EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
HEALTH FITNESS CORPORATION,
XXXXXXXXXX.XXX, INC.,
XXXXX X. XXXX,
XXXX X. XXXXX
AND
THE INDIVIDUALS LISTED ON EXHIBIT A
DATED AS OF DECEMBER 23, 2005
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS.....................................................................................2
1.1. Defined Terms...................................................................................2
ARTICLE 2 PURCHASE AND SALE OF SHARES.....................................................................2
2.1. Shares Purchased................................................................................2
2.2. Option Shares to be Acquired by Shareholders....................................................2
ARTICLE 3 PURCHASE PRICE..................................................................................2
3.1. Purchase Price..................................................................................2
3.2. Buyer Common Stock Determination................................................................3
3.3. Escrow..........................................................................................3
3.4. Contingent Consideration........................................................................4
ARTICLE 4 CLOSING.........................................................................................6
4.1. Closing.........................................................................................6
4.2. Deliveries by Buyer.............................................................................6
4.3. Deliveries by Shareholders......................................................................6
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS....................................7
5.1. Incorporation and Power.........................................................................7
5.2. Execution; Delivery; Valid and Binding Agreements...............................................7
5.3. No Breach.......................................................................................8
5.4. Governmental Authorities; Consents..............................................................8
5.5. Capitalization..................................................................................8
5.6. Subsidiaries....................................................................................8
5.7. Ownership of Capital Stock......................................................................9
5.8. Financial Statements............................................................................9
5.9. Liabilities.....................................................................................9
5.10. No Material Adverse Changes.....................................................................9
5.11. Absence of Certain Developments................................................................10
5.12. Title to Properties............................................................................12
5.13. Accounts Receivable............................................................................13
5.14. Customers......................................................................................13
5.15. Tax Matters....................................................................................13
5.16. Contracts and Commitments......................................................................14
5.17. Intellectual Property Rights...................................................................17
5.18. Litigation.....................................................................................17
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5.19. Employees......................................................................................17
5.20. Employee Benefit Plans.........................................................................18
5.21. Insurance......................................................................................20
5.22. Affiliate Transactions.........................................................................20
5.23. Officers and Directors; Bank Accounts..........................................................20
5.24. Compliance with Laws; Permits..................................................................20
5.25. Environmental Matters..........................................................................21
5.26. Brokerage......................................................................................22
5.27. E2 Consulting..................................................................................22
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE OPTION SHAREHOLDERS......................................22
6.1. Execution; Delivery; Valid and Binding Agreements..............................................22
6.2. No Breach......................................................................................23
6.3. Governmental Authorities; Consents.............................................................23
6.4. Ownership of Capital Stock.....................................................................23
6.5. Brokerage......................................................................................23
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF BUYER........................................................23
7.1. Incorporation and Corporate Power..............................................................23
7.2. Execution, Delivery; Valid and Binding Agreement...............................................23
7.3. No Breach......................................................................................24
7.4. Governmental Authorities; Consents.............................................................24
7.5. Capitalization.................................................................................24
7.6. Issuance of Buyer Common Stock.................................................................24
7.7. SEC Reports....................................................................................24
7.8. No Litigation..................................................................................25
7.9. Availability of Funds..........................................................................25
7.10. Brokerage......................................................................................25
ARTICLE 8 COVENANTS......................................................................................25
8.1. Conduct of the Business........................................................................25
8.2. Tax Returns after the Closing..................................................................28
8.3. Assistance and Cooperation.....................................................................29
