Exhibit 2.1
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ASSET PURCHASE AGREEMENT
BY AND AMONG
CORVEL ENTERPRISECOMP, INC.
a Delaware corporation
(as "Buyer"),
XXXXXXXXX RISK MANAGEMENT SERVICES, INC.,
a California corporation,
COMP CARE, INC.,
a California corporation
and
MEDICAL AUDITING SERVICES, INC.,
a California corporation
(collectively, "Seller"),
and
XXXXXX XXXXXXXXX
(as "Shareholder")
DATED: DECEMBER 15, 2006
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TABLE OF CONTENTS
Page
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ARTICLE I PURCHASE AND SALE OF ASSETS.................................... 1
1.1 Purchase of Assets............................................ 1
1.2 Liabilities................................................... 3
1.3 Purchase Price................................................ 4
1.4 Closing Balance Sheet Working Capital Adjustment.............. 4
1.5 Earn Out...................................................... 6
1.6 Conveyance Taxes/Bulk Transfer................................ 8
1.7 Allocation of Purchase Price.................................. 8
1.8 Closing....................................................... 9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER...... 9
2.1 Existence, Good Standing and Power............................ 9
2.2 Authority..................................................... 10
2.3 Capitalization................................................ 10
2.4 Subsidiaries.................................................. 11
2.5 No Conflicts.................................................. 11
2.6 Financial Statements.......................................... 11
2.7 Accounts Receivable........................................... 12
2.8 No Undisclosed Liabilities.................................... 12
2.9 Absence of Certain Changes.................................... 12
2.10 Obligations to Related Parties................................ 13
2.11 Title to Purchased Assets; Absence of Encumbrance............. 14
2.12 Intellectual Property......................................... 14
2.13 Litigation.................................................... 16
2.14 Employees and Subcontractors.................................. 17
2.15 Benefit Plans................................................. 18
2.16 Contracts and Permits......................................... 19
2.17 Compliance with Laws.......................................... 21
2.18 Environmental Matters......................................... 21
2.19 Customers and Suppliers....................................... 22
2.20 Consents and Approvals........................................ 22
2.21 Permits....................................................... 22
2.22 Taxes......................................................... 23
2.23 Properties.................................................... 23
2.24 Insurance..................................................... 24
2.25 No Brokers or Finders......................................... 24
2.26 Prepayments, Prebilled Invoices and Deposits.................. 24
2.27 Warranties.................................................... 25
2.28 Product Liability............................................. 25
2.29 Disclosure; No Misstatement................................... 25
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER...................... 25
3.1 Organization and Standing..................................... 25
3.2 Authority..................................................... 25
3.3 Consents and Approvals........................................ 26
3.4 No Conflicts.................................................. 26
3.5 No Brokers or Finders......................................... 26
ARTICLE IV ADDITIONAL AGREEMENTS......................................... 26
4.1 Expenses...................................................... 26
4.2 Public Disclosure............................................. 26
4.3 Confidential Information...................................... 27
4.4 Access to Books and Records................................... 27
4.5 Employment of Employees....................................... 27
4.6 Ad Valorem and Similar Taxes.................................. 28
ARTICLE V ACTIONS OF SELLER AND SHAREHOLDER BEFORE AND AFTER THE CLOSING
DATE.......................................................... 28
5.1 Access and Investigation...................................... 28
5.2 Conduct of Business........................................... 28
5.3 Required Approvals............................................ 30
5.4 Required Consents............................................. 30
5.5 Notification.................................................. 30
5.6 No Solicitation............................................... 31
5.7 Commercially Reasonable Efforts............................... 31
5.8 Further Action; Cooperation................................... 31
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.................. 31
6.1 Accuracy of Representations................................... 31
6.2 Seller's Performance.......................................... 32
6.3 Officer's Certificate......................................... 32
6.4 Secretary's Certificate....................................... 32
6.5 No Proceeding................................................. 32
6.6 Material Adverse Change....................................... 32
6.7 Transferred Employees......................................... 32
6.8 Consents...................................................... 33
6.9 Approvals..................................................... 33
6.10 Non-Competition and Non-Solicitation Agreement................ 33
6.11 Consulting Agreements for **** and ****....................... 33
6.12 Intellectual Property Assignment Agreement.................... 33
6.13 Assignments of Leases and Consents of Lessor.................. 34
6.14 Chino Facility Lease.......................................... 34
6.15 Financial Schedule............................................ 34
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* Confidential treatment requested pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. In accordance with Rule 24b-2, these
confidential portions have been omitted from this exhibit and filed
separately with the Securities and Exchange Commission.
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ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND
SHAREHOLDER................................................... 34
7.1 Accuracy of Representations................................... 34
7.2 Buyer's Performance........................................... 34
7.3 Officer's Certificate......................................... 34
7.4 Secretary's Certificate....................................... 34
7.5 No Proceeding................................................. 35
7.6 Consents...................................................... 35
7.7 Approvals..................................................... 35
7.8 Assignments of Leases and Consents of Lessors................. 35
7.9 Chino Facility Lease.......................................... 35
ARTICLE VIII TERMINATION................................................. 35
8.1 Termination Events............................................ 35
8.2 Effect of Termination......................................... 35
ARTICLE IX INDEMNIFICATION............................................... 36
9.1 Survival of Representations, Warranties, Covenants and
Agreements.................................................... 36
9.2 Indemnification by Seller and Shareholder..................... 36
9.3 Indemnification by Buyer...................................... 36
9.4 Indemnification Procedures.................................... 37
ARTICLE X GENERAL PROVISIONS............................................. 38
10.1 Notices....................................................... 38
10.2 Entire Agreement.............................................. 39
10.3 Successors and Assigns........................................ 39
10.4 Waiver........................................................ 39
10.5 Severability.................................................. 40
10.6 Specific Performance.......................................... 40
10.7 Other Remedies................................................ 40
10.8 Governing Law; Jurisdiction................................... 40
10.9 Construction.................................................. 41
10.10 Headings...................................................... 41
10.11 Counterparts.................................................. 41
ARTICLE XI DEFINITIONS................................................... 41
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The following schedules and similar attachments to the Asset Purchase Agreement
have been omitted from this Exhibit 2.1. CorVel Corporation hereby agrees to
furnish supplementally, subject to any applicable confidential treatment request
under Rule 83 of the Securities and Exchange Commission's Rules of Practice, a
copy of any omitted schedule or similar attachment to the Asset Purchase
Agreement to the Securities and Exchange Commission upon its request.
Exhibit 1.1(a)(iii) Tangible Property
Exhibit 1.1(a)(iv) Intellectual Property Rights
Exhibit 1.1(b) Excluded Assets
Exhibit 1.9(b) Xxxx of Sale, Assignment and Assumption Agreement
Exhibit 6.10 Non-Competition and Non-Solicitation Agreement
Exhibit 6.11 Consulting Agreements
Exhibit 6.12 Intellectual Property Assignment Agreement
Schedule A Earn Out Payment Calculation
Schedule B Allocation of Purchase Price
Schedule C Seller Disclosure Schedule
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "AGREEMENT") is made and entered into as
of December 15, 2006 by and among CorVel EnterpriseComp, Inc., a Delaware
corporation ("BUYER"), Xxxxxxxxx Risk Management Services, Inc., a California
corporation, ("HRMS"), Comp Care, Inc., a California corporation ("CC"), and
Medical Auditing Services, Inc., a California corporation ("MAS") (HRMS, CC and
MAS are collectively referred to as "SELLER"), and Xxxxxx Xxxxxxxxx, an
individual ("SHAREHOLDER"). All references to Seller herein shall mean as to
each of HRMS, CC and MAS individually and all of them collectively. Capitalized
terms not otherwise defined herein shall have the meanings set forth in Article
XI.
RECITALS
A. WHEREAS, Seller is engaged in the third party administrator and managed
care services business, providing claims and account administration and
communications, cost containment, data processing and/or training and education
services to employers, insurance companies, insured funds, governmental agencies
and other payors of workers' compensation, health care and disability benefits,
and third party administrators (the "BUSINESS").
B. WHEREAS, Xxxxxxxxx is the beneficial and record holder of all of the
issued and outstanding shares of capital stock of HRMS, CC and MAS.
C. WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
and acquire from Seller, substantially all of the Assets of Seller, all on the
terms and subject to the conditions set forth in this Agreement (the "ASSET
PURCHASE").
NOW, THEREFORE, in consideration of the foregoing and the covenants,
representations and warranties set forth herein, intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Purchase of Assets.
(a) Purchased Assets. On the Closing Date (as defined in Section 1.8
below), upon the terms and subject to the conditions set forth in this
Agreement, Seller shall sell, transfer, convey and deliver to Buyer, free and
clear of all Encumbrances, other than Permitted Encumbrances, and Buyer shall
purchase from Seller, all right, title and interest in and to all of the assets,
interests and rights of any kind, whether tangible or intangible, real or
personal, owned, leased or used by Seller other than the Excluded Assets
(collectively, the "PURCHASED ASSETS"), including but not limited to the
following:
(i) All of Seller's rights under the customer contracts, vendor
contracts, licenses, leases (real property and equipment) and any other
agreements used in the
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Business set forth in Section 2.16 of the Seller Disclosure Schedule (as defined
in Article II below), any other contracts not listed which Buyer, in its sole
discretion, accepts and assumes in writing and any contracts, leases and
agreements entered into after the date of this Agreement and prior to the
Closing Date in accordance with Section 5.2 (collectively, the "ASSUMED
CONTRACTS").
(ii) "ACCOUNTS RECEIVABLES" (as defined in Section 2.7 below) of
Seller, whether or not invoices thereto have been issued.
(iii) All improvements, fixtures, office furniture, fixed assets,
office equipment, supplies and other tangible personal property as set forth on
Exhibit 1.1(a)(iii) hereof and all such tangible personal property acquired by
Seller after the date hereof and prior to the Closing Date in accordance with
Section 5.2.
(iv) All intellectual property of Seller used in the Business
(collectively referred to as "INTELLECTUAL PROPERTY RIGHTS"), including without
limitation, all (1) patents, patent applications, patent disclosures and all
related continuation, continuation-in-part, divisional, reissue, re-examination,
utility, model, certificate of invention and design patents, patent
applications, registrations and applications for registrations, (2) trademarks,
service marks, logos, trade names and corporate names and registrations and
applications for registration thereof, (3) copyrights and registrations and
applications for registration thereof, (4) computer software, data and
documentation, (5) domain names, domain name registrations and URL addresses,
(6) trade secrets and confidential business information, whether patentable or
non-patentable, know how, processes and techniques, research and development
information, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and customer lists
and information, (7) other Intellectual Property Rights relating to any of the
foregoing (including without limitation, remedies against infringements thereof
and rights of protection of interest therein under the laws of all
jurisdictions), and (8) copies and tangible embodiments thereof as set forth on
Exhibit 1.1(a)(iv) hereof and all Intellectual Property Rights acquired after
the date hereof and prior to the Closing Date in accordance with Section 5.2.
(v) All records and lists pertaining to the Business, customers,
suppliers and personnel, and copies of all books of account, ledgers, financial
and accounting records, files, reports, plans, and operating records of every
kind that Seller maintains, but excluding originals of Seller's minute books,
stock books and tax returns.
(vi) Any cash and cash equivalents on hand at any of the
locations of the Business that is used as xxxxx cash in the Ordinary Course of
Business.
(vii) Any current prepaid expenses and other current assets of
the Business.
(viii) Except to the extent prohibited or restricted by
applicable law, all electronically stored information and data, in the standard
extracted data format, whether contained in a database or otherwise, that is
used in the operation of the Business or is necessary to operate the Business as
operated as of the Closing Date.
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(ix) All cellular and other telephone numbers used in connection
with the operation of the Business and held in the name of Seller.
(x) All Permits, to the extent transferable.
(xi) All rights under or pursuant to all warranties,
representations and guarantees made by suppliers with respect to the Purchased
Assets or services furnished to Seller pertaining to the Business or affecting
the Purchased Assets, and all claims, causes of action, choses in action, rights
of recovery and rights of set-off of any kind to which Seller may be entitled
with respect to the Business or the Purchased Assets.
(xii) All other assets, rights and claims of Seller of any kind
and nature related to or used in the operation of the Business (other than the
Excluded Assets) not otherwise described above.
(b) Excluded Assets. Notwithstanding anything in this Agreement to the
contrary, the Assets of Seller listed on Exhibit 1.1(b) (the "EXCLUDED ASSETS")
shall be excluded from and shall not constitute Purchased Assets.
1.2 Liabilities.
(a) Assumed Liabilities. In connection with the sale, transfer,
conveyance, assignment and delivery of the Purchased Assets pursuant to this
Agreement, on the terms and subject to the conditions set forth in this
Agreement, on the Closing Date, Buyer shall assume and agree to pay, perform and
discharge when due only the following Liabilities:
(i) Liabilities under the Assumed Contracts (as defined in
Section 2.16(b)), arising and to be performed on or after the Closing Date,
except, in each case, to the extent such obligations, but for a breach or
default by Seller, would have been paid, performed or otherwise discharged on or
prior to the Closing Date or to the extent the same arise out of any such breach
or default; and
(ii) Liabilities arising under customer contracts, vendor
contracts, licenses, leases (real property and equipment) and any other
agreements used in the Business entered into by Seller in the Ordinary Course of
Business after the date hereof and prior to the Closing Date as permitted by
Section 5.2 below, which such Liabilities arise and are to be performed on or
after the Closing Date, except in each case, to the extent such obligations, but
for a breach or default by Seller, would have been paid, performed or otherwise
discharged prior to the Closing Date or to the extent the same arise out of any
such breach or default by Seller; and
Collectively, subparagraphs (i) and (ii) are the "ASSUMED LIABILITIES."
