except as set forth onSchedule 6(c), no authorization, consent, approval or other order of, declaration to or filing with any governmental body or authority is required for the consummation by Seller of the transactions contemplated by this Agreement.
(d) Taxes. Seller has filed when due in accordance with all applicable laws (or properly and timely filed an extension therefor) all tax returns required under applicable statutes, rules or regulations to be filed by it. As of the time of filing, such returns were accurate and complete in all material respects. All taxes due with respect to Seller and the Assets, and all additional assessments received, have been paid. Seller is not delinquent in the payment of any such tax and have not requested any extension of time within which to file any tax return, which return has not since been filed. There are no federal, state, local or other tax liens outstanding on any of the Assets being sold hereunder.
(e) Title to and Condition of Assets. Seller has good and marketable title to (or, with respect to any Assets that are leased, a valid leasehold interest in) all of the Assets to be acquired by TJC at the Closing, free from any liens, adverse claims, security interest, rights of other parties or like encumbrances of any nature. The Assets consisting of physical property are in good condition and working order, normal wear and tear excepted, and function properly for their intended uses.
| 8 |
(f) Compliance with Laws. None the Seller nor the Subject Franchises is in violation of, nor are they or any of them subject to any liability in respect of, any federal, state, county, township, city or municipal laws, codes, regulations or ordinances (including without limitation those relating to environmental protection, health, hazardous or toxic substances, fire or safety hazards, occupational safety, labor laws, employment discrimination, subdivision, building or zoning) with respect to the conduct of the Subject Franchises, nor has Seller received any notices of investigation or violation pertaining to any such matters. Seller has, and all professional employees or agents of Seller have, all licenses, franchises, permits, authorizations or approvals from all governmental or regulatory authorities required for the conduct of the Subject Franchises and none of the Seller nor, to the knowledge of Roth or Pelan, the professional employees or agents of Seller has violated any such license, franchise, permit, authorization or approval or any terms or conditions thereof.
(g) Litigation. There is no action, suit or proceeding pending, or to the knowledge of Roth or Pelan, threatened against or affecting the Assets, or relating to or arising out of, the ownership or operation of the Assets, including claims by employees of the Subject Franchises.
(h) Employees.Schedule 6(h) attached hereto contains a complete and correct list of the name, position, current rate of compensation and any vacation or holiday pay and any other compensation arrangements or fringe benefits, of each current employee of Seller who is directly employed in the Subject Franchises.
(i) Contracts. Seller has delivered to TJC copies of any and all material contracts, leases, agreements, software licensing agreements, or commitments with respect to the Assets or the Subject Franchises. Except as set forth inSchedule 6(i), no consent or approval of any third party is required for the assignment to TJC of any contracts that TJC is assuming pursuant to Sections 1(b)(iii), (vi), (viii) and (ix).
(j) Financial Statements. Seller has delivered to TJC the financial statements (including but not limited to balance sheets and income and expense statements) for the Subject Franchises as of and for the 12 months ended December 31, 2013, and as of and for the nine months ended September 30, 2014 and Seller will make available to TJC prior to Closing the financial statements for the Subject Franchises for the period between September 30, 2014 and the last full month before Closing, and the financial statements for the subject franchises for and as of the 12 months ended December 31, 2014 (collectively, the “Financial Statements”). The Financial Statements fairly present in all material respects the financial position and results of operations of the Subject Franchises as of and for the periods presented.
(k) Claims. None of the Seller nor the Members has any claim, demand, or cause of action for damages of any kind whatsoever (collectively, “Claims”), against TJC or its officers, directors, employees, agents, successors and assigns by reason of any event, occurrence or omission arising under the franchise agreements for, or relating to, the Subject Franchises or the License.
| 9 |
| 7. | TJC’s Representations and Warranties |
TJC represents and warrants to Seller and the Members as follows:
(a) Organization of TJC. TJC is a corporation duly organized and validly subsisting under the laws of the state of Delaware, and TJC has full power and authority to conduct its business as it is now being conducted, and to execute, deliver and perform this Agreement.
(b) Authorization. TJC is not a party to, subject to or bound by any agreement, judgment, order, writ, injunction, or decree of any court or governmental body that prevents or impairs the carrying out of this Agreement. The execution, delivery and performance of this Agreement and all other documents, instruments and agreements contemplated hereby have been duly authorized by TJC’s Board of Directors. All other actions (including all action required by state law and by the organizational documents of TJC) necessary to authorize the execution, delivery and performance by TJC of this Agreement, the Note, the bill of sale transferring the Assets, the assignments in connection herewith and the other documents, instruments and agreements necessary or appropriate to carry out the transactions herein contemplated, have been taken by TJC. Upon the execution of this Agreement and the other documents and instruments contemplated hereby by TJC, this Agreement and such other documents and instruments will be the valid and legally binding obligations of TJC, enforceable against it in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).