8.4. Access to Books and Records....................................................................29
8.5. Conditions.....................................................................................30
8.6. No Negotiations................................................................................30
8.7. UCC Searches...................................................................................30
8.8. Consents and Approvals.........................................................................30
8.9. Waivers........................................................................................30
8.10. Noncompetition Covenant........................................................................30
8.11. Conduct of Buyer's Business....................................................................33
8.12. Tax Audits.....................................................................................33
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8.13. Section 338(h)(10) Election....................................................................33
8.14. Allocation of Purchase Price...................................................................33
ARTICLE 9 CONDITIONS TO CLOSING..........................................................................33
9.1. Conditions to Buyer's Obligations..............................................................34
9.2. Conditions to the Shareholders' Obligations....................................................35
ARTICLE 10 TERMINATION...................................................................................36
10.1. Termination....................................................................................36
10.2. Effect of Termination..........................................................................37
ARTICLE 11 INDEMNIFICATION; SURVIVAL......................................................................37
11.1. Reliance and Survival of Representations and Warranties........................................37
11.2. Indemnification by the Principal Shareholders..................................................37
11.3. Indemnification by the Option Shareholders.....................................................38
11.4. Indemnification by Buyer.......................................................................38
11.5. Method of Asserting Claims.....................................................................39
11.6. Limitations on Indemnification.................................................................40
ARTICLE 12 MISCELLANEOUS..................................................................................41
12.1. Press Releases and Announcements...............................................................41
12.2. Expenses.......................................................................................42
12.3. Further Assurances.............................................................................42
12.4. Amendment and Waiver...........................................................................42
12.5. Notices........................................................................................42
12.6. Assignment.....................................................................................43
12.7. Severability...................................................................................43
12.8. Complete Agreement.............................................................................44
12.9 Counterparts...................................................................................44
12.10. Company Counsel................................................................................44
12.11. Governing Law..................................................................................44
12.12. Dispute Resolution.............................................................................44
12.13. Legal Force and Effect.........................................................................45
12.14. Designees and Spouses..........................................................................45
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STOCK PURCHASE AGREEMENT
DATE: December 23, 2005
PARTIES:
Health Fitness Corporation,
a Minnesota corporation ("Buyer")
XxxxxxXxxx.Xxx, Inc.,
a Texas Corporation (the "Company")
Xxxxx X. Xxxx and Xxxx X. Xxxxx (the "Principal Shareholders")
Those individuals listed on Exhibit A hereto
and executing this Agreement as shareholders
of the Company (the "Option Shareholders")
RECITALS:
A. The Principal Shareholders and the Option Shareholders
(collectively, the "Shareholders") own, or at Closing will own, beneficially and
of record, all of the issued and outstanding shares of common stock of the
Company (the "Shares").
B. The Shareholders desire to sell to Buyer, and Buyer desires to
purchase from the Shareholders, the Shares on the terms and conditions set forth
in this Agreement.
C. The Shareholders, Buyer and the Company intend that the transaction
be taxed for federal income tax purposes as a purchase of the assets of the
Company and to elect such treatment under Section 338(h)(10) of the Internal
Revenue Code of 1986, as amended (the "Code").
D. As an inducement to each other to consummate the transactions
contemplated herein, Buyer and the Shareholders are willing to make certain
respective representations, warranties and indemnities in this Agreement for the
benefit of the other party or parties.
NOW, THEREFORE, in consideration of the foregoing, the material
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
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AGREEMENTS:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. The following terms as used in capitalized form in this
Agreement shall have the meanings set forth in the sections referred to below:
"Accountants" means any independent accountants of nationally recognized
standing selected by Buyer to perform the audit activities hereunder.
"Historical Accounting Policies" means any analytical approach, methodology
or policy consistently used by the management of the Company to develop and
determine any management estimate or input to prepare the historical financial
statements of Seller prior to the Closing Date.
"Knowledge of the Principal Shareholders" (or similar references to the
Principal Shareholders' Knowledge) means the actual knowledge of either of the
Principal Shareholders after reasonable inquiry.
"Material Adverse Effect on the Company" means any result, occurrence,
change, event, effect or circumstance that individually or in the aggregate is
or is reasonably likely to be materially adverse to the assets, liabilities,
financial condition, results of operations or business of the Company, taken as
a whole.