(b) Retained Liabilities. Except for the Assumed Liabilities, Buyer
shall not assume by virtue of this Agreement or the transactions contemplated
hereby, and shall have no liability for, any Liability of Seller of any kind,
character or description whatsoever. Without limiting the generality of the
foregoing, to the extent not included in the Assumed Liabilities, Buyer shall
not assume:
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(i) any Indebtedness of Seller arising before the Closing Date,
except as reflected on the Financial Statements;
(ii) any Liability for trade payables of Seller arising or
accruing prior to the Closing Date;
(iii) any Environmental Claim arising before the Closing Date;
(iv) any Liability related to businesses of Seller other than the
Business;
(v) any Liability related to the Lease Agreements listed on
Schedule 2.23 arising before the Closing Date;
(vi) any Liability related to any Seller Indebtedness;
(vii) any Liability related to Seller's employment or termination
of the Transferred Employees or Seller Benefit Plan, including but not limited
to claims relating to wages, compensation, severance pay, sick or vacation
leave, disability benefits, pension benefits, retirement benefits, other
employee benefits or arising under the WARN Act;
(viii) any Liability for infringement, misappropriation or
violation of any Intellectual Property Rights arising before the Closing Date;
(ix) any Liability for Taxes with respect to Seller, Shareholder,
the Purchased Assets or the Business relating to periods on or prior to the
Closing Date;
(x) any Liability for refunds payable to third party payors and
other covered persons under the Assumed Contracts ("REFUNDS PAYABLE") arising
from the Ordinary Course of Business before the Closing Date (collectively,
subparagraphs (i) and all others through (xiii) are the "RETAINED LIABILITIES").
Seller shall discharge in a timely manner or shall make adequate provision for
all of the Retained Liabilities.
1.3 Purchase Price. The aggregate purchase price (the "PURCHASE PRICE") for
the Purchased Assets is the sum of the Initial Purchase Price and the Earn Out
Amount (to the extent payable), each as defined herein. The Purchase Price shall
be payable in the following manner: (i) $11.75 Million plus $250,000 pursuant to
the Noncompetition Agreement entered into with Xxxxxx Xxxxxxxxx as of the
Closing Date in cash (the "INITIAL PURCHASE PRICE") subject to adjustments as
set forth in Section 1.4 below, at the Closing by wire transfer of same day
funds, and (ii) up to $2.5 Million in cash (the "EARN OUT AMOUNT") payable as
set forth in Section 1.5.
1.4 Closing Balance Sheet Working Capital Adjustment.
(a) Prior to the Closing Date, Seller shall deliver to Buyer a pro
forma closing balance sheet of the Business as of the Closing Date (the "CLOSING
BALANCE SHEET") setting forth the pro forma balance sheet of the Business and
setting forth Seller's estimate of its Working Capital as of such date (the
"PRELIMINARY WORKING CAPITAL"). If the Preliminary Working
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Capital of the Business, as reflected on the Closing Balance Sheet is less than
$0.00 (the "TARGET WORKING CAPITAL"), the Initial Purchase Price shall be
reduced by an amount equal to such deficiency. The determination of the Working
Capital shall be made in accordance with GAAP, in conformance with the policies
and practices set forth in the footnotes of Seller's audited Financial
Statements for the year ended December 31, 2005 (the "AUDITED FINANCIAL
STATEMENTS") previously provided to Buyer.
(b) As promptly as practicable following the Closing Date, but in no
event more than ninety (90) days thereafter, Buyer shall cause to be prepared
and delivered to Seller a computation of the Closing Balance Sheet as of the
close of business on the Closing Date (the "FINAL BALANCE SHEET"). The Final
Balance Sheet will be prepared in accordance with GAAP, in conformance with the
policies and practices set forth in the footnotes of the Audited Financial
Statements. Seller shall provide to Buyer reasonable access to the appropriate
personnel and records of Seller in connection with the Purchased Assets, and
shall otherwise reasonably cooperate with Buyer in connection with the
preparation of the Final Balance Sheet. Buyer shall then determine the Working
Capital as of the close of business on the Closing Date based upon the Final
Balance Sheet and prepared in accordance with GAAP (the "FINAL WORKING
CAPITAL"), in conformance with the policies and practices set forth in the
footnotes of the Audited Financial Statements. Buyer shall deliver the Final
Balance Sheet and its calculation of the Working Capital based on the Final
Balance Sheet to Seller.
(c) In the event that Seller disputes the Final Balance Sheet or the
calculation of the Working Capital based on the Final Balance Sheet, Seller
shall notify Buyer in writing of its objections within thirty (30) days after
the receipt of the Final Balance Sheet and shall set forth, in reasonable
detail, the reasons for its objections. If Seller fails to deliver notice of
objections within such thirty (30) day period, it shall be deemed to have
accepted as final the Final Balance Sheet. If Seller delivers to Buyer a notice
of objections within such thirty (30) day period, Seller and Buyer shall
endeavor in good faith to resolve any disputed items. If Seller and Buyer still
are unable to resolve the disputed items within ten (10) business days of
Seller's delivery of its notice of objections, an auditing firm of nationally
recognized standing (the "INDEPENDENT ACCOUNTANT") chosen and mutually accepted
by Buyer and Seller shall review the Buyer's underlying books and records to
resolve the items remaining in dispute (the "DISPUTED ITEMS"). All of the fees
and expenses of the Independent Accountant, if any, shall be paid equally by
Buyer, on the one hand, and Seller, on the other hand. The Independent
Accountant shall be instructed to resolve all Disputed Items within thirty (30)
days of its appointment and the determination of the Independent Accountant
shall be conclusive and binding on Buyer and Seller. After the Independent
Accountant has resolved the Disputed Items, Buyer and Seller shall be deemed to
have accepted as final the revised Final Balance Sheet, which shall be prepared
by the Independent Accountant.
(d) If the Final Working Capital reflected on the Final Balance Sheet
is greater than the Preliminary Working Capital, then Buyer shall pay Seller an
amount equal to the amount of such excess. If the Final Working Capital
reflected on the Final Balance Sheet is less than the Preliminary Working
Capital, then Seller shall pay to Buyer an amount equal to the amount of such
shortfall. Any payments made by Seller to Buyer or Buyer to Seller pursuant to
this Section 1.4(d), shall be made by wire transfer of immediately available
funds to the account or accounts designated by Seller or Buyer, as the case may
be, within five (5) days after the date
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in which the Final Balance Sheet is final and binding on the parties. Any
payments made pursuant to this Section 1.4(d) shall be consistently treated as
adjustments to the Purchase Price.
(e) The Closing Balance Sheet and the Final Balance Sheet as delivered
in accordance with this Section 1.4 (i) will be complete and correct in all
material respects, (ii) will be prepared in accordance with Seller's books and
records, and (iii) will fairly present in all material respects the financial
condition and operating results of Seller as of the dates.
1.5 Earn Out.
(a) Earn Out Amount. Seller will be eligible to earn up to the full
amount of the Earn Out Amount during the one year period (the "EARN OUT PERIOD")
commencing on the first day immediately following the Closing Date (the "EARN
OUT START DATE"), payable, if earned, as calculated in the manner set forth
below (the "EARN OUT PAYMENT"), provided however, that the Earn Out Payment will
not exceed the aggregate amount of $2.5 Million.
(b) Calculation of Earn Out Revenue. The amount of the Earn Out
Payment will be determined in reference to revenue collected by the Business,
including but not limited to revenue generated by Buyer from existing clients
and in extending the Business to new clients and markets, during the Earn Out
Period, subject to adjustment as set forth in (ii) and (iii) and subsection (c)
below ("EARN OUT REVENUE").
(i) Earn Out Revenue includes **** revenue collected of the
Business under all agreements with customers that engage Buyer to provide claims
administration services, including but not limited to revenue from xxxx review,
nurse case management. And utilization review services
(ii) With respect to new customers entering into agreements for
claims administration services of the Business that provide for fixed periodic
payments to Buyer, **** percent (****%) of the aggregate compensation payable
during the specified term of the agreement, including specified option years, up
to a maximum of **** years per agreement, shall be included in Earn Out Revenue;
and
(iii) With respect to customer agreements entered into during the
Earn Out Period (but excluding renewals of existing customer agreements) for
claims administration services of the Business providing for contingent payments
to Buyer (e.g., per line or percent of savings), revenue must be collected under
the agreement for **** consecutive months before any amounts shall be included
in Earn Out Revenue. Once such condition has been fulfilled, Earn Out Revenue
shall include an amount equal to **** percent (****%) of the aggregate revenue
collected during such **** month period multiplied by the number of complete
calendar months included during the initial term of the agreement.
(c) Calculation of Earn Out Payment. The Earn Out Payment shall be
established by the Earn Out Revenue in accordance with Schedule A hereto.
Furthermore, Buyer
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* Confidential treatment requested pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. In accordance with Rule 24b-2, these
confidential portions have been omitted from this exhibit and filed
separately with the Securities and Exchange Commission.
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shall determine that portion of outstanding Accounts Receivable assumed by Buyer
at Closing as reflected in the Final Balance Sheet that remain uncollected as of
the last day of the Earn Out Period, if any, and shall deduct that amount from
the Earn Out Payment (the "EARN OUT DEDUCTION"). The Earn Out Payment shall be
calculated in good faith by Buyer and shall be provided to Seller (the "EARN OUT
PAYMENT CALCULATION") within forty-five (45) days after the end of the Earn Out
Period, accompanied by supporting schedules and financial data. The Earn Out
Payment shall be made in cash in immediately available funds within ten (10)
days after such notification by Buyer. In the event that Buyer elects to forego
conducting an audit to determine the Earn Out Payment, the full Earn Out Payment
will be paid within thirty (30) days following the end of the Earn Out Period.
In the event that any of the Accounts Receivable constituting part of the Earn
Out Deduction are collected by Buyer during the one year period following the
Earn Out Period, such amounts shall be paid to Seller within thirty (30) days
following the first anniversary of the last day of the Earn Out Period.
(d) Records Review and Audit. Buyer shall allow an Independent
Accountant selected by Seller and approved by Buyer (such approval not to be
unreasonably withheld or delayed), to review appropriate records of Buyer in
order to verify the accuracy of the determination of the Earn Out Payment
Calculation and the calculation of any Earn Out Deduction pursuant to subsection
(c) above (or the components thereof). Any such review shall be conducted during
normal business hours and shall be commenced within fifteen (15) days after
Buyer's receipt of written request by Seller therefor, which such request shall
be made, if at all, no later than thirty (30) days after receipt by Seller of
the Earn Out Payment Calculation. The cost of such review shall be borne by
Seller. Seller shall have sixty (60) days after the date of delivery by Buyer of
the Earn Out Payment Calculation to review and deliver a written notice of
objection (the "OBJECTION NOTICE") to Buyer. The Objection Notice shall specify
in reasonable detail the nature and amount of any such exception. If Seller does
not provide an Objection Notice to Buyer within sixty (60) days after receipt of
the Earn Out Payment Calculation, Seller will be deemed to have accepted and
agreed to the Earn Out Payment Calculation and the Earn Out Deductions, if any.
If Seller delivers an Objection Notice to Buyer within such time period, then
within thirty (30) days after the Objection Notice is received by Buyer, Buyer
and Seller shall (i) meet to consider such objections and may agree to revise
the Earn Out Payment Calculation or the Earn Out Deduction, in which case the
amount so agreed will be adjusted and be final and binding on Buyer and Seller,
or (ii) specify that an Independent Accountant chosen and mutually accepted by
Buyer and Seller will review the Earn Out Payment Calculation and Earn Out
Deduction, the Objection Notice and Buyer's underlying books and records, and
report to Buyer and Seller (the fees and expenses of which shall be borne
equally by Buyer and Seller) the Independent Accountant's determination of the
adjustment amount, which determination will be made within thirty (30) days
after the date the Independent Accountant receives the Earn Out Payment
Calculation and the Objection Notice. Such determination by the Independent
Accountant will be final and binding on Buyer and Seller. To the extent that
Buyer owes Seller any additional Earn Out Payment based on the revised Earn Out
Payment Calculation or any other payment owing pursuant to subsection (b) above,
such payment shall be made by wire transfer of immediately available funds to
the account or accounts designated by Seller within five (5) days after the date
in which the Earn Out Payment Calculation is final and binding on the parties.
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(e) Pre-Payment of Earn Out. Buyer reserves the right to prepay the
full Earn Out Amount at any time.
(f) Acceleration of Earn Out Payment. Upon the occurrence of any of
the following events at any time prior to the end of the Earn Out Period, Buyer
shall pay to Seller the full Earn Out Amount of $2.5 Million, less any Earn Out
Deduction, within fifteen (15) business days by wire transfer of immediately
available funds to the account or accounts designated by Seller. Buyer shall
thereafter have no obligation to pay, nor Seller any right to receive, any
further Earn Out Payment.
(i) The name under which the Business is conducted is changed
from Xxxxxxxxx Risk Management Services.
(ii) The Consulting Agreement of either **** or **** is
terminated by Buyer without cause, or, provided that each of them accepts
employment with Buyer, the employment agreement of any of **** or **** is
terminated by Buyer without cause.
(iii) Buyer unilaterally **** of existing customers of the
Business (customers as of the Closing Date) or fails to consult with **** and
act in good faith in **** for new and renewal customers of the Business.
(g) Forfeit of Earn Out Payment. Should Seller or Shareholder violate
the terms of the Non-Competition Agreement substantially in the form attached
hereto as Exhibit 6.10, then the Earn Out shall terminate and Seller shall not
be entitled to receive any Earn Out Payment.
1.6 Conveyance Taxes/Bulk Transfer. Seller shall pay all sales, use,
transfer, value added, and any other similar taxes, if any, arising out of the
transfer of the Purchased Assets. Buyer hereby waives compliance by Seller with
all applicable bulk transfer, bulk sales and similar laws and requirements of
all jurisdictions in connection with the transactions contemplated hereby.
1.7 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Purchased Assets (together with any Assumed Liabilities) in accordance
with Schedule B hereto (the "ALLOCATION"). The Allocation shall be conclusive
and binding upon Buyer, Seller and Shareholder for all purposes, and each of
Buyer, Seller and Shareholder agree that all returns and reports and all
financial statements shall be prepared in a manner consistent with, and none of
the parties hereto shall otherwise file a tax return position inconsistent with,
the Allocation unless required by the U.S. Internal Revenue Service, or any
other applicable taxing authority. If such Allocation is disputed by any
Governmental Authority, the party receiving notice of such dispute shall
promptly notify the other parties hereto of the existence of, and shall
cooperate with the other parties in resolving, such dispute. Buyer shall prepare
and deliver IRS Form 8594 to Seller within forty-five (45) days after the
Closing Date for filing with the IRS.