(c) No Consent or Approval Required. No authorization, consent, approval or other order of, declaration to or filing with any governmental body or authority, including, without limitation, with respect to environmental matters, is required for the consummation by TJC of the transactions contemplated by this Agreement.
(d) No Violation of Other Agreements. Neither the execution and delivery of this Agreement nor compliance with the terms and conditions of this Agreement by TJC will breach or conflict with any of the terms, conditions or provisions of any agreement or instrument to which TJC is or may be bound or constitute a default thereunder or result in a termination of any such agreement or instrument.
(e) Financial Capability. TJC will have at Closing, sufficient internal funds available to pay the Purchase Price and any fees or expenses incurred by TJC in connection with the transactions contemplated hereby.
| 8. | Pre-Closing Events |
(a) General. Pending Closing, the Parties shall use commercially reasonable efforts to take all actions that may be necessary to close the Transaction in accordance with the terms of this Agreement (but TJC shall not be required to waive any of the TJC Closing Conditions, and Seller and the Members shall not be required to waive any of the Seller Closing Conditions).
(b) Conduct of Business. Pending Closing, Seller and the Members shall:
(i) conduct the business of the Subject Franchises in the ordinary course and use commercially reasonable efforts to maintain and grow the business of the Subject Franchises and to preserve their goodwill and advantageous relationships with patients, employees, suppliers and other persons having business dealings with the Subject Franchises; and
| 10 |
(ii) not take any affirmative action that results in the occurrence of an event of default under any contract or agreement to which Seller is a party and take any reasonable action within Seller’s control that would avoid the occurrence of such default.
| (c) | Access to Information. Pending Closing, Seller and the Members shall: |
(i) cause Seller to afford TJC and its representatives (including its lawyers, accountants, consultants and the like) reasonable access during normal business hours, but without unreasonable interference with operations, to the Seller’s books and records and other documents relating to the Subject Franchises;
(ii) respond to reasonable inquires by TJC and its representatives regarding Seller;
(iii) cause Seller to furnish TJC and its representatives with all information and copies of all documents concerning Seller that TJC and its representatives reasonably request; and
(iv) otherwise cooperate with TJC in its due diligence activities.
| (d) | Notice of Developments. Pending Closing, Seller and the Members shall promptly give Notice to TJC of: |
(i) any fact or circumstance of which Seller or a Member becomes aware that causes or constitutes a material inaccuracy in or material breach of any of Seller’s or a Members’ representations and warranties in Article 6 as of the date of this Agreement;
(ii) any fact or circumstance of which Seller or a Member becomes aware that would cause or constitute a material inaccuracy in or material breach of any of Seller’s or the either Member’s representations and warranties in Article 6 if those representations and warranties were made on and as of the date of occurrence or discovery of the fact or circumstance; or
(iii) the occurrence of any event of which Seller or a Member becomes aware that reasonably could be expected to make satisfaction of any Seller Closing Condition impossible or unlikely.
(e) Supplements to Schedules. Pending Closing, Seller may supplement or correct the Schedules to this Agreement as necessary to insure their completeness and accuracy. No supplement or correction to any Schedule or Schedules to this Agreement shall be effective, however, to cure any breach or inaccuracy in any of the representations and warranties; but if TJC does not exercise its right to terminate this Agreement under Section 12 and closes the transaction, the supplement or correction shall constitute an amendment of the Schedule or Schedules to which it relates for all purposes of this Agreement.
| 11 |
| 9. | TJC Closing Conditions |
Except as provided herein, TJC’s obligation to close the transaction is subject to the satisfaction of each of the following conditions (the “TJC Closing Conditions”) at or prior to Closing:
| (a) | Seller’s and the Members’ representations and warranties in Section 6, as qualified or limited by any exceptions in the Schedules to Section 6, are true and correct on the Closing Date as if made at and as of Closing (other than representations and warranties that address matters as of a certain date, which were true and correct as of that date); |
| (b) | Seller and the Members have executed and delivered all of the documents and instruments that they are required to execute and deliver or enter into prior to or at Closing, and have performed, complied with or satisfied in all material respects all of the other obligations, agreements and conditions under this Agreement that they are required to perform, comply with or satisfy at or prior to Closing; |
| (c) | no material adverse change in the Seller’s assets, financial condition, operations, operating results or prospects has occurred since the date of this Agreement; |
| (d) | no suit has been initiated or threatened by a third party since the date of this Agreement that challenges or seeks damages or other relief in connection with the transaction or that could have the effect of preventing, delaying, making illegal or otherwise interfering with the transaction; |
| (e) | Seller has obtained a consent to the assignment of, and estoppel letter under, each lease attached hereto asExhibits 3 and 4(the “Assigned Leases”), relating to the premises of the Subject Franchises, in a form reasonably acceptable to TJC; |
| (f) | Roth has executed and delivered to TJC a franchise termination agreement in a form reasonably acceptable to TJC, relating to the termination of the License; |
| (g) | Members have executed and delivered, in a form reasonably acceptable to TJC, a release of all Claims against TJC, its officers, directors, employees, agents, successors and assigns, arising prior to the Closing; and |
| (h) | Seller has delivered a payoff letter and release of claims from Union Bank. |
TJC may waive any condition specified in this Section 9 by a written waiver delivered to Seller or a Member at any time prior to or at Closing.
| 10. | Seller’s Closing Conditions |
Seller’s obligation to close the transaction is subject to the satisfaction of each of the following conditions (the “Seller Closing Conditions”) at or prior to Closing:
(a) TJC’s representations and warranties in Section 7 were true and correct as of the date of this Agreement and are true and correct on the Closing Date as if made at and as of Closing;
| 12 |
(b) TJC has executed and delivered all of the documents and instruments that it is required to execute and deliver or enter into prior to or at Closing, and has performed, complied with or satisfied in all material respects all of the other obligations, agreements and conditions under this Agreement that it is required to perform, comply with or satisfy prior to or at Closing;
(c) no suit has been initiated or threatened by a third party since the date of this Agreement that challenges or seeks damages or other relief in connection with the transaction or that could seeks to prevent the transaction.
Seller may waive any condition specified in this Section 10 by a written waiver delivered to TJC at any time prior to or at Closing.
| 11. | Non-Competition; Non-Solicitation; Confidentiality |
(a) Definitions. Wherever used in this Section 11,the term “TJC” shall refer to TJC and any affiliate, subsidiary, or any successor or assign of TJC. Wherever used in this Section, the phrase “directly or indirectly” includes, but is not limited to, acting, either personally or as principal, owner, shareholder, member, employee, independent contractor, agent, manager, partner, joint venturer, consultant, or in any other capacity or by means of any corporate or other device, or acting through the spouse, children, parents, brothers, sisters, or any other relatives, friends, invitees, agents, or associates of any of the undersigned parties. Wherever used in this Section, the term “employees” shall refer to employees of TJC; any affiliate, subsidiary, or any successor or assign of TJC; and any franchisee of TJC existing as of the date of this Agreement and, to the extent allowable by law, any other person that has been an employee (as defined above) in the twelve (12) months preceding the date of this Agreement. Whenever used in this Section, the term “Confidential Information” shall be defined asprovided in Section 9 of Seller’s franchise agreements with TJC, which provisions are hereby incorporated by reference.
(b) Consideration. The undersigned parties acknowledge that consideration for this Agreement has been provided and is adequate.
(c) Need for this Agreement. The undersigned parties recognize that in the highly competitive business in which TJC and its affiliates and franchisees are engaged, preservation of Confidential Information is crucial and personal contact is important in securing new franchisees and employees, and retaining the goodwill of present franchisees, employees, customers, and suppliers. Personal contact is a valuable asset and is an integral part of protecting the business of TJC. Each Seller and the Members recognize that each of them has had substantial contact with TJC’s employees, customers, consultants, vendors and suppliers and Confidential Information. For that reason, Seller and the Members may be in a position to take for his, her or its benefit the goodwill TJC has with its employees and customers (patients) and Confidential Information now or in the future. If a Seller or a Member at any time after Closing takes advantage of such Confidential Information or goodwill for its or his own benefit, then the competitive advantage that TJC has created through its efforts and investment will be irreparably harmed.