----------
* Confidential treatment requested pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. In accordance with Rule 24b-2, these
confidential portions have been omitted from this exhibit and filed
separately with the Securities and Exchange Commission.
8
1.8 Closing. The closing of the sale and purchase of the Purchased Assets
(the "CLOSING") shall take place on the third business day after the date that
all conditions precedent set forth in Articles VI and VII hereof have been
satisfied, or such other date as the parties hereto shall agree (the "CLOSING
DATE"), but not later than the date set forth in Section 8.1(d) below, at the
offices of Buyer, 0000 Xxxx Xxxxxx, Xxxxx 000, Xxxxxx, XX 00000, or at such
other date or place as the parties hereto agree, but only after the satisfaction
or waiver of each of the conditions set forth in Articles VI and VII. At the
Closing:
(a) Buyer shall deliver to Seller the Initial Purchase Price;
(b) Seller shall assign and transfer to Buyer good and valid title in
and to the Purchased Assets, free and clear of all Encumbrances other than
Permitted Encumbrances, and Buyer shall assume from Seller the due payment,
performance and discharge of the Assumed Liabilities, by duly executing the Xxxx
of Sale, Assignment and Assumption Agreement substantially in the form attached
hereto as Exhibit 1.8(b);
(c) Seller shall execute such other good and sufficient instruments of
conveyance, assignment and transfer, in form and substance reasonably acceptable
to Buyer and its legal counsel, as shall be effective to vest in Buyer good
title to the Purchased Assets; and
(d) Each of HRMS, CC and MAS shall have filed with the Secretary of
State of the State of California (and shall deliver to Buyer certified evidence
of such filing) an amendment to its existing Articles of Incorporation changing
its corporate name (but not to any derivative thereof) and shall have filed any
necessary registrations and applications to affect the same.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
SELLER AND SHAREHOLDER
Except as disclosed in the disclosure schedule of Seller and Shareholder
attached hereto as Schedule C (the "SELLER DISCLOSURE SCHEDULE"), each of HRMS,
CC, MSA and Shareholder, jointly and severally, represent and warrant to Buyer
as set forth below. The Seller Disclosure Schedule shall be arranged in sections
corresponding to the specific numbered and lettered section contained in this
Agreement that it relates to.
2.1 Existence, Good Standing and Power. Each of HRMS, CC and MAS is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. Each of HRMS, CC and MAS has full corporate power
and corporate authority to carry on its business as now being conducted and is
entitled to own, lease or operate the Business or Assets now owned, leased or
operated by it, and has no operations or employees and conducts no business
other than in the states or countries listed in Section 2.1 of the Seller
Disclosure Schedule. Each of HRMS, CC and MAS is qualified to do business, is in
good standing and has all required and appropriate licenses, registrations,
certifications and permits in each jurisdiction in which its failure to obtain
or maintain such qualification, good standing or licensing, registration,
certification or permit (a) would, individually or in the aggregate, have, or
reasonably could be expected to have, a Material Adverse Effect on the Business
or the
9
Purchased Assets, or (b) would result in a material breach of any of the other
representations, warranties or covenants set forth in this Agreement.
2.2 Authority.
(a) Each of HRMS, CC and MAS has full corporate power and authority to
execute and deliver this Agreement and all other agreements and documents to be
entered into by it in connection herewith, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and all other agreements
to be entered into in connection herewith and the consummation of the
transactions contemplated hereby and thereby have been duly and validly approved
by all requisite corporate and shareholder action. This Agreement and all other
agreements and documents to be entered into by each of HRMS, CC and MAS in
connection herewith have been or will be duly and validly executed and delivered
by each of HRMS, CC and MAS and (assuming due authorization, execution and
delivery by Buyer) constitute or will constitute valid and binding obligations
of each of HRMS, CC and MAS, enforceable against it in accordance with their
respective terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency or other laws affecting creditors' rights and remedies generally.
(b) Shareholder has the power and authority to enter into this
Agreement and all other agreements and documents to be entered into by her in
connection herewith, to perform her obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. This Agreement and
all other agreements and documents to be entered into by Shareholder in
connection herewith have been or will be duly executed and delivered by
Shareholder and constitute or will constitute legal, valid and binding
obligations of Shareholder, enforceable against her in accordance with their
respective terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency or other laws affecting creditors' rights and remedies generally.
2.3 Capitalization.
(a) The authorized stock of HRMS consists of 10,000 shares of Common
Stock, of which 10,000 shares are issued and outstanding (the "HRMS SHARES").
The HRMS Shares are owned, of record and beneficially, by Shareholder. There are
no outstanding subscription, option, warrant, call rights, preemptive rights or
other agreements or commitments obligating HRMS or Shareholder to issue, sell,
deliver or transfer (including any rights of conversion or exchange under any
outstanding security or other instrument) any economic, voting, ownership or any
other type of interest or security of HRMS.
(b) The authorized stock of CC consists of 10,000 shares of Common
Stock, of which 10,000 shares are issued and outstanding (the "CC SHARES"). The
CC Shares are owned, of record and beneficially, by Shareholder. There are no
outstanding subscription, option, warrant, call rights, preemptive rights or
other agreements or commitments obligating CC or Shareholder to issue, sell,
deliver or transfer (including any rights of conversion or exchange under any
outstanding security or other instrument) any economic, voting, ownership or any
other type of interest or security of CC.
10
(c) The authorized stock of MAS consists of 10,000 shares of Common
Stock, of which 10,000 are issued and outstanding (the "MAS SHARES"). The MAS
Shares are owned, of record and beneficially, by Shareholder. There are no
outstanding subscription, option, warrant, call rights, preemptive rights or
other agreements or commitments obligating MAS or Shareholder to issue, sell,
deliver or transfer (including any rights of conversion or exchange under any
outstanding security or other instrument) any economic, voting, ownership or any
other type of interest or security of MAS.
2.4 Subsidiaries. Each of HRMS, CC and MAS has never been a subsidiary of
any other entity and does not currently own, nor has it ever owned, directly or
indirectly, any interest in any other corporation, association, joint venture or
other business entity, and none of HRMS, CC and MAS controls, directly or
indirectly, the management or policies of any other corporation, association,
joint venture or other business entity.
2.5 No Conflicts. Except as set forth in Section 2.5 of the Seller
Disclosure Schedule, neither the execution and delivery of this Agreement by
HRMS, CC, MAS and Shareholder, nor the consummation by HRMS, CC, MAS and
Shareholder of the transactions contemplated hereby, nor compliance by HRMS, CC,
MAS and Shareholder with any of the terms or provisions hereof, will (a) violate
any provision of HRMS's, CC's or MAS's Articles of Incorporation ("ARTICLES") or
bylaws, or (b) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to HRMS, CC or MAS, the Business or
the Purchased Assets, or (c) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any lien,
pledge, security interest, charge or other Encumbrance upon any of the Purchased
Assets of HRMS, CC and MAS, under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which HRMS, CC, MAS or Shareholder is a party,
or by which HRMS, CC, MAS or Shareholder or any of HRMS's, CC's or MAS's Assets
may be bound or affected, which in any such case would have a Material Adverse
Effect on Seller's performance of its obligations under this Agreement, the
Business or the Purchased Assets.
2.6 Financial Statements. Each of HRMS, CC and MAS has delivered true and
correct copies of (a) its audited financial statements for the fiscal years
ended December 31, 2003, December 31, 2004 and December 31, 2005, and (b) its
unaudited financial statements for the eleven month period ended November 30,
2006 (the "MOST RECENT FINANCIAL STATEMENT"). All of such financial statements
are referred to herein as the "FINANCIAL STATEMENTS." The Financial Statements
(i) are complete and correct in all material respects, (ii) were prepared in
accordance with HRMS's, CC's or MAS's books and records, (iii) fairly present in
all material respects the financial condition and operating results of HRMS, CC
or MAS, as applicable, as of the dates and for the periods indicated therein,
and (iv) have been prepared in accordance with GAAP applied on a basis
consistent with the past practices of HRMS, CC or MAS, as applicable, and
throughout the periods involved. Since November 30, 2006, there has not been any
change in the Business, operations or financial condition of any of HRMS, CC or
MAS that constitutes a Material Adverse Effect thereon. Except as disclosed in
the Financial Statements, none of HRMS, CC and MAS is a guarantor or indemnitor
of any indebtedness of any other person, firm
11
or corporation. The books of account and other financial records of each of
HRMS, CC and MAS are in all material respects complete and correct and do not
contain or reflect any material inaccuracies or discrepancies.
2.7 Accounts Receivable. The accounts and notes receivable of each of HRMS,
CC and MAS ("ACCOUNTS RECEIVABLES") reflected on the November 30, 2006 balance
sheet of each, and all accounts and notes receivable arising subsequent to
November 30, 2006, (a) arose from bona fide sales transactions in the Ordinary
Course of Business, consistent with past practice, and have been paid or are
payable on ordinary trade terms, (b) are, to the knowledge of the Seller and
Shareholder, legal, valid and binding obligations of the respective debtors
enforceable in accordance with their respective terms, (c) are not subject to
any valid set-off or counterclaim and (d) do not represent obligations for goods
sold on consignment, on approval or on a sale-or-return basis or subject to any
other repurchase or return arrangement.
2.8 No Undisclosed Liabilities. Except as reflected or reserved against in
the Financial Statements or as disclosed in Section 2.8 of the Seller Disclosure
Schedule, none of HRMS, CC and MAS has, and as of the Closing none of them will
have, any Liabilities relating to the Business or Purchased Assets other than
Liabilities incurred in the Ordinary Course of Business consistent with past
practice and in accordance with the provisions of this Agreement which,
individually and in the aggregate, are not material to the business or condition
of the Business or Purchased Assets, and are not for tort or for breach of
contract. None of HRMS, CC or MAS has participated in, directly or indirectly
through the preparation and/or submission of claims to, the Medicare program,
the Medicaid program or any other federal or state healthcare program, nor do
any of them have any Liability for overpayments or the submission of false or
fraudulent claims.
2.9 Absence of Certain Changes. Since November 30, 2006, HRMS, CC and MAS
have operated the Business in the Ordinary Course of Business, and, except as
set forth in Section 2.9 of the Seller Disclosure Schedule, there has not been
with respect to any of them:
(a) Any Material Adverse Effect has occurred, and no material
Purchased Asset has been destroyed, damaged or otherwise lost;
(b) The entering into of any contract, material commitment or
transaction or the incurrence of any Liabilities outside the Ordinary Course of
Business consistent with past practice;
(c) Any indebtedness for borrowed money incurred by any of them
exceeding $10,000, individually, or $25,000 in the aggregate;
(d) Any loan made or agreed to be made by any of them, nor has any of
them become liable or agreed to become liable as a guarantor with respect to any
loan;
(e) Any change in the accounting methods, practices or policies
followed by any of them, whether for general financial or Tax purposes, from
those in effect from January 1, 2003 to November 30, 2006;
12
(f) Other than in the Ordinary Course of Business, any sale,
assignment, transfer or licensing of any patents, trademarks, copyrights, trade
secrets or other proprietary or intangible assets of any of them;
(g) Any purchase or other acquisition of, or any sale, lease,
disposition of, mortgage, pledge or subjection to any lien or Encumbrance on
(except for Permitted Encumbrances), any material property or asset, tangible or
intangible, of any of them or any agreement to do any of the foregoing, other
than acquisitions of equipment and supplies, or licenses of products, in the
Ordinary Course of Business consistent with past practice;
(h) Any capital expenditures or commitments for additions to property
or equipment of any of them constituting capital assets in an amount exceeding
$10,000 individually or $25,000 in the aggregate;
(i) Any payment, discharge or satisfaction, of any Liability (whether
absolute, accrued, asserted or unasserted, contingent or otherwise), other than
Liabilities incurred in the Ordinary Course of Business;
(j) Any failure to pay or otherwise satisfy any Liabilities presently
due and payable of any of them, except such Liabilities which are being
contested in good faith by appropriate means or proceedings or which are
immaterial in amount and which have been disclosed in writing to Buyer;
(k) Any actual or threatened amendment, termination or loss of (i) any
Assumed Contract; (ii) any Permit required for the continued operation by Seller
of any portion of any of the Business; or (iii) any customer or other material
revenue source;
(l) The commencement of any legal or administrative action or
proceeding by any of them or the commencement of any legal or administrative
action or proceeding against any of them of which any of them has notice; or
(m) Any agreement or commitment by any of them to do any of the things
described in this Section 2.9.
2.10 Obligations to Related Parties. Except as set forth in Section 2.10 of
the Seller Disclosure Schedule, there are no obligations of any of HRMS, CC or
MAS to officers, directors, Shareholder or employees of any of them other than
(a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of Seller and (c) for other standard
employee benefits made generally available to all employees. No director,
officer or Shareholder or any member of their immediate families, are indebted
to any of HRMS, CC of MAS or, to the Knowledge of Seller and Shareholder, have
any direct or indirect ownership interest in any firm or corporation with which
any of HRMS, CC or MAS is affiliated or with which any of HRMS, CC or MAS has a
business relationship, or any firm or corporation which competes with any of
HRMS, CC or MAS, except that directors or officers of HRMS, CC and MAS may own
stock in publicly traded companies which may compete with HRMS, CC and MAS. No
such director or officer of any of HRMS, CC or MAS or Shareholder, or any member
of their immediate families is, directly or indirectly, interested in any
material contract or transaction with, or has any claim for indemnification
under applicable law or any agreement
13
against, any of HRMS, CC or MAS (other than such employment agreements), or has
any interest in any property, real or personal or mixed, tangible or intangible,
of any of HRMS, CC or MAS.
2.11 Title to Purchased Assets; Absence of Encumbrance.
(a) Seller has good and transferable title to, or a valid leasehold
interest in, all of the Purchased Assets (other than interests in Real Property,
which is discussed separately in Section 2.23 below) free and clear of any
Encumbrances except for Permitted Encumbrances. Seller has full right and power
to sell, convey, assign, transfer and deliver to Buyer title to all of the
Purchased Assets, free and clear of any and all Encumbrances except for
Permitted Encumbrances. The Purchased Assets are not subject to any preemptive
right, right of first refusal or other right or restriction, are in good
operating condition, and are suitable and adequate for use in the Ordinary
Course of Business and for the purposes for which they are being used.