(d) Non-Competition with TJC. Seller and the Members agree that, for thirty six (36) months following the date of Closing, none of the Seller nor the Members, will have any direct or indirect interest (e.g., through a spouse) as a disclosed or beneficial owner, investor, partner, director, officer, employee, consultant, representative or agent, or in any other capacity, in any Competitive Business located or operating within twenty-five (25) miles of any chiropractic clinic owned by TJC or operated by a TJC franchisee. The term “Competitive Business” means any business which derives more than Ten Thousand Dollars ($10,000.00) of revenue per year from the performance of chiropractic or related services, or any business which grants franchises or licenses to others to operate such a business, with the sole exception of (i) a regional developer license granted by TJC or (ii) a franchise operated under a franchise agreement with TJC.
| 13 |
(e) Non-Solicitation of TJC’s Employees. The Seller and each Member agrees that for twelve (12) months after the date of this Agreement, it, he or she will not directly or indirectly: (a) induce, canvas, solicit, or request or advise any employees, suppliers, vendors or consultants of TJC, or any TJC franchisee or affiliated professional corporation to accept employment with any person, firm, or business that competes with any business of TJC or any TJC franchisee or affiliated professional corporation; or (b) induce, request, or advise any employee of TJC or TJC franchisee or affiliated professional corporation to terminate such employee’s relationship with TJC or any TJC franchisee or affiliated professional corporation; or (c) disclose to any other person, firm, partnership, corporation or other entity, the names, addresses or telephone numbers of any of the employees of TJC or any TJC franchisee or affiliated professional corporation, except as required by law.
(f) Non-solicitation of TJC’s Customers (Patients). The Seller and each Member agrees that for thirty six (36) months after the date of this Agreement, it, he or she will not directly or indirectly: (a) induce, canvas, solicit, or request or advise any customers of TJC or any TJC franchisee or affiliated professional corporation to become customers of any person, firm, or business that competes with any business of TJC or any TJC franchisee or affiliated professional corporation; or (b) induce, request or advise any customer of TJC or any TJC franchisee or affiliated professional corporation to terminate or decrease such customer’s relationship with TJC or any TJC franchisee or affiliated professional corporation; or (c) disclose to any other person, firm, partnership, corporation or other entity, the names, addresses or telephone numbers of any of the customers of TJC or any TJC franchisee or affiliated professional corporation, except as required by law.
(g) Confidential Information. The Seller and each Member agrees at all times following the date of this Agreement, to hold the Confidential Information in the strictest confidence and not to use such Confidential Information for Seller’s or such Member’s personal benefit, or the benefit of any other person or entity other than TJC, or disclose it directly or indirectly to any person or entity without TJC’s express authorization or written consent. Seller and the Members fully understand the need to protect the Confidential Information and all other confidential materials and agree to use all reasonable care to prevent unauthorized persons from obtaining access to Confidential Information at any time.
(h) Tolling. To ensure that TJC will receive the full benefit of this Section 11, the provisions of Subsections (d), (e) and (f) of this Section 11 will shall be extended by a length of time equal to (i) the period during which Seller or a Member is in violation of such Seller’s or the Member’s agreements under such Subsections, and (ii) without duplication, any period during which litigation that TJC institutes to enforce the Seller or a Member’s agreements under such Subsections is pending (to the extent that Seller or such Member is in violation of Seller’s or Member’s agreements under such Subsections during this period).
| 14 |
| 12. | Termination |
| (a) | This Agreement may be terminated by TJC, upon notice to Seller and the Members, if prior to or at Closing: |
(i) Seller or either Member defaults in the performance of any of their material obligations under this Agreement and the default is not cured within five business days after TJC gives notice of the default to Seller and the Members; or
(ii) any TJC Closing Condition is not satisfied as of February 20, 2015, or satisfaction of any TJC Closing Condition is or becomes impossible (other than as a result of TJC’s breach of or failure to perform its obligations under this Agreement), and TJC does not waive satisfaction of the condition; or
(iii) Closing does not occur on or before February 20, 2015 (other than as a result of TJC’s breach of or failure to perform its obligations under this Agreement).