(b) The sale, transfer and assignment of the Purchased Assets as
contemplated by this Agreement will give Buyer possession of, and the right to
use, all of the assets required for the Ordinary Course of Business as presently
conducted. Except for the Purchased Assets, there are no other assets that are
required by Seller, or that will be required by Buyer after the Closing, in
order to conduct the Business in a manner consistent in all material respects
with the manner in which Seller conducts the Business on and as of the date of
this Agreement.
2.12 Intellectual Property. HRMS, CC, MAS and Shareholder make the
following representations with respect to the Intellectual Property Rights
(other than generally available "shrink-wrap" and similar commercial end-user
licenses):
(a) Seller owns or has the right to use free and clear of all liens,
charges, claims and restrictions other than the payment of software licensing
and maintenance fees, all Intellectual Property Rights, and to the Knowledge of
Seller and Shareholder, is not infringing upon or otherwise acting adversely to
the right or claimed right of any person under or with respect to any of the
foregoing.
(b) All applications for registration of such Intellectual Property
Rights have been filed and were true and accurate in all material respects at
the time of filing and all fees to maintain such Intellectual Property Rights
including, without limitation, registration, maintenance and prosecution fees,
and all professional fees incurred in connection therewith, that are due and
payable have been paid. The Intellectual Property Rights constitute all the
intellectual property used in and/or necessary to the Ordinary Course of
Business as it is currently conducted.
(c) Seller has taken all actions that are customary and reasonable in
the industry to protect the confidentiality of all trade secrets and
confidential information (including, without limitation, know-how,
specifications, financial and business and marketing plans) constituting the
Intellectual Property Rights, and has not disclosed any trade secrets or other
intellectual property whose value is contingent upon confidentiality without
securing an appropriate confidentiality agreement.
14
(d) Except as set forth in Section 2.12(d) of the Seller Disclosure
Schedule, there are no outstanding options, licenses, or agreements of any kind
relating to the Intellectual Property Rights held by any third party. To the
Knowledge of Seller and Shareholder, no person or entity has interfered with,
infringed upon, misappropriated or violated any rights in or to the Intellectual
Property Rights owned by Seller. Neither Seller nor Shareholder has received any
communications alleging that Seller has violated or, by conducting its business
as proposed, would violate any patent, trademark, service xxxx, trade name,
copyright, trade secret or other proprietary right of any other person or
entity, nor is Seller or Shareholder aware of any factual basis upon which such
a claim can reasonably be asserted.
(e) There are no contracts or licenses between Seller and any other
person with respect to the Intellectual Property Rights under which there is any
dispute known to Seller or Shareholder regarding the scope of such contract or
license, or performance under such contract or license, including with respect
to any payments to be made or received by Seller thereunder. There are no
royalties or other payment obligations associated with Seller's use of the
Intellectual Property Rights that have not been disclosed to Buyer and Seller is
current in all payments therefor.
(f) To the Knowledge of Seller and Shareholder, no Seller employee
working on matters related to the Business or the Purchased Assets is obligated
under any fiduciary duty or any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's best efforts to promote the interests of Seller or
that would conflict with the Business as presently conducted or conducted in a
manner consistent with the conduct of such business and operations prior to the
Closing. Neither the execution nor delivery of this Agreement, nor the carrying
on of the Business by the employees of Seller, nor the Ordinary Course of
Business by Seller in a manner consistent with the conduct of such business and
operations prior to the Closing, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or a
violation of, any fiduciary duty or any contract, covenant or instrument under
which Seller or, to the Knowledge of Seller and Shareholder, any of such
employees is now obligated.
(g) Section 2.12(g) of the Seller Disclosure Schedule lists all
contracts, licenses and agreements between Seller and any other person wherein
or whereby Seller has agreed to, or assumed, any obligation or duty to warrant,
indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any
obligation or liability or provide a right of rescission with respect to the
infringement or misappropriation by Seller or such other person of the
intellectual property of any person other than Seller other than in the Ordinary
Course of Business.
(h) To the Knowledge of Seller and Shareholder, no Intellectual
Property Rights or product, technology or service of Seller is subject to any
order, action or proceeding, or pending order, action or proceeding, or
threatened order, action or proceeding, that does or would restrict, or that is
reasonably expected to restrict in any manner, the use, transfer or licensing of
any Intellectual Property Rights by Seller or that could reasonably be expected
to affect the validity, use or enforceability of such Intellectual Property
Rights.
15
(i) There are no actions that must be taken by Seller within one
hundred eighty (180) days following the date of this Agreement that, if not
taken, will result in the loss of any Intellectual Property Rights, including
the payment of any registration, maintenance or renewal fees, annuity fees and
taxes or the filing of any responses, documents, applications or certificates
for the purposes of obtaining, maintaining, perfecting or preserving or renewing
any such Seller Intellectual Property Rights.
(j) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby and thereby will result in
Seller granting any rights or licenses with respect to the Intellectual Property
Rights to any Person other than to Buyer, or its successors, assignees or
Affiliates. The consummation of the transactions provided for hereunder will not
result in the loss or impairment of any Intellectual Property Rights and each
item of Intellectual Property Rights owned or used by Seller prior to the
Closing will be owned or available for use by Buyer on identical terms and
conditions immediately subsequent to the Closing.
(k) Except as set forth in Section 2.12(k) of the Seller Disclosure
Schedule, no Person who has licensed Intellectual Property Rights to the Seller
has ownership rights or license rights to improvements made by the Seller in
such Intellectual Property Rights.
(l) Seller has not transferred ownership of, or granted any exclusive
license of or right to use, or authorized the retention of any exclusive rights
to use, or joint ownership of any Intellectual Property Rights to any other
Person.
2.13 Litigation. Schedule 2.13 sets forth a description of all litigation,
arbitrations and other judicial or regulatory proceedings in which any of HRMS,
CC or MAS was or is a party or otherwise by which any of HRMS, CC or MAS, the
Business or the Purchased Assets was or is bound since January 1, 2002,
including the parties thereto, the date filed or commenced, and a short summary
of the claims and resolution of current status of the matter. No litigation,
arbitration or other judicial or regulatory proceeding is pending, or to the
Knowledge of Seller and Shareholder, threatened (i) by or against or related to
or affecting Seller, the Business or the Purchased Assets before any court or
other Governmental Authority, (ii) that challenges or seeks to prevent, join,
alter or delay the transactions contemplated hereby, or (iii) that challenges or
questions the legal right of Seller to conduct the Business as presently or
previously conducted and, to the Knowledge of Seller and Shareholder, no facts
exist which may form the basis for any such litigation, arbitration or
proceeding. To the Knowledge of Seller and Shareholder, none of HRMS, CC or MAS
is the subject of any investigation for violation of any laws, regulations or
administrative orders applicable to the Business by any Governmental Authority
or any other person, and to the Knowledge of Seller and Shareholder, no facts
exist which may form the basis for any such investigation. There is no judgment,
writ, decree, injunction, order, indictment, information, or subpoena or civil
investigative demand, plea agreement, stipulation, decree or award of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding which could reasonably be expected to have a Material Adverse Effect
upon Seller, the Business or the Purchased Assets.
16
2.14 Employees and Subcontractors.
(a) Section 2.14 of the Seller Disclosure Schedule contains a list of
each written employment agreement to which any of HRMS, CC or MAS is a party and
sets forth a true and complete list of the names, commencement dates, titles or
positions, and current salaries of all employees and consultants of any of HRMS,
CC or MAS who are currently working, or who have worked in the past two years,
on matters related to the Business or the Purchased Assets. Except as set forth
in Section 2.14 of the Seller Disclosure Schedule, all of the employees of HRMS,
CC and MAS are terminable at will. To the Knowledge of Seller and Shareholder,
no employee has any plan to terminate employment with the Business.
(b) Except as set forth in Section 2.14 of the Seller Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service provider of
any of HRMS, CC or MAS to severance benefits or any other payment (including,
without limitation, unemployment compensation, golden parachute or bonus) except
as expressly provided in this Agreement, or (ii) accelerate the time of payment
or vesting of any such benefits, or (iii) increase or accelerate any benefits or
the amount of compensation due any such employee or service provider.
(c) To the Knowledge of Seller and Shareholder, no employee of HRMS,
CC or MAS, nor any consultant with whom any of them has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, any of them because of the nature of the
Business conducted by Seller, and the continued employment by Buyer of Seller's
present employees, and the performance of Seller's contracts with its
independent contractors, will not result in any such violation. None of HRMS, CC
and MAS has received any notice alleging that any such violation has occurred.
(d) No employees of any of HRMS, CC or MAS are represented by any
labor organization and none of HRMS, CC and MAS is a party to or bound by any
collective bargaining agreement or other agreement with any labor organization.
To the Knowledge of Seller and Shareholder, no organizational effort has been
made or threatened, either currently or within the past two (2) years, by or on
behalf of any labor union with respect to employees of any of HRMS, CC or MAS.
Since January 1, 2003, there have been no representation or certification
proceedings, or petitions seeking a representation proceeding, pending or, to
the Knowledge of Seller and Shareholder, threatened to be brought or filed with
the National Labor Relations Board or any other labor relations tribunal or
Governmental Authority with respect to any employees of any of HRMS, CC or MAS.
(e) There are no strikes, work stoppages, slowdowns, job actions,
disputes, lockouts, arbitrations, or grievances or other material labor disputes
pending or, to the Knowledge of Seller and Shareholder, threatened, against or
involving any of HRMS, CC or MAS. There are no unfair labor practice charges,
grievances, or complaints pending or, to the Knowledge of Seller and
Shareholder, threatened by or on behalf of any employee or group of employees of
any of HRMS, CC or MAS.
17
(f) Seller has not received written notice of any complaints, charges,
or claims against Seller and, to the Knowledge of Seller and Shareholder, there
are no complaints, charges, or claims threatened to be brought or filed with any
Governmental Authority based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment of any
individual by Seller.
(g) Section 2.14 of the Seller Disclosure Schedule sets forth (i) a
list of all subcontractors currently performing services or under contract to
perform future services for Seller, and (ii) the start date, type of services to
be provided, estimated completion date and hourly or per diem pay rate of such
subcontractors.
(h) Section 2.14 of the Seller Disclosure Schedule lists the name and
position or nature of services provided by each employee and independent
contractor whose service to or engagement with Seller has terminated in the past
twenty-four (24) months and the date of termination.
(i) Except as set forth in Section 2.14 of the Seller Disclosure
Schedule, Seller has complied with all applicable Laws which relate to hiring,
employment, termination, prices, wages, hours, discrimination in employment and
collective bargaining and is not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing. Neither Seller nor
Shareholder is aware of any threatened or actual legal action or other claim
against Seller by any employee or former employee of Seller arising from or
related to the employment relationship. Seller is in compliance with the
requirements of the Workers Adjustment and Retraining Notification Act (29
U.S.C. Sections 2101, et seq.) (the "WARN ACT") and has no liabilities pursuant
to the WARN Act. Each of Seller and Shareholder believes that Seller's relations
with its employees are satisfactory.
(j) To the Knowledge of Seller and Shareholder, Seller's records
accurately reflect in all material respects the employment or service histories
of its current and former employees.
2.15 Benefit Plans.
(a) Except as set forth in Section 2.15 of the Seller Disclosure
Schedule, neither Seller nor any other trade or business (whether or not
incorporated) treated as a single employer with Seller pursuant to Section
414(b), (c), (m) or (o) of the Code (an "ERISA AFFILIATE") currently provides,
contributes to or maintains, or has ever provided, contributed to or maintained,
any employee benefit program, arrangement, contract or plan, pension plan or
welfare plan (including, without limitation, any consulting agreement providing
for annual compensation in excess of $10,000, any severance, deferred
compensation, bonus, stock option, stock purchase, phantom stock, and stock
appreciation plan or agreement, and any "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"))
(each a "SELLER BENEFIT PLAN"), and no employee benefit program, arrangement,
contract or plan exists with respect to which Seller or any ERISA Affiliate
could incur liability under Section 4069, 4212(c) or 4204 of ERISA or Section
412 of the Code.
18
(b) Each Seller Benefit Plan complies in all material respects with
the provisions of, and has been administered in material compliance with,
applicable provisions of the Code and ERISA and all other applicable Laws.
(c) There is no pending or, to the Knowledge of Seller and
Shareholder, threatened claim, legal action, proceeding, audit or investigation
against or involving any Seller Benefit Plan, other than routine claims for
benefits.
(d) No Seller Benefit Plan is or was subject to Title IV of ERISA or
Section 412 of the Code or is or was a "multiemployer plan" within the meaning
of Section 3(37) of ERISA. Seller has not received notice with respect to any
Seller Benefit Plan that is a multiemployer plan of (i) any failure by such plan
to satisfy the minimum funding requirements of Section 412 of the Code, (ii) any
application for or receipt of a waiver of such minimum funding requirements with
respect to such plan, or (iii) such plan's insolvency, entry into reorganization
within the meaning of Section 4241 of ERISA, intention to terminate or proposed
or threatened termination. Seller has not terminated or withdrawn from or sought
a funding waiver with respect to a Seller Benefit Plan that is subject to Title
IV of ERISA.
(e) No Seller Benefit Plan provides or at any time has provided
benefits to current or former consultants, independent contractors, contingent
workers or leased employees of Seller, or any members of the boards of directors
(or other similar governing body) of Seller (in their capacity as such).
(f) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
Seller Benefit Plan, and all premiums which are due have been paid with respect
to any insured benefits.
(g) There have been no prohibited transactions, as defined in Section
406 of ERISA, involving any of the Seller Benefit Plans.