| (b) | This Agreement may be terminated by Seller or a Member, upon notice to TJC, if prior to or at Closing: |
(i) TJC defaults in the performance of any of its material obligations under this Agreement and the default is not cured within five Business Days after a Seller or a Member gives notice of the default to TJC;
(ii) any Seller Closing Condition is not satisfied as of February 20, 2015, or satisfaction of any Seller Closing Condition is or becomes impossible (other than as a result of Seller’s or a Member’s breach of or failure to perform their obligations under this Agreement) and Seller does not waive satisfaction of the condition; or
(iii) Closing has not occurred by February 20, 2015 (other than as a result of a Seller’s or a Member’s breach of or failure to perform their obligations under this Agreement); or
| (c) | This Agreement may be terminated by the written agreement of the parties. |
| (d) | The right of termination under this Section 12 is in addition to any other rights that a party may have under this Agreement or otherwise, and a party’s exercise of its right of termination shall not be considered an election of remedies. Notwithstanding the termination of this Agreement pursuant to this Section 12, the parties’ confidentiality obligations under Section 11(g) shall survive termination and continue indefinitely. |
| 13. | Indemnification of TJC |
| (a) | Subject to Sections 15 and 16, Seller and the Members agree, jointly and severally, to indemnify TJC against and hold TJC harmless from: |
(i) any loss, liability, damage (but specifically excluding any punitive, consequential, incidental or special damages), cost or expense, including reasonable attorneys’ fees and cost of investigation (“Loss”) that TJC may suffer or incur that is caused by, arises out of or relates to any inaccuracy in or breach of any representation and warranty by Seller or a Member in Section 6 of this Agreement;
| 15 |
(ii) any Loss that TJC may suffer or incur that is caused by, arises out of or relates to Seller’s or a Member’s breach of or failure to perform any of their obligations in this Agreement in any material respect or from the assertion against TJC of an Excluded Liability;
(iii) any Loss that TJC may suffer or incur that is caused by, arises out of or relates to the assertion against TJC of an Excluded Liability; or
(iv) any Loss TJC may suffer or incur that is caused by, arises out of or relates to any franchise agreement to which Roth or any company owned in whole or in party by Roth is a party, or any related franchise.
| (b) | The benefit of the indemnification obligations of Seller and the Members under this Section 13 shall extend to the respective officers, directors, employees and agents of TJC and its affiliates. |
| 14. | Indemnification of Seller |
| (a) | Subject to Sections 15 and 16, TJC agrees to indemnify Seller against and hold Seller harmless from: |
(i) any Loss that Seller may suffer or incur that is caused by, arises out of or relates to any inaccuracy in or breach of any representation and warranty by TJC in Section 7 of this Agreement;
(ii) any Loss that Seller may suffer or incur that is caused by, arises out of or relates to TJC’s breach of or failure to perform any of its obligations in this Agreement in any material respect; or
(iii) any Loss that Seller may suffer or incur that is caused by, arises out of or relates to TJC’s operation of the Subject Franchises after Closing.
(b) The benefit of TJC’s indemnification obligation under this Section 14 shall extend to the officers, managers, directors, employees and agents of Seller.
| 15. | Threshold and Cap |
(a) In respect of TJC’s assertion of an indemnification claim under Section 13(a)(i), TJC shall not be entitled to indemnification until the aggregate amount for which indemnification is sought exceeds $5,000 (the “Threshold”). If this Threshold is reached, TJC may assert an indemnification claim for the full amount of the claim (going back to the first dollar) and may assert any subsequent indemnification claim under Section 13(a)(i) without regard to any Threshold. The maximum aggregate amount for which TJC may assert indemnification claims under Section 13 shall be the Purchase Price (the “Cap”). No Threshold or Cap shall apply, however, in the case of any Loss caused by, arising out of or relating to any fraud or intentional misrepresentation.
| 16 |
(b) In respect of Seller’s and/or a Member’s assertion of an indemnification claim under Section 14(a)(i), Seller and/or the Members shall not be entitled to indemnification until the aggregate amount for which indemnification is sought collectively exceeds $5,000. If this Threshold is reached, Seller and the Members may assert an indemnification claim for the full amount of the claim (going back to the first dollar) and may assert any subsequent indemnification claim under Section 13(a)(i) without regard to any Threshold. The maximum aggregate amount for which Seller and/or the Members may assert indemnification claims under Section 14 shall be the Purchase Price. No Threshold or Cap shall apply, however, in the case of any Loss caused by, arising out of or relating to any fraud or intentional misrepresentation.
(c) No threshold shall apply to TJC’s assertion of an indemnification claim under Sections 13(a)(ii), (iii) or (iv) or to Seller’s or a Member’s assertion of an indemnification claim under Sections 14(a)(ii) or (iii).