(h) The Company shall comply with the provisions of Section 4980B of
the Code and Sections 601 through and including Section 608 of ERISA with
respect to all of the Company's past and present employees and beneficiaries
eligible to receive benefits under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
2.16 Contracts and Permits.
(a) Section 2.16(a) of the Seller Disclosure Schedule sets forth a
complete and accurate list of the following documents and items which comprise
part of the Purchased Assets:
(i) Each written agreement, contract or commitment between Seller
and any party pursuant to which Seller provides products or services;
(ii) Each written agreement, contract or commitment between
Seller and any party pursuant to which Seller is obligated or can reasonably be
expected to be obligated to pay or commit to make capital expenditures of more
than $10,000 for or over any 12-month period or is not otherwise terminable by
Seller within thirty (30) days and without penalty;
19
(iii) Each written agreement, contract or commitment for the
license of any Intellectual Property Rights;
(iv) Each distributor, sales, advertising, agency or
manufacturer's representative contract;
(v) Each arrangement (or group of related arrangements) under
which it has created, incurred, assumed, or guaranteed (or may create, incur,
assume, or guarantee) Indebtedness (including capitalized lease obligations) or
under which it has imposed (or may impose) a security interest on any of the
Purchased Assets, tangible or intangible;
(vi) Each contract pursuant to which Seller is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property, which Seller is obligated or can reasonably be expected to
pay more than $10,000 for or over any 12-month period;
(vii) Each contract pursuant to which any real property is
leased, subleased, licensed and/or occupied by Seller;
(viii) Each agreement, contract or commitment containing any
covenant limiting the freedom of Seller or, after reasonable inquiry of such
persons, any Seller employee or consultant to engage in any line of business or
compete, directly or indirectly, with any person;
(ix) Each marketing or business development agreement;
(x) Each agreement, contract or commitment of indemnification or
guaranty, other than those entered into in the Ordinary Course of Business,
which is not terminable by Seller within thirty (30) days and without penalty;
(xi) Each agreement, contract or commitment relating to the
disposition or acquisition of assets not in the Ordinary Course of Business or
any ownership interest in any corporation, partnership, joint venture or other
business enterprise;
(xii) Each agreement, contract or commitment with any employee or
consultant related to (A) non-disclosure, confidentiality, assignment of
inventions or Intellectual Property Rights and non-competition or (B) severance
payments that become payable in connection with or following the Asset Purchase;
(xiii) Each agreement, contract or commitment relating to the
Business not otherwise set forth in Section 2.16(a) of the Seller Disclosure
Schedule that (A) calls for performance over a period of more than six (6)
months, (B) involves more than the sum of $10,000, (C) in which Seller has
granted rights to license, sublicense or copy, "most favored nation" pricing
provisions or exclusive marketing or distribution rights relating to any
products or territory, or has agreed to purchase a minimum quantity of goods or
services or has agreed to purchase goods or services exclusively from a certain
party, or (D) is not terminable by Seller within thirty (30) days and without
penalty; and
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(xiv) Each agreement contract or commitment relating to the
Business under which the consequences of a default or termination could have a
Material Adverse Effect on the Business or the Purchased Assets.
(b) Except as otherwise indicated in Section 2.15(b) of the Seller
Disclosure Schedule, the contracts and agreements which are required to be
identified in Section 2.16(a) of the Seller Disclosure Schedule are hereinafter
referred to as the "ASSUMED CONTRACTS." True and complete copies of each written
Assumed Contract have been made available to Buyer by Seller. With regards to
the Assumed Contracts:
(i) Each of the Assumed Contracts is a valid, binding and
enforceable agreement of Seller and, to the Knowledge of Seller and Shareholder,
of the other parties thereto in accordance with the terms of the Assumed
Contract;
(ii) Seller has not been notified in writing by any party that
any such party intends to cancel, terminate or modify in a manner adverse to
Seller any of the Assumed Contracts or the basis upon which Seller is paid
thereunder and, to the Knowledge of Seller and Shareholder, there is no valid
grounds for any such cancellation, termination or modification other than the
potential for at-will termination of any Assumed Contract which is terminable
at-will or expiration or non-renewal of any Assumed Contract in accordance with
its terms; and
(iii) There has not occurred any material default (or event which
upon the provision of notice or lapse of time or both would become such a
default) under any of the Assumed Contracts on the part of Seller, and no breach
will occur as a result of the execution of this Agreement or the consummation of
the transactions contemplated hereby. To the Knowledge of the Seller and
Shareholder, none of the other parties to any Assumed Contract is in material
default thereof.
(c) There are no existing oral agreements, contracts or commitments
between Seller and any other party which are not cancelable within thirty (30)
days and without penalty or involve more than $5,000 of payments due from Seller
over the term of such oral agreement, contract or commitment.
2.17 Compliance with Laws. Except with respect to Taxes which are addressed
exclusively in Section 2.22 of this Agreement, Seller operates and has operated
its Business in compliance in all material respects with all applicable Laws.
Neither Seller nor Shareholder has received any written notice from any
Governmental Authority claiming any material violation by Seller of any Law, and
Seller is not subject to any consent, injunction, order, judgment or decree
which resulted from a violation of applicable laws nor has Seller or Shareholder
received any notice of any claimed noncompliance with any of the foregoing.
2.18 Environmental Matters.
(a) There is no existing or past practice, action or activity of
Seller and, to the Knowledge of Seller and Shareholder, no existing condition of
the Facilities, Purchased Assets and the Business, which could reasonably be
expected to give rise to any Environmental Claim. Seller has not received any
written notice from any Governmental Authority or any Person
21
providing notice of any Environmental Claim related to the Facilities, Purchased
Assets or the Business.
(b) Seller is in compliance in all material respects with all
Environmental Laws. Without limiting the generality of the foregoing, Seller has
obtained and is in compliance, in all material respects, with all Permits that
may be required pursuant to Environmental Laws for the occupation of the
Facilities and the operation of the Business as currently conducted.
(c) Except as set forth on Section 2.18 of the Seller Disclosure
Schedule, to the Knowledge of Seller and Shareholder, none of the following
exists at Facility leased or operated by Seller: (i) underground storage tanks;
(ii) asbestos-containing material in any form or condition; (iii) materials or
equipment containing polychlorinated biphenyls; or (iv) landfills, surface
impoundments, or disposal areas.
(d) Seller has not assumed, undertaken, or otherwise become subject to
any material liability, including without limitation any obligation for
corrective or remedial action, of any other person relating to Environmental
Laws.
2.19 Customers and Suppliers. Section 2.19 of the Seller Disclosure
Schedule sets forth (a) a true and complete list of the top twenty (20)
customers of Seller based on collections for the twelve months ended November
30, 2006, and (b) each supplier that is the sole supplier of any significant
product to Seller. No customer or supplier of Seller has indicated within the
past year that it shall stop or decrease the rate of buying services and
products or supplying services and products, as applicable to Seller. No
unfilled customer order or commitment obligating Seller to process, manufacture
or deliver products or perform services shall result in a loss to Seller upon
completion of performance. No purchase order or commitment of Seller is in
excess of normal requirements, nor are prices provided therein in excess of
current market prices for the products or services to be provided thereunder.
2.20 Consents and Approvals. Except as set forth in Section 2.20 of the
Seller Disclosure Schedule, no consents or approvals, orders or authorizations
of or filings or registrations with any court, administrative agency or
commission or other Governmental Authority, or with or of any Person, are
necessary with respect to Seller in connection with (a) the execution and
delivery of this Agreement and (b) the consummation of the Asset Purchase and
the other transactions contemplated hereby other than those the absence of which
would not, individually or in the aggregate, have or reasonably could be
expected to have, a Material Adverse Effect on the Business.
2.21 Permits. Section 2.21 of the Seller Disclosure Schedule lists all
material Permits that are necessary to entitle Seller to own or lease, operate
and use its Assets and to carry on and conduct its Business as currently
conducted. Seller has provided Buyer with true, correct and complete copies of
each Permit. Except as set forth on Section 2.21 of the Seller Disclosure
Schedule, (a) there are no pending or, to the Knowledge of Seller or
Shareholder, threatened claims or proceedings challenging the validity of or
seeking to revoke or discontinue (other than expiration according to each
respective Permit's terms), any of the Permits, and (b) there are no material
defaults by Seller which but for notice of lapse of time or both would
constitute a default under the Permits, and each such Permit is in full force
and effect. Seller has complied
22
with and is in compliance with the terms and conditions of each such Permit and
has not received any notices that it is in violation of any of the terms or
conditions of such Permits.
2.22 Taxes.
(a) There are no material tax liens, assessments or tax liabilities
(collectively, "TAXES") attaching to, or arising from the Purchased Assets which
have not been paid as of the date of this Agreement (other than inchoate tax
liens) and, to the Knowledge of Seller and Shareholder, there will be no Taxes
attaching to, or arising from the Purchased Assets which arise as a result of
the conduct of Seller after the date of this Agreement and which have not been
paid as of the date hereof.
(b) Seller has (i) timely filed all Tax Returns required to be filed
by it in accordance with all applicable Laws (taking into account all valid
extensions) and (ii) paid all Taxes show to have become due pursuant to such Tax
Returns, and all such Tax Returns were true and complete in all material
respects as of the date such Tax Returns were filed or subsequently amended. All
Tax accounting periods and methods used by Seller are in accordance with
applicable Laws.
(c) Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party. There are no
liens for Taxes (other than Taxes not yet due and payable) upon any of the
assets of Seller. No federal, state, local or foreign audit, examination or
other administrative proceeding exists or has been initiated with regard to
Taxes or Tax Returns of or that includes Seller. There is no material dispute or
claim concerning any Tax liability of Seller either (1) claimed or raised by any
Taxing Authority in writing or (2) to the Knowledge of Seller or Shareholder.
(d) Seller has disclosed on its federal income Tax Returns or has
otherwise communicated to the IRS all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the meaning of
Section 6662 of the Code.
2.23 Properties. Seller does not own any real property. Schedule 2.23 sets
forth a complete and correct list of all real property used by Seller in the
conduct of the Business (the "FACILITIES") and leased by Seller. Seller has
valid leasehold interests in all real properties listed in Schedule 2.23, in
each case free and clear of all Encumbrances other than (i) those listed in
Schedule 2.23 and (ii) those which do not, individually or in the aggregate, (x)
materially interfere with the operation of the Business as presently conducted
or (y) otherwise have, or could reasonably be expected to have, a Material
Adverse Effect. Each of the lease agreements referred to in Schedule 2.23 (the
"LEASE AGREEMENTS") is valid, binding and enforceable against Seller in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity an
by bankruptcy, insolvency or other laws affecting creditors' rights and remedies
generally. Seller is not in material breach of any of the Lease Agreements and,
to the Knowledge of Seller and Shareholder, none of the other parties to any
Lease Agreement is in material breach thereof. All of the buildings, structures
and other improvements at the Facilities are adequate and suitable in all
material respects for the purposes for which they are currently being used by
Seller. Seller has not received written notice
23
that the lease of the Facilities by Seller and the use thereof, as presently
used by Seller, violates any Laws. Seller has not received written notice of
violation of or noncompliance with any covenant, condition, restriction, order
or easement affecting the Facilities. Seller has not received written notice of
condemnation or threatened condemnation affecting the Facilities. Seller has
made available to Buyer complete and correct copies of the Lease Agreements.
2.24 Insurance. Section 2.24 of the Seller Disclosure Schedule lists all
policies of insurance, coverage amounts and deductibles with respect to the
Purchased Assets or Business. All such insurance policies are in full force and
effect and Seller has not agreed to reduce or cancel any of such insurance
policies prior to the Closing or received notice of any actual or threatened
modification or cancellation of any such policies. All such policies are held by
Seller and, except as expressly provided in any such insurance policy with
respect to (i) claims made prior to the Closing, in the case of "claims made"
policies, or (ii) occurrences prior to the Closing, in the case of
"occurrence-based" policies, will not be available to Purchaser, the Company or
any Subsidiary after the Closing, and Purchaser shall be responsible for
arranging for such insurance for the Company and the Subsidiaries after the
Closing as Purchaser shall deem appropriate. If Seller's insurance is provided
on a claims-made basis, Seller shall obtain optional extension period (i.e.,
"tail") coverage to ensure that insurance coverage in the amount set forth in
Section 2.24 of the Seller Disclosure Schedule is maintained for a minimum of
four years following the Closing Date for claims that arise from operations of
the Business prior to the Closing Date. Section 2.24 of the Seller Disclosure
Schedule sets forth a summary of all claims that have been tendered under any of
such insurance policies during the five year period preceding the Closing Date.
2.25 No Brokers or Finders. No agent, broker, finder, investment or
commercial banker or other Person, engaged by or acting on behalf of Seller or
Shareholder in connection with the negotiation, execution or performance of this
Agreement or the transactions contemplated herein, is or will be entitled to any
broker's or finder's or similar fees or other commissions from Seller as a
result of this Agreement or the transactions contemplated herein.
2.26 Prepayments, Prebilled Invoices and Deposits.
(a) Section 2.26(a) of the Seller Disclosure Schedule sets forth (i)
all prepayments, prebilled invoices and deposits that have been received by
Seller as of the date hereof from customers for products to be shipped, or
services to be performed, after the Closing Date, and (ii) with respect to each
such prepayment, prebilled invoice or deposit, (A) the party and contract
credited, (B) the date received or invoiced, (C) the products and/or services to
be delivered, and (D) the conditions for the return of such prepayment,
prebilled invoice or deposit. All such prepayments, prebilled invoices and
deposits are properly accrued for on the Most Recent Financial Statement in
accordance with GAAP applied on a consistent basis with the past practice of the
Seller.
(b) Section 2.26(b) of the Seller Disclosure Schedule sets forth (i)
all prepayments, prebilled invoices and deposits that have been made or paid by
the Company as of the date hereof to vendors or suppliers for products to be
shipped, or services to be performed, after the Closing Date, and (ii) with
respect to each such prepayment, prebilled invoice or deposit, (A) the party to
whom such prepayment, prebilled invoice or deposit was made or paid,
24
(B) the date made or paid, (C) the products and/or services to be delivered, and
(D) the conditions for the return of such prepayment, prebilled invoice or
deposit. All such prepayments, prebilled invoices and deposits are properly
accrued for on the Most Recent Financial Statement in accordance with GAAP
applied on a consistent basis with the past practices of the Seller.
2.27 Warranties. No product or service manufactured, sold, leased, licensed
or delivered by Seller is subject to any guaranty, warranty, financial penalty,
right of return, right of credit or other indemnity other than (a) the
applicable standard terms and conditions of sale or lease of Seller which are
set forth in Section 2.27 of the Seller Disclosure Schedule, and (b)
manufacturers' warranties for which the Company has no Liability. Section 2.27
of the Seller Disclosure Schedule sets for the aggregate expenses and financial
penalties incurred by Seller, and the entities to which any such financial
penalties were paid, in fulfilling its obligations under its guaranty, warranty,
right of return and indemnity provisions during each of the fiscal years and the
interim period covered by the Financial Statements; Seller knows of no reason
why such expenses should significantly increase as a percentage of sales in the
future.
2.28 Product Liability. Seller has no Liability (and there is no basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any Seller giving rise to any Liability)
arising out of any injury to individuals or property as a result of the
ownership or operation of the Business or Purchased Assets.
2.29 Disclosure; No Misstatement. No statement (including the
representations, warranties and covenants) by Seller and Shareholder contained
in this Agreement, the Seller Disclosure Schedule, the other agreements,
documents and applications to be entered into or filed in connection herewith,
the exhibits and schedules attached hereto and any document, written statement
or certificate furnished to Buyer and its representatives by Seller and
Shareholder pursuant hereto, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact known to Seller or
Shareholder which may be reasonably expected to have a Material Adverse Effect
on the Business or the Purchased Assets which has not been set forth in this
Agreement or the Seller Disclosure Schedule.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and Shareholder as set forth below.
3.1 Organization and Standing. Buyer is a duly organized corporation,
validly existing and in good standing under the laws of the State of Delaware.
Buyer has all requisite corporate power and authority to own and operate its
Assets and to execute, deliver and to carry out the provisions of this Agreement
and the other agreements contemplated hereby.
3.2 Authority. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of Buyer. This Agreement and all
other agreements and documents to be entered into in connection herewith have
been or will be duly and validly
25
executed and delivered by Buyer, and (assuming due authorization, execution and
delivery by Seller and Shareholder) constitute or will constitute valid and
binding obligations of Buyer, enforceable against Buyer in accordance with their
respective terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and other laws affecting creditors' rights and remedies generally.
3.3 Consents and Approvals. Other than filings that may be required under
state insurance laws, no consents or approvals, orders or authorizations of or
filings or registrations with any court, administrative agency or commission or
other governmental authority or instrumentality or with any third party are
necessary with respect to Buyer in connection with (a) the execution and
delivery of this Agreement and (b) the consummation of the Asset Purchase and
the other transactions contemplated hereby.
3.4 No Conflicts. Neither the execution and delivery of this Agreement by
Buyer, nor the consummation by Buyer of the transactions contemplated hereby,
nor compliance by Buyer with any of the terms or provisions hereof, will (a)
violate any provision of Buyer's Articles of Incorporation, as amended to the
date hereof, or bylaws, or (b) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Buyer or
any of its respective Assets.
3.5 No Brokers or Finders. No agent, broker, finder, investment or
commercial banker or other Person engaged by or acting on behalf of Buyer or any
of its Affiliates in connection with the negotiation, execution or performance
of this Agreement or the transactions contemplated herein is or will be entitled
to any broker's or finder's or similar fees or other commissions as a result of
this Agreement or the transactions contemplated herein.
ARTICLE IV
ADDITIONAL AGREEMENTS
The parties hereto further agree that:
4.1 Expenses. Whether or not the Asset Purchase is consummated, all fees
and expenses incurred in connection with the Asset Purchase including, but not
limited to, all legal, accounting, financial advisory, consulting, brokers or
finders fees and all other fees and expenses of third parties incurred by a
party in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby, shall be
the obligation of the respective party incurring such fees and expenses,
provided, however, that any such fees and expenses to be paid by Seller on or
prior to the Closing Date shall be included in determining Final Working Capital
pursuant to Section 1.4.
4.2 Public Disclosure. Unless otherwise required by law (including federal
and state securities laws) or, by the rules and regulations of the National
Association of Securities Dealers, Inc. or the Nasdaq Marketplace Rules, in
which case Seller shall have a prior opportunity to review and comment on the
proposed disclosure, no disclosure (whether or not in response to any inquiry)
of the existence of this Agreement (and any related agreements and closing
documents) or the existence of any subject matter of, or the terms and
conditions of, this Agreement (and any related agreements and closing documents)
shall be made by any party
26
hereto or any shareholder, director, officer, Affiliate, employee or authorized
representative of any party hereto unless approved by Buyer and Seller prior to
disclosure or release; provided, however, that (a) such disclosure may be made
by the parties to their respective legal, financial, accounting or tax advisors
or employees with a need to know of such information for purposes of
consummating this Agreement, and (b) after the Closing, the parties may make
appropriate disclosures to their respective employees.
4.3 Confidential Information. Each party acknowledges that the
Confidentiality Agreement dated April 10, 2006 between Seller and Buyer shall
remain in full force and effect and govern each party's use of confidential
information of the other party.
4.4 Access to Books and Records. So long as Seller remains responsible for
Refunds Payable in connection with the operation of the Business prior to the
Closing Date, Buyer shall provide Seller, the Shareholder and their respective
representatives access to such information, data and records as they may
reasonably request in order for Seller to administer and pay such liability and
Buyer shall provide such cooperation as Seller or Shareholder may reasonably
request in connection with administering such liability. In addition, Buyer
shall provide Seller and Shareholder access to such documents, data and records
as they may reasonably request in connection with any tax or other regulatory
audit, enforcement action or other such proceeding. Buyer shall maintain the
books, records and data of the Business related to periods prior to the Closing
for not less than three years after the Closing Date or, if Buyer wishes to
dispose of such books, records and data prior to the termination of such three
year period, it shall notify Seller and Shareholder and offer them the
opportunity to take possession of or copy such materials as they may elect.
4.5 Employment of Employees.
(a) Each employee of Seller listed in Section 2.14 of the Seller
Disclosure Schedule other than **** and **** (the "TRANSFERRED EMPLOYEES") will
receive an employment offer letter of Buyer or its Affiliates providing for the
"at-will" employment of such employees by Buyer or its Affiliates under terms
consistent with Buyer or its Affiliate's current employment practices for
similarly situated employees. Seller and Shareholder shall use their
commercially reasonable efforts to persuade each of the Transferred Employees to
accept offers of employment from Buyer on the Closing Date. Seller shall notify
all Transferred Employees that upon Closing their employment with Seller will be
terminated and their employment with Buyer will commence, provided that such
employees have accepted Buyer's offer of employment. Each Transferred Employee
shall be entitled to participate in Buyer's employee benefit and welfare plans
in accordance with the terms thereof, provided that to the extent the benefits
under any such plan is dependent on time of service, the Transferred Employees
shall be credited under such plan for such employee's time of service with
Seller (subject, however, to limitations under any Buyer health, dental or life
insurance benefits related to pre-existing conditions). Seller shall pay to each
Transferred Employee prior to or upon Closing, all wages, salaries, accrued
vacation and other benefits earned by him or her prior to the Closing Date.
Buyer shall not be responsible
----------
* Confidential treatment requested pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. In accordance with Rule 24b-2, these
confidential portions have been omitted from this exhibit and filed
separately with the Securities and Exchange Commission.
27
for any claims against Seller for Seller's failure to comply with its employment
agreements or its obligations with respect to severance pay.
4.6 Ad Valorem and Similar Taxes. Ad valorem, property and similar taxes
and assessments (other than taxes on income, gain or receipts, or transfer taxes
in respect of the Purchased Assets) based upon or measured by the value of the
Purchased Assets shall be divided or prorated between Seller and Buyer as of the
Closing Date based on the amount of such taxes paid for the previous year,
unless a new tax statement is received prior to the Closing Date, in which event
the tax apportionment made as of the Closing Date shall be adjusted in
accordance with such new tax statement or as otherwise mutually agreed. In this
regard, Seller shall assume responsibility for such taxes attributable to the
period of time prior to the Closing Date and Buyer shall assume responsibility
for the periods of time thereafter. Not later than thirty (30) days after the
Closing Date, Seller and Buyer shall determine and shall pay all amounts
required to be paid pursuant to such allocation.
ARTICLE V
ACTIONS OF SELLER AND SHAREHOLDER
BEFORE AND AFTER THE CLOSING DATE
Each of Seller and Shareholder covenants and agrees as follows:
5.1 Access and Investigation. Between the date of this Agreement and the
Closing, Seller will (a) afford Buyer and its officers, directors, attorneys,
accountants, agents, employees or other representatives reasonable access,
during normal business hours, with prior notice to Seller, to its personnel,
properties, Assumed Contracts, books and records and other documents and data,
(b) furnish Buyer with copies of all such Assumed Contracts, books and records
and other existing documents and data as it may reasonably request, and (c)
furnish Buyer with such additional financial, operating and other data and
information as it may reasonably request. The foregoing notwithstanding, Buyer
shall: (i) conduct any such investigation in such a manner as not to interfere
unreasonably with the operation of Seller; (ii) contact any agent, sales
representative, customer or supplier of Seller only upon the prior consent of
Seller; and (iii) agree to maintain the confidentiality of the information
received during such investigation and to refrain from using such information
for any purpose except in furtherance of the acquisition, provided, however,
that nothing herein shall prevent the disclosure or use of any information that
is at the date hereof or which hereafter becomes public, which was in the
possession of Buyer prior to the date of disclosure hereunder, or the disclosure
of any information which such person is required by law, regulation or court
order to disclose.
5.2 Conduct of Business.
(a) From the date hereof to the Closing, unless the Buyer otherwise
consents in writing, Seller will
(i) conduct its operations and Business only in a manner
consistent with past practices of Seller and taken in the Ordinary Course of
Business,
(ii) maintain and keep its properties and equipment in good
repair, working order and condition, except for ordinary wear and tear,
28
(iii) keep in full force and effect all insurance now maintained
or substantially equivalent policies,
(iv) perform in all material respects all of its obligations
under all Assumed Contracts and other commitments applicable to the Business,
(v) use commercially reasonable efforts to maintain and preserve
all Intellectual Property Rights,
(vi) use commercially reasonable efforts to maintain and preserve
its business organization intact, retain the Transferred Employees, and maintain
its relationships with suppliers and customers so that they may be preserved
after the Closing,
(vii) maintain its books of account and records in the usual and
regular manner,
(viii) comply in all material respects with all laws and
regulations applicable to it and to the conduct of the Business, and
(ix) promptly advise Buyer in writing of any event or development
that has, or could reasonably be expected to have, a Material Adverse Effect,
including without limitation any damage, destruction or loss of any Purchased
Assets or the Business (whether or not covered by insurance), and any breach,
default, termination, or any notice thereof, under any Material Contract.
(b) In addition, from and after the date hereof, Seller shall not,
without the prior written consent of Buyer (which consent shall not be
unreasonably withheld),
(i) issue, sell or deliver, or agree to issue, sell or deliver
any additional shares of its capital stock or any options, warrants, puts, calls
or rights to acquire any such capital stock, or securities convertible into or
exchangeable for such capital stock,
(ii) mortgage, pledge or subject to any Encumbrance any of the
Purchased Assets other than Permitted Encumbrances, or incur any Indebtedness
other than in the Ordinary Course of Business,
(iii) dispose, sell, lease or otherwise transfer any Purchased
Assets, or enter into any agreement or other arrangements for any such
disposition, other than in the Ordinary Course of Business,
(iv) employ any new employees or engage any new subcontractors,
or increase the wages, salaries, compensation, pension or other benefits payable
to any employee or subcontractor or grant any severance or termination pay
(except such as shall have occurred in the Ordinary Course of Business including
normal period performance review and related compensation and benefit
increases),
(v) forgive or cancel any debts or claims or waive, amend, cancel
or terminate any rights of material value;
29
(vi) incur any material Liability, except in the Ordinary Course
of Business,
(vii) amend its Articles of Incorporation or bylaws,
(viii) merge or consolidate with or agree to merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire, any
business or any business organization or division thereof,
(ix) sell, transfer or cancel any license, patent, trademark,
trade name or other intangible asset,
(x) make any capital expenditures exceeding Ten Thousand Dollars
($10,000),
(xi) enter into or extend any contract or other commitment for
the sale of, or purchase of, services, other than those entered into in the
Ordinary Course of Business, which can reasonably be expected to involve
payments to or by Seller of more than Ten Thousand Dollars ($10,000) during any
twelve (12) month period or which is not terminable by Seller within thirty (30)
days without penalty, or
(xii) purchase or lease any real property.
5.3 Required Approvals. Each party will cooperate in obtaining all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expiration of waiting periods imposed by, any Governmental Authority
necessary for the consummation of the transactions contemplated by this
Agreement (the "APPROVALS").
5.4 Required Consents. Seller will obtain duly executed copies of all
consents in form and substance reasonably satisfactory to Buyer of third parties
(other than Governmental Authorities) required by Seller and Shareholder to
consummate the transactions contemplated by this Agreement, including (a)
Seller's **** largest customers as measured by revenue collected during the
twelve (12) months prior to the date of this Agreement, and at least **** of
Seller's next **** largest customers, and (b) all others other than those the
absence of which would not have a Material Adverse Effect on Buyer and its
Affiliates, the Business or the Purchased Assets (the "CONSENTS").
5.5 Notification. Between the date of this Agreement and the Closing, each
party to this Agreement will promptly notify each other party hereto in writing
if such party becomes aware of (a) any fact or condition that causes or
constitutes a breach of any of its representations and warranties as of the date
of this Agreement, or that would (except as expressly contemplated by this
Agreement) cause or constitute a breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition, or that would require any change in the
Seller Disclosure Schedule if such schedule
----------
* Confidential treatment requested pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. In accordance with Rule 24b-2, these
confidential portions have been omitted from this exhibit and filed
separately with the Securities and Exchange Commission.
30
were dated the date of the occurrence or discovery of any such fact or
condition, or (b) the occurrence of any breach of any covenant or agreement by
such party in Articles IV or V or of the occurrence of any event that may make
the satisfaction of the conditions in Articles VI and VII impossible or
unlikely; provided, however, that such disclosure shall not be deemed to cure
any breach of a representation or warranty or covenant or agreement or to
satisfy a condition unless, with the knowledge of such disclosure, the
non-breaching party elects to close the Asset Purchase. To the extent that a
party to this Agreement has knowledge of such matters, such party shall promptly
notify each other party hereto of any default, the threat or commencement of any
Proceeding or any development that occurs before the Closing that could in any
way have a Material Adverse Effect.