(d) Any indemnification obligations which Seller or a Member agree in writing are their obligations or a court of competent jurisdiction determines are the obligation of the Seller or either Member shall first be made as a setoff against the amounts owed by TJC under the Note.
| 16. | Survival |
| (a) | An indemnification claim under Sections 13(a)(i) and 14(a)(i) may be asserted at any time prior to the second anniversary of the Closing Date, with the exception that: |
(i) an indemnification claim under Section 13(a)(i) in respect of any inaccuracy in or breach of any of the representations and warranties in Section 6(d) (“Taxes”) may be asserted at any time prior to the expiration of the applicable statute of limitation; and
(ii) an indemnification claim under Section 13(a)(i) in respect of any inaccuracy in or breach of any of the representations and warranties in Sections 6(b) (“Authority”) and 6(e) (“Title to and Condition of Assets”), may be asserted at any time without limit, but only as to indemnification claims related to title to Assets, not condition of Assets.
| (b) | An indemnification claim under Sections 13(a)(ii), (iii) and (iv) and Sections 14(a)(ii) and (iii) may be asserted at any time without limit. |
| 17. | Notice of Indemnification Claim |
(a) The indemnified party may assert an indemnification claim by giving written notice of the indemnification claim to the indemnifying party. The indemnified party’s notice shall provide reasonable detail of the facts giving rise to the indemnification claim and a statement of the indemnified party’s Loss or an estimate of the Loss that the indemnified party reasonably anticipates that it will suffer. The indemnified party may amend or supplement its indemnification claim at any time, and more than once, by written notice to the indemnifying party.
(b) If or to the extent that the indemnification claim is not in respect of a Third Party Suit, Section 18 shall apply. If or to the extent that the indemnification claim is in respect of a Third Party Suit, Section 19 shall apply.
| 17 |
| 18. | Resolution of Claims |
(a) If the indemnifying party does not object to an indemnification claim during the 30-day period following receipt of the indemnified party’s notice of its indemnification claim, the indemnified party’s indemnification claim shall be considered undisputed, and the indemnified party shall be entitled to recover the actual amount of its indemnifiable loss from the indemnifying party, subject to the Threshold, if any, and the Cap in Section 15(a) or (b).
(b) If the indemnifying party gives notice to the indemnified party within the 30-day objection period that the indemnifying party objects to the indemnified party’s indemnification claim, the indemnifying party and the indemnified party shall attempt in good faith to resolve their differences during the 30-day period following the indemnified party’s receipt of the indemnifying party’s notice of its objection. If they fail to resolve their disagreement during this 30-day period, either of them may unilaterally submit the disputed indemnification claim for non-binding arbitration before the American Arbitration Association in Phoenix, Arizona in accordance with its rules for commercial arbitration in effect at the time, which shall be a condition precedent to seeking resolution of the disputed indemnification claim before any court of competent jurisdiction. The award of the arbitrator or panel of arbitrators may include attorneys’ fees to the prevailing party. The prevailing party may enforce the award of the arbitrator or panel of arbitrators in any court of competent jurisdiction.
| 19. | Third Party Suits |
(a) TJC shall promptly give notice to Seller and the Members of any suit, demand, or claim by a third person against TJC, for which TJC is entitled to indemnification under Section 13(a) (a “Third Party Suit”), which may be given by notice of an indemnification claim in respect of the Third Party Suit. TJC’s failure or delay in giving this notice shall not relieve Seller or the Members from their indemnification obligation under this Section 19(a) in respect of the Third Party Suit, except to the extent that Seller or a Member suffer or incur a loss or are prejudiced by reason of TJC’s failure or delay.
(b) TJC shall control the defense of any Third Party Suit. Seller and the Members shall be entitled to copies of all pleadings and, at their expense, may participate in, but not control, the defense and employ their own counsel. Seller and the Members shall in any event reasonably cooperate in the defense of the Third Party Suit.
(c) TJC’s settlement of a Third Party Suit shall also be binding on Seller and the Members, in the same manner as if a final judgment in the amount of the settlement had been entered by a court of competent jurisdiction, if, as part of the settlement, Seller and the Members receive a binding release providing that any liability of Seller or the Members in respect of the Third Party Suit is being satisfied as part of the settlement. TJC shall give Seller and the Member at least 30 days’ prior notice of any proposed settlement, and during this 30-day period Seller or the Member may reject the proposed settlement and instead assume the defense of the Third Party Suit if:
| 18 |
| (i) | the Third Party Suit seeks only money damages and does not seek injunctive or other equitable relief against TJC; |
| (ii) | Seller and the Members unconditionally acknowledge in writing to TJC that Seller and the Members are obligated to indemnify TJC in full in respect of the Third Party Suit (except for any matters that are not subject to indemnification under this Agreement); |
| (iii) | the counsel chosen by Seller and the Members to defend the Third Party Suit is reasonably satisfactory to TJC; |
| (iv) | Seller and the Members furnish TJC with security reasonably satisfactory to TJC to assure that Seller and the Members have the financial resources to defend the Third Party Suit and to satisfy their indemnification obligation in respect of the Third Party Suit; |
| (v) | Seller or a Member actively and diligently defend the Third Party Suit; and |
| (vi) | Seller and the Members consult with TJC regarding the Third Party Suit at TJC’s reasonable request. |
If Seller or the Members assume the defense of the Third Party Suit, TJC shall be entitled to copies of all pleadings and, at its expense, may participate in, but not control, the defense and employ its own counsel.
| (d) | Seller and the Members may settle a Third Party Suit in which, Seller or Member controls the defense only if the following conditions are satisfied: |
(i) the terms of settlement do not require any admission by Seller, the a Member or TJC, in respect of any matters subject to indemnification under Sections 13 or 14 of this Agreement, that in TJC’s reasonable judgment would have an adverse effect on TJC; and
(ii) as part of the settlement, TJC receives a binding release providing that any liability of TJC in respect of the Third Party Suit is being satisfied as part of the settlement.
(e) TJC’s failure to defend a Third Party Suit shall not relieve Seller or the Members of their indemnification obligation under Section 13 of this Agreement if TJC gives Seller or the a Member at least 30 days’ prior notice of TJC’s intention not to defend the Third Party Suit and affords Seller and the Members the opportunity to assume the defense without having to satisfy the conditions in Section 18(c) for assuming the defense.
| 20. | Expenses |
Each party shall pay its own expenses in connection with the negotiation and preparation of this Agreement and the closing of the Transaction. In the event of termination of this Agreement prior to Closing pursuant to Section 12, each party’s obligation to pay its own expenses shall be subject to any right of recovery as a result of a default under this Agreement by the other party.
| 19 |
| 21. | Schedules |
Nothing in any Schedule to Section 6 shall be considered adequate to constitute an exception to the related representation and warranty in Section 6 unless the Schedule describes the relevant facts in reasonable detail. Any exception in a Schedule to Section 6 shall be considered an exception to any other representation and warranty in Section 6 to which the exception relates if it is reasonably apparent on its face that the exception in question relates to such other representation and warranty.
| 22. | Parties’ Review |
Any knowledge acquired by a party (or that should have been or could have been acquired) as a result of any due diligence or other review or investigation in connection with the negotiation and execution of this Agreement and the closing of the transaction shall not limit that party’s right to rely on the other party’s representations and warranties in this Agreement or circumscribe that party’s entitlement to indemnification under this Agreement.
| 23. | Publicity |
Any public announcement or similar publicity regarding this Agreement or the transaction shall be issued only as, when and in the manner and form that TJC determines.
| 24. | Notices |
(a) All notices under this Agreement shall be in writing and sent by certified or registered mail, overnight messenger service, facsimile or personal delivery, as follows:
| (i) | if to Roth or Seller, to or in care of: |
| Timothy Roth | ||||
| 9438 North Fireridge Trail | ||||
| Fountain Hills, AZ 85268 | ||||
| Email: | tlrproperties@yahoo.com | |||
| Fax: | ||||
with a required copy to:
| Koley Jessen, PC, LLO | ||||
| 1125 S. 103rd St., Suite 800 | ||||
| Omaha, NE 68124 | ||||
| Fax: | 402-390-9500 | |||
| Attention: | Helmut E. Brugman | |||
| (ii) | if to Pelan, to: |
| Thomas Pelan | ||||
| 21758 E. Santford Circle | ||||
| Elkhorn, NE 68022 | ||||
| Fax: | (402) 397-4010 | |||
| (iii) | if to TJC, to: |
| The Joint Corp. | ||||
| 16767 N. Perimeter Dr. Suite 240 | ||||
| Scottsdale, AZ 85260 | ||||
| Fax: | (480) 513-7989 | |||
| Attention: | Mr. David Orwasher | |||
| Chief Operating Officer | ||||
with a required copy to:
| Johnson and Colmar | ||||
| 2201 Waukegan Road, Suite 260 | ||||
| Bannockburn, Illinois 60015 | ||||
| Fax: | (312) 922-9283 | |||
| Attention: | Mr. Craig P. Colmar | |||
| 20 |
(b) A notice sent by certified or registered mail shall be considered to have been given five business days after being deposited in the mail. A notice sent by overnight courier service, facsimile or personal delivery shall be considered to have been given when actually received by the intended recipient. A party may change its address for purposes of this Agreement by notice in accordance with this Section 24.
| 25. | Further Assurances and Cooperation |
(a) The parties agree to (i) furnish to one another other such further information, (ii) execute and deliver to one another such further documents and (iii) do such other acts and things that any party reasonably requests for the purpose of carrying out the intent of this Agreement and the documents and instruments referred to in this Agreement. For 45 days following the Closing, Seller and the Member shall provide to TJC such assistances as TJC reasonably requests to help ensure a smooth and orderly transition of ownership of the Subject Franchises.