5.6 No Solicitation. Prior to Closing, unless this Agreement is earlier
terminated pursuant to Article VIII, Seller and Shareholder (or any
representative, agent, or broker or finder thereof) will not directly or
indirectly solicit, initiate, encourage or entertain any inquiries or proposals
from, discuss or negotiate with, provide any non-public information to any
unsolicited inquiries or proposals from, any party (other than Buyer) nor enter
into any arrangement, agreement, understanding or contract relating to any
transaction involving the sale of all or a substantial portion of the Business
or Assets of Seller or any of its capital stock or any merger, consolidation,
business combination or similar transaction involving Seller (each such
transaction referred to herein as a "PROPOSED ACQUISITION"). Seller will
immediately notify Buyer if any discussions or negotiations are sought to be
initiated, any inquiry or proposal is made, or any information is requested with
respect to any Proposed Acquisition and notify Buyer of the terms of any
proposal which it may receive in respect of any such Proposed Acquisition,
including, without limitation, the identity of the prospective purchaser or
soliciting party.
5.7 Commercially Reasonable Efforts. Between the date of this Agreement and
the Closing, each of the parties to this Agreement will use its commercially
reasonable efforts to cause the conditions in Articles VI and VII to be
satisfied.
5.8 Further Action; Cooperation. If, at any time after the Closing, any
further action is necessary or desirable to carry out the purposes of this
Agreement, Seller and Shareholder will cooperate fully and execute such further
instruments, documents and agreements and give such further written assurances
as may be reasonably requested by Buyer to evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the purchase and sale contemplated
by this Agreement is subject to the satisfaction of the following conditions,
unless waived by Buyer:
6.1 Accuracy of Representations. Each of the representations and warranties
of Seller and Shareholder contained in this Agreement and in any Seller
Disclosure Schedule attached hereto and in each other agreement, document,
instrument or certificate contemplated hereby shall, in the case of those
representations and warranties that are not qualified by materiality, be true,
complete and correct in all material respects, and in the case of those
31
representations and warranties that are qualified by materiality shall be true,
complete and correct in all respects, as of each of (i) the date of this
Agreement and (ii) the Closing Date, in each case as though newly made at such
time.
6.2 Seller's Performance. All of the covenants and obligations that Seller
is required to perform or to comply with pursuant to this Agreement at or prior
to the Closing (considered collectively) and each of these covenants and
obligations (considered individually), must have been performed and complied
with in all material respects.
6.3 Officer's Certificate. Each of HRMS, CC and MAS shall have delivered to
Buyer a certificate of its President certifying as to the (i) accuracy of any
representation or warranty of Seller and Shareholder, in accordance with Section
6.1, (ii) performance by Seller, or the compliance by Seller with, any covenant
or obligation required to be performed or complied with by Seller, and (iii)
satisfaction of any condition referred to in this Article VI.
6.4 Secretary's Certificate. Each of HRMS, CC and MAS shall have delivered
to Buyer a certificate of its Secretary certifying as to:
(a) Its Articles of Incorporation in effect as of the Closing Date;
(b) Resolutions of its: (i) directors and (ii) shareholders
authorizing the execution, delivery and performance of this Agreement and the
execution, delivery and performance of all other agreements, documents and
transactions contemplated hereby; and
(c) The incumbency of its officers executing this Agreement and all
other agreements and documents contemplated hereby.
6.5 No Proceeding. Since the date of this Agreement, there must not have
been commenced or threatened against Seller or Shareholder any Proceeding (a)
involving any challenge to, or seeking damages or other relief in connection
with, the Asset Purchase or (b) that may have the effect of preventing,
delaying, materially and adversely altering or making illegal the Asset
Purchase.
6.6 Material Adverse Change. Since the date of this Agreement, there shall
have been no event or condition or events or conditions, which, either
individually or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect on the Business or the Purchased Assets, and
Buyer shall be provided with a certificate from the President of Seller to that
effect at the Closing.
6.7 Transferred Employees.
(a) The following Seller key employees shall have accepted employment
with Buyer as Transferred Employees: **** and ****.
----------
* Confidential treatment requested pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. In accordance with Rule 24b-2, these
confidential portions have been omitted from this exhibit and filed
separately with the Securities and Exchange Commission.
32
(b) In addition to Subsection (a) above, from each of the Seller's
divisions below:
(i) no more than **** percent (****%) of the employees in
Seller's **** division shall have declined employment with Buyer;
(ii) no more than **** percent (****%) of the employees from
Seller's **** division shall have declined employment with Buyer;
(iii) no more than **** percent (****%) of the employees from
Seller's **** division shall have declined employment with Buyer;
(iv) no more than **** percent (****%) of the employees from
Seller's **** division shall have declined employment with Buyer;
(v) no more than **** percent (****%) of the employees from
Seller's **** division shall have declined employment with Buyer;
(vi) no more than **** percent (****%) of the employees from
Seller's **** division shall have declined employment with Buyer; and
(vii) no more than **** percent (****%) of the employees from
Seller's **** division shall have declined employment with Buyer.
6.8 Consents. All of the Consents necessary to consummate the transactions
contemplated by this Agreement shall have been obtained.
6.9 Approvals. All of the Approvals shall have been filed, occurred or been
obtained.
6.10 Non-Competition and Non-Solicitation Agreement. Buyer shall have
received the Non-Competition and Non-Solicitation Agreement substantially in the
form attached hereto as Exhibit 6.10 (the "NON-COMPETITION AGREEMENT"), executed
by Seller and Shareholder.
6.11 Consulting Agreements for **** and ****. Buyer shall have received the
Consulting Agreements substantially in the forms attached hereto as Exhibit
6.11(a) and (b) (the "CONSULTING AGREEMENT", executed by **** and ****,
respectively.
6.12 Intellectual Property Assignment Agreement. Buyer shall have received
the Intellectual Property Assignment Agreement substantially in the form
attached hereto as Exhibit 6.12 (the "INTELLECTUAL PROPERTY ASSIGNMENT
AGREEMENT") executed by Seller and Shareholder.
----------
* Confidential treatment requested pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. In accordance with Rule 24b-2, these
confidential portions have been omitted from this exhibit and filed
separately with the Securities and Exchange Commission.
33
6.13 Assignments of Leases and Consents of Lessor. Buyer shall have
received Assignments of Lease and Consents of Lessor in forms satisfactory to
Buyer executed by Seller and the lessors under the Lease Agreements for the
Facilities located in Oxnard, Sacramento and San Diego, California (the
"ASSIGNMENTS OF LEASE").
6.14 Chino Facility Lease. Buyer shall have received a facility lease
agreement for the Facility located in Chino, California in form and containing
terms mutually agreed upon by Buyer and Shareholder executed by Shareholder as
lessor (the "CHINO FACILITY LEASE").
6.15 Financial Schedule. Seller should have delivered to Buyer a Schedule
of Seller's Accounts Receivable, including underlying detail, as of the Closing
Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF
SELLER AND SHAREHOLDER
The obligations of Seller and Shareholder to consummate the purchase and
sale contemplated by this Agreement is subject to the satisfaction of the
following conditions unless waived by Seller and Shareholder:
7.1 Accuracy of Representations. Each of the representations and warranties
of Buyer contained in this Agreement and in each other agreement, document,
instrument or certificate contemplated hereby shall, in the case of those
representations and warranties that are not qualified by materiality, be true,
complete and correct in all material respects, and in the case of those
representations and warranties that are qualified by materiality shall be true,
complete and correct in all respects, as of each of (i) the date of this
Agreement and (ii) the Closing Date, in each case as though newly made at such
time.
7.2 Buyer's Performance. All of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively) and each of these covenants and
obligations (considered individually), must have been performed and complied
with in all material respects.
7.3 Officer's Certificate. Buyer shall have delivered to Seller an
officer's certificate certifying as to the (i) accuracy of any representation or
warranty of Buyer, in accordance with Section 7.1, (ii) performance by Buyer, or
the compliance by Buyer with, any covenant or obligation required to be
performed or complied with by Buyer, and (iii) satisfaction of any condition
referred to in this Article VII.
7.4 Secretary's Certificate. Buyer shall have delivered to Seller a
certificate of its secretary certifying as to:
(a) Resolutions of its directors authorizing the execution, delivery
and performance of this Agreement and the execution, delivery and performance of
all other agreements, documents and transactions contemplated hereby; and
(b) The incumbency of its officers executing this Agreement and all
other agreements and documents contemplated hereby.
34
7.5 No Proceeding. Since the date of this Agreement, there must not have
been commenced or threatened against Buyer, any Proceeding (a) involving any
challenge to, or seeking damages or other relief in connection with, the Asset
Purchase or (b) that may have the effect of preventing, delaying, making illegal
or otherwise interfering with the Asset Purchase.
7.6 Consents. All of the Consents necessary to consummate the transactions
contemplated by this Agreement shall have been obtained.
7.7 Approvals. All of the Approvals shall have been filed, occurred or been
obtained.
7.8 Assignments of Leases and Consents of Lessors. Seller shall have
received the Assignments of Lease executed by Buyer.
7.9 Chino Facility Lease. Seller shall have received the Chino Facility
Lease executed by Buyer.
ARTICLE VIII
TERMINATION
8.1 Termination Events.
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by Seller, on the one hand, or by Buyer, on the other hand, if a
material breach of any provision of this Agreement has been committed by the
other party or its Affiliates and such breach has not been expressly waived in
writing;
(b) (i) by Buyer if any of the conditions in Article VI have not been
satisfied as of the Closing or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not expressly waived such
condition in writing on or before the Closing; or (ii) by Seller, if any of the
conditions in Article VII has not been satisfied as of the Closing or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Seller to comply with its obligations under this Agreement) and
Seller has not expressly waived such condition in writing on or before the
Closing;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing Date has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before January
31, 2007, such later date as the parties may agree upon, or, if one or more
conditions to Buyer's obligation to consummate have not been met, such later
date as Buyer may in its discretion elect but not later than March 31, 2007.
8.2 Effect of Termination. Each party's right of termination under Section
8.1 is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election of
remedies. If this Agreement is terminated
35
pursuant to Section 8.1, all further obligations of the parties under this
Agreement will terminate, except that the obligations in Sections 4.1, 4.2 and
4.3 will survive; provided, however, that if this Agreement is terminated by a
party because of the breach of this Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
ARTICLE IX
INDEMNIFICATION
9.1 Survival of Representations, Warranties, Covenants and Agreements. All
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Asset Purchase.
9.2 Indemnification by Seller and Shareholder.
(a) Indemnification. From and after the Closing Date, Seller and
Shareholder (the "SELLER INDEMNIFYING PARTIES") shall jointly and severally
indemnify, defend, protect and hold harmless Buyer, its successors and assigns,
its Affiliates, and the directors, officers, employees and agents of Buyer and
its Affiliates (each a "BUYER INDEMNIFIED PERSON") from and against all losses
(including lost revenues and profits and diminution in value), claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, fines,
penalties, judgments, Taxes, costs and expenses (including Legal Expenses)
(collectively, "LOSSES") based upon, resulting from or arising out of (a) any
false representation or breach of a warranty of Seller or Shareholder contained
in this Agreement, (b) the breach by Seller or Shareholder of, or the failure by
any one or all of them to observe, any of its, her or their covenants or other
agreements contained in this Agreement, and (c) the operation of the Business
through the Closing Date, including, but not limited to, any Tax obligations
relating to the period through the Closing and any claims made by creditors of
Seller or Shareholder with respect to liabilities arising out of the operation
of the Business through the Closing Date. Buyer, Seller and Shareholder each
acknowledge that such Losses, if any, would relate to unresolved or unknown
contingencies or circumstances existing at the Closing, which if resolved or
known at the Closing would have led to a reduction in the aggregate Purchase
Price to be paid to Seller.
(b) Source of Initial Recourse. Except as provided under Sections 1.5
and 1.6, the Escrow Fund shall be the first form of recourse available to Buyer
against Seller or Shareholder with respect to any Losses. Any amount which
becomes due and payable to Buyer under this Article IX shall first be paid or
otherwise satisfied out of the Escrow Fund until the same has been exhausted.
9.3 Indemnification by Buyer. From and after the Closing Date, Buyer
("BUYER INDEMNIFYING PARTIES") shall indemnify, defend, protect and hold
harmless Seller and Shareholder and their respective successors and assigns,
Affiliates, directors, officers, employees and agents (each, a "SELLER
INDEMNIFIED PERSON") from and against all Losses based upon, result from or
arising out of (a) any false representation or breach of a warranty of Buyer
contained in this Agreement, (b) the breach by Buyer of, or the failure by it to
observe, any of its covenants or
36
other agreements contained in this Agreement, and (c) the operation of the
Business after the Closing Date, including, but not limited to, any Tax
obligations relating to the period after the Closing and any claims made by
creditors of Seller or Shareholder with respect to liabilities arising out of
the operation of the Business after the Closing Date.