(b) The parties acknowledge that TJC may be required to conduct audits of the financial statements of the businesses operated using the Assets, and the Seller and the Members agree to cooperate with TJC and to provide it with any information reasonably available to the Seller and the Members to assist TJC and its representatives in conducting such audits. Such information includes, but is not limited to, the financial books, records and work papers of Seller. The Note shall secure Seller’s performance under this Section 25(b). In the event that Seller performs under this Section 25(b) in all material respects, TJC shall pay Seller $25,000 of the principal amount of the Note, plus interest accrued thereon, no later than 120 days after Closing. In the event that, in TJC’s reasonable judgment, Seller fails to perform its obligations under this Section 25(b) in any material respect, TJC may reduce the Purchase Price by, and withhold payment of, $25,000 of principal (plus the related interest) under the Note in accordance with Section 3 of the Note.
| 26. | Waiver |
The failure or any delay by any party in exercising any right under this Agreement or any document referred to in this Agreement shall not operate as a waiver of that right, and no single or partial exercise of any right shall preclude any other or further exercise of that right or the exercise of any other right. All waivers shall be in writing and signed by the party to be charged with the waiver, and no waiver that may be given by a party shall be applicable except in the specific instance for which it is given.
| 21 |
| 27. | Entire Agreement |
This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes (together with (i) the Exhibits, (ii) the Schedules and (iii) the parties’ Closing Documents) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement signed by the party to be charged with the amendment.
| 28. | Assignment |
No party may assign any of its rights under this Agreement without the prior written consent of the other party.
| 29. | No Third Party Beneficiaries |
Nothing in this Agreement shall be considered to give any person other than the parties any legal or equitable right, claim or remedy under or in respect of this Agreement or any provision of this Agreement. This Agreement and all of its provisions are for the sole and exclusive benefit of the parties and their respective successors, permitted assigns, heirs and legal representatives.
| 30. | Construction |
| (a) | All references in this Agreement to “Section” or “Sections” refer to the corresponding section or sections of this Agreement. |
| (b) | All words used in this Agreement shall be construed to be of the appropriate gender or number as the context requires. |
| (c) | Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms. |
| (d) | The captions of articles and sections of this Agreement are for convenience only and shall not affect the construction or interpretation of this Agreement. |
| 31. | Severability |
The invalidity or unenforceability of any term or provision, or part of any term or provision, of this Agreement shall not affect the validity and enforceability of the other terms and provisions of this Agreement, and this Agreement shall be construed in all respects as if the invalid or unenforceable term or provision, or part, had been omitted. In the event that any provision of this Agreement is determined by a court of competent jurisdiction to be unenforceable because it is too broad, such provision shall be interpreted to be only as broad as is enforceable.
| 22 |
| 32. | Counterparts |
This Agreement may be signed in any number of counterparts (including by facsimile or portable document format (pdf)), all of which together shall constitute one and the same instrument.
| 33. | Governing Law |
This Agreement shall be governed by the internal Laws of the State of Arizona, without giving effect to any choice of law provision or rule (whether of the State of Arizona or any other state) that would cause the laws of any state other than the State of Arizona to govern this Agreement.
| 34. | Binding Effect |
This Agreement shall apply to, be binding in all respects upon and inure to the benefit of parties and their respective heirs, legal representatives, successors and permitted assigns.
| 35. | Allocation |
The Parties hereby agree to allocate the Purchase Price among the Assets in accordance with Schedule 35. TJC and Seller shall file Form 8594 with their respective US Federal income tax returns in accordance with such agreement.
(signatures appear on the next page)
| 23 |
IN WITNESS WHEREOF, the Parties hereto affix their signatures and execute this Agreement as of the day and year first above written.
| Roth & Pelan Enterprises, LLC | The Joint Corp. | ||||
| By: | /s/ Timothy Roth | By: | /s/ David Orwasher | ||
| Timothy Roth,Manager | David Orwasher,Chief Operating Officer | ||||
| By: | /s/ Timothy Roth | ||||
| Timothy Roth, Individually | |||||
| By: | /s/ Thomas Pelan | ||||
| Thomas Pelan, Individually | |||||
| Blue Sky & Sunny Days, Inc. | |||||
| By: | /s/ Timothy Roth | ||||
| Timothy Roth, President | |||||
Signature Page to Asset and Franchise Purchase Agreement
| 24 |