9.4 Indemnification Procedures.
(a) Third Party Action. Promptly after receipt by any person or entity
entitled to indemnification pursuant to this Article IX (the "INDEMNIFIED
PARTY") of notice of the commencement of any action, suit or proceeding by a
person not a party to this Agreement in respect of which the Indemnified Party
would be entitled to seek indemnification hereunder (a "THIRD PARTY ACTION"),
the Indemnified Party shall notify the party or parties from whom such
indemnification is sought (the "INDEMNIFYING PARTIES") thereof in writing, but
any failure to so notify the Indemnifying Parties shall not relieve them from
any liability that it may have to the Indemnified Party under this Article,
except to the extent that the Indemnifying Party is prejudiced by the failure to
give such notice. The Indemnifying Party shall be entitled to participate in the
defense of such Third Party Action and to assume control of such defense
(including settlement of such Third Party Action) with counsel reasonably
satisfactory to such Indemnified Party; provided, however, that:
(i) the Indemnified Party shall be entitled to participate in the
defense of such Third Party Action and to employ counsel at its own expense
(which shall not constitute Legal Expenses for purposes of this Agreement) to
assist in the investigation or defense of such Third Party Action;
(ii) the Indemnifying Party shall obtain the prior written
approval (such approval not to be unreasonably withheld, conditioned or delayed)
of the Indemnified Party before entering into any settlement of such Third Party
Action or ceasing to defend against such Third Party Action;
(iii) each party agrees to cooperate fully with the other, such
cooperation to include, without limitation, attendance at depositions and the
provision of relevant documents as may be reasonably requested by the
Indemnifying Party;
(iv) no Indemnifying Party shall consent to the entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by each claimant or plaintiff to each Indemnified Party
of a release from all liability in respect of such Third Party Action; and
(v) the Indemnifying Party shall not be entitled to control the
defense of any Third Party Action unless the Indemnifying Party confirms in
writing its assumption of such defense and continues to pursue the defense
reasonably and in good faith. After written notice by the Indemnifying Party to
the Indemnified Party of its election to assume control of the defense of any
such Third Party Action in accordance with the foregoing, (A) the Indemnifying
Party shall not be liable to such Indemnified Party hereunder for any Legal
Expenses subsequently incurred by such Indemnified Party attributable to
defending against such Third Party Action, and (B) as long as the Indemnifying
Party is reasonably contesting such
37
Third Party Action in good faith, the Indemnified Party shall not admit any
liability with respect to, or settle, compromise or discharge the claim
underlying, such Third Party Action without the Indemnifying Party's prior
written consent. If the Indemnifying Party does not assume control of the
defense of such Third Party Action in accordance with this Section 9.4, the
Indemnified Party shall have the right to defend and/or settle such Third Party
Action in such manner as it may deem appropriate at the cost and expense of the
Indemnifying Party, and the Indemnifying Party will promptly reimburse the
Indemnified Party therefor in accordance with this Section 9.4. The
reimbursement of fees, costs and expenses required by this Section 9.4 shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(b) Other Claims. If an Indemnified Party has actual knowledge of any
facts or circumstances other than the commencement of a Third Party Action which
cause it in good faith to believe that it is entitled to indemnification under
this Article IX, then such Indemnified Party shall promptly give the
Indemnifying Parties notice thereof in writing, but any failure to so notify the
Indemnifying Parties shall not relieve it from any liability that it may have to
the Indemnified Parties under this Article, as the case may be, except to the
extent that the Indemnifying Parties are materially prejudiced by the failure to
give such notice.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given (a) upon delivery if delivered personally or
by an express courier (with confirmation), including by overnight delivery
service, or (b) one (1) day after being sent by facsimile (with receipt
confirmed) to the parties at the following addresses or facsimile number (or at
such other address for a party as shall be specified by like notice):
(i) if to Buyer to:
CorVel EnterpriseComp, Inc.
0000 Xxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Attn: Director, Legal Services
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Bouey&Black LLP
0000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxxx, XX 00000
Attn: Xxxxxx Xxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
38
(ii) if to Seller or Shareholder prior to the Closing Date to:
Xxxxxxxxx Risk Management Services, Inc.
00000 Xxxxxxxx Xxxxxx
Xxxxx, XX 00000
Attn: Xxxxxx Xxxxxxxxx
Telephone No.: (___) ___-____
Facsimile No.: (___) ___-____
with a copy to:
______________________________
______________________________
______________________________
Attn: ________________________
Telephone No.: (___) ___-____
Facsimile No.: (___) ___-____
(iii) if to Seller or Shareholder following the Closing
Date to:
Xxxxxx Xxxxxxxxx
______________________________
______________________________
Telephone No.: (___) ___-____
Facsimile No.: (___) ___-____
10.2 Entire Agreement. This Agreement, including the schedules, exhibits
and attachments hereto, and the documents and instruments and other agreements
among the parties delivered pursuant hereto, constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and are not intended to confer upon
any other person any rights or remedies hereunder except as otherwise expressly
provided herein.
10.3 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their permitted successors and assigns.
The parties hereto acknowledge that Buyer shall have the right to assign, with
absolute discretion, any or all of its rights and obligations under this
Agreement and any related agreements and documents to any successor, assign or
Affiliate of Buyer; provided, however, that such assignment shall not relieve
Buyer of its obligations hereunder. This Agreement is not assignable in whole or
in part by Seller or Shareholder.
10.4 Waiver. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Agreement, in any
39
one or more instances, shall be deemed to be or construed as a waiver of the
same or any other term or condition of this Agreement on any future occasion.
10.5 Severability. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
10.6 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which they are
entitled at law or in equity. Nothing in Article IX shall be construed or
interpreted to limit this Section 10.6.
10.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law or equity on
such party, and the exercise of any one remedy will not preclude the exercise of
any other.
10.8 Governing Law; Jurisdiction. This Agreement and any related agreements
and closing documents shall be governed by and construed in accordance with the
laws of the State of California as applied to contracts entered into by
California residents and performed entirely in California, without giving effect
to its principles or rules regarding conflicts of laws, other than such
principles directing application of the laws of California. Each party hereto
irrevocably agrees that any legal action or proceeding with respect to this
Agreement and any related agreements and closing documents or for recognition
and enforcement of any judgment in respect hereof brought by another party
hereto or its successors or assigns shall be brought and determined by either a
state court or federal court sitting in Orange County, California. Each party
hereto hereby irrevocably submits with regard to any such action or proceeding
for itself and in respect to its property, generally and unconditionally, to the
jurisdiction of the aforesaid courts. Each party hereto hereby irrevocably
waives, and agrees not to assert, by way of motion, as a defense, counter claim
or otherwise, in any action or proceeding with respect to this Agreement and any
related agreements and closing documents, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to serve process, (b) that it or its property is exempt
or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise), (c) any right to a trial by jury, and (d) to the fullest extent
permitted by applicable law, that (i) the suit, action or proceeding in any such
court is brought in an inconvenient forum, (ii) the venue of such suit, action
or proceeding is improper and (iii) this Agreement and any related agreements
and closing documents, or the subject matter hereof and thereof, may not be
enforced in or by such courts.
40
10.9 Construction. The parties hereto agree that this Agreement is the
product of negotiation between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
proferentem.
10.10 Headings. The headings and table of contents used in this Agreement
have been inserted for convenience of reference only and do not define or limit
the provisions hereof.
10.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
ARTICLE XI
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings set forth below. All other capitalized terms, when used in
this Agreement, shall have the respective meanings in this Agreement as they
first appear and are defined in this Agreement.
"AFFILIATE" means, with respect to any Person, any other Person that
controls, is controlled by or is under common control with the first Person.
"ASSETS" of any Person means all assets and properties of every kind,
nature, character and description (whether real, personal or mixed, whether
tangible or intangible, whether absolute, accrued, contingent, fixed or
otherwise and wherever situated), including the goodwill related thereto,
operated, owned or leased by such Person, investment assets, accounts and notes
receivable, chattel paper, documents, instruments, licenses, contracts, general
intangibles, real estate, equipment, inventory, goods and Intellectual Property
Rights.
"CODE" means the Internal Revenue Code of 1986, as amended, and rules and
regulations promulgated thereunder.
"ENCUMBRANCE" means any mortgage, pledge, security interest, lien, adverse
claim, levy, charge or other encumbrance or restriction of any kind, or any
conditional sale contract, title retention contract or other contract to give
any of the foregoing.
"ENVIRONMENTAL CLAIM" means any written or oral notice, claim, demand or
other communication by any Person alleging or asserting liability for
investigatory costs, cleanup costs, Governmental Authority response costs,
damages to natural resources or other property, personal injuries, fines or
penalties arising out of, based on or resulting from (a) the presence, or
release into the environment, of any Hazardous Substance at any location,
whether or not owned by the Person against whom such liability is alleged or
asserted or (b) circumstances forming the basis of any violation, or alleged
violation, of any statute, law or regulation relating to the environment or any
Liability under any such statute, law or regulation. The term "Environmental
Claim" shall include any claim any claim by any Governmental Authority for
enforcement, cleanup, removal, response, remedial or other action or damages
pursuant to any
41
applicable statute, law or regulation relating to the environment, and any claim
by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence of
Hazardous Substances or arising from alleged injury or threat of injury to
health, safety or the environment.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and foreign
statutes, regulations, ordinances and similar provisions having the force or
effect of law, all judicial and administrative orders and determinations, all
contractual obligations and all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including without limitation all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos polychlorinated biphenyls
or radiation, as such of the foregoing are enacted or in effect, prior to the
Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means United States generally accepted accounting principles,
consistently applied throughout the specified period.
"GOVERNMENTAL AUTHORITY" means (i) any nation, state, county, city or other
legal jurisdiction, (ii) any federal, state, local, municipal, foreign or other
government, (iii) any governmental or quasi-governmental authority of any nature
or (iv) any body exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"HAZARDOUS SUBSTANCE" means (i) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (ii) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable statute, law or regulation relating to
the environment.
"INDEBTEDNESS" of any Person means all obligations of such Person (i) for
borrowed money whether or not evidenced by notes, bonds, debentures or similar
instruments, (ii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the Ordinary Course of Business),
(iii) under capital leases, and (iv) in the nature of guarantees of the
obligations described in clauses (i) through (iii) above of any other Person.
"KNOWLEDGE OF SELLER AND SHAREHOLDER" means the knowledge **** and ****
have or should have by virtue of that person's position, duties and
responsibilities with Seller after having made due inquiry during the period
from November 1, 2006 to the Closing Date of Persons who would be expected to
have knowledge of the matter.
----------
* Confidential treatment requested pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. In accordance with Rule 24b-2, these
confidential portions have been omitted from this exhibit and filed
separately with the Securities and Exchange Commission.
42
"LAWS" means all laws of any country or any political subdivision thereof,
including, without limitation, all federal, state and local statutes,
regulations, ordinances, orders or decrees or any other laws, common law
theories or reported decisions of any court thereof.
"LEGAL EXPENSES" of an Indemnified Person means any and all reasonable
out-of-pocket fees, costs and expenses of any kind incurred by such Indemnified
Person and its counsel in investigating, preparing for, defending against or
providing evidence, responding to subpoenas, producing documents or taking other
action with respect to any threatened or asserted claim of a third party or
Governmental Authority, including expenses of investigation, court costs, and
fees and expenses of attorneys, accountants and experts.
"LIABILITY" and "LIABILITIES" means any Indebtedness, obligation or other
liability of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).
"MATERIAL ADVERSE EFFECT" with respect to the specified Person, business or
Asset means any change, effect, event, occurrence, state of fact or development
(collectively, "CHANGES") that, individually or in the aggregate (taking into
account all other related changes, effects, events, occurrences, states of fact
and developments), is, or is reasonably likely to be, materially adverse to the
business, assets, Liabilities, financial condition, operations, or results of
operations of the specified Person, business or Asset, as the case may be.
"ORDINARY COURSE OF BUSINESS" shall describe any action taken by a Person
if: (i) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person
and (ii) such action is not required to be authorized by the board of directors
by such Person.
"PERMITS" means all franchises, permits, licenses, qualifications,
certificates, registrations, municipal and other authorizations, orders and
other rights from, and filings with, any Governmental Authority.
"PERMITTED ENCUMBRANCE" means (i) any Encumbrance for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP and (ii) any
statutory Encumbrance arising in the Ordinary Course of Business by operation of
law with respect to a Liability that is not yet due or delinquent and does not
materially impair the value of the property subject to such Encumbrance or the
use of such property.
"PERSON" means an individual, corporation, partnership, limited
partnership, limited liability company, limited liability partnership,
syndicate, trust, association, entity or Governmental Authority.
"PROCEEDING" shall mean any action, arbitration, audit, hearing,
proceeding, investigation, litigation or suit (whether civil, criminal,
administrative, investigative or informal or at law or in equity) commenced,
brought, conducted or heard by or before, or otherwise involving, any
Governmental Authority or arbitrator.
43
"TAX" means (i) any and all taxes, fees, levies, duties, tariffs, imposts
and other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by
any Governmental Authority or taxing authority, including taxes or other charges
on or with respect to income, franchises, windfall or other profits, gross
receipts, property, sales, use, capital stock, payroll, employment, social
security, workers' compensation, unemployment compensation or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value-added or gains taxes, license, registration and documentation
fees, and customs' duties, tariffs and similar charges; (ii) any liability for
the payment of any amounts of the type described in clause (i) as a result of
being a member of an affiliated, combined, consolidated or unitary group for any
taxable period; and (iii) any liability for the payment of amounts of the type
described in clause (i) or clause (ii) as a result of being a transferee of, or
a successor in interest to, any Person or as a result of an express or implied
obligation to indemnify any Person.
"TAX RETURNS" means any return, report, information return or other similar
document or statement (including any related or supporting information) filed or
required to be filed with any Governmental Authority in connection with the
determination, assessment or collection of any Tax or the administration of any
Laws, regulations or administrative requirements relating to any Tax, including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax and all federal, state, local and foreign returns,
reports and similar statements.
"WORKING CAPITAL" means the current assets identified on the Closing
Balance Sheet for Seller to be included in the Purchased Assets, less the sum of
the current liabilities identified on such Closing Balance Sheet which are
Assumed Liabilities and, without duplication, any liability identified as
unearned income, deferred revenues or by a similar designation on such balance
sheet. For purposes of this definition, "current assets" shall include cash,
accounts receivable net of any reserve for doubtful accounts, prepaid items and
any other asset class included in other current assets, and "current
liabilities" shall include accounts payable, other payables and accrued expenses
and any other liability class included in other current liabilities.
[SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, Buyer, Seller and Shareholder have caused this Asset
Purchase Agreement to be signed, all as of the date first written above.
BUYER:
CORVEL ENTERPRISECOMP, INC.
a Delaware corporation
By: /s/ V. XXXXXX XXXXXXX
------------------------------------
V. Xxxxxx Xxxxxxx, Vice President
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
45
SELLER:
XXXXXXXXX RISK MANAGEMENT SERVICES,
INC.,
a California corporation
By: /s/ XXXXXX XXXXXXXXX
------------------------------------
Xxxxxx Xxxxxxxxx,
President
COMP CARE, INC.,
a California corporation
By: /s/ XXXXXX XXXXXXXXX
------------------------------------
Xxxxxx Xxxxxxxxx,
President
MEDICAL AUDITING SERVICES, INC., a
California corporation
By: /s/ XXXXXX XXXXXXXXX
------------------------------------
Xxxxxx Xxxxxxxxx, President
SHAREHOLDER:
/s/ XXXXXX XXXXXXXXX
----------------------------------------
Xxxxxx Xxxxxxxxx, an individual
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
46