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1. Shares Purchased. Upon the terms and subject to the conditions set
forth in this Agreement, and in reliance on the representations and warranties
contained herein being correct on the Closing Date, Buyer shall purchase from
each of the Shareholders, and each of the Shareholders shall sell to Buyer, all
of the Shares of the Shareholders for the consideration described in this
Agreement.
2.2. Option Shares to be Acquired by Shareholders. The Option Shareholders
hold options granted by the Company to purchase shares of common stock of the
Company (the "Option Shares") in the amounts set forth opposite their names on
Exhibit A, which options are intended to be exercised prior to or on the Closing
Date. The Option Shares are included in the definition of Shares.
ARTICLE III
PURCHASE PRICE
3.1. Purchase Price. Buyer shall pay and deliver to the respective
Shareholders, in the manner and at the times described herein, the consideration
described in this ARTICLE III (the "Purchase Price").
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(a) Cash at Closing. At the Closing, Buyer shall pay to the
Shareholders cash in the aggregate amount of $4,000,000, which may be
increased or decreased at Closing based on the adjustments set forth in
Section 8.1C of the Disclosure Schedule.
(b) Shares of Buyer Common Stock at Closing. At the Closing, Buyer
shall issue and deliver to the Shareholders, or to the Escrow Agent as
defined in Section 3.3, shares of Buyer's common stock ("Buyer Common
Stock") in an aggregate number of shares as described in Section 3.2 below.
(c) Contingent Payment. Upon completion of the financial audit and
issuance of the auditor's report for the year ended December 31, 2006 with
respect to the Buyer's operations for that period (the "2006 Audit"), an
additional payment shall be made to the Shareholders on the conditions and
as a result of calculations described on Exhibit B attached hereto and
pursuant to Section 3.4 (the "Contingent Payment"). The Contingent Payment,
if required pursuant to Exhibit B and Section 3.4, shall be made in cash,
Buyer Common Stock or a combination thereof, at Buyer's sole discretion,
provided that for purposes of determining the number of shares of Buyer
Common Stock, if any, to be issued to the Shareholders as part of the
Contingent Payment, the per share value of Buyer Common Stock shall be
equal to the average of the closing sale price of Buyer Common Stock on the
21 trading days immediately preceding the date of payment of the Contingent
Payment as quoted on the OTC Bulletin Board, or such other national public
market or exchange on which the Buyer Common Stock is then registered and
sold. The maximum amount of the Contingent Payment shall be $2,000,000.
3.2. Buyer Common Stock Determination. The number of shares of Buyer Common
Stock to be paid at Closing (the "Closing Shares") pursuant to Section 3.1(b)
shall be the result of dividing $2,000,000 by the average of the closing sale
price of Buyer Common Stock on the 21 trading days immediately preceding the
Closing Date.
3.3. Escrow. At the Closing Date, 80% of the shares of Buyer Common Stock
constituting the Closing Shares (the "Escrow Shares") issued to the Shareholders
pursuant to Section 3.1(b) shall be delivered to Xxxxx Fargo Bank, N.A. as
escrow agent (the "Escrow Agent") under an 18-month Escrow Agreement in the form
attached hereto as Exhibit C (the "Escrow Agreement"). The Escrow Shares shall
be issued and outstanding shares of Buyer Common Stock standing in the names of
the respective Shareholders, and accompanied by duly executed stock powers
endorsing ownership to Buyer. The Escrow Shares shall be held as security for
the Shareholders' indemnification obligations described herein, and the Escrow
Agreement shall terminate upon termination or satisfaction of such
indemnification obligations as described in the Escrow Agreement. The
Shareholders will have voting rights with respect to the Escrow Shares and will
be able to exercise all other incidents of ownership of the Escrow Shares, so
long as the Escrow Shares are held in escrow. Any and all cash dividends,
dividends payable in securities or other distributions of any kind made in
respect of the Escrow Shares shall be delivered to the Shareholders in
accordance with the Escrow Agreement. At all times during which the Escrow
Shares are held in escrow, the per share value of the Escrow Shares for all
purposes under this Agreement shall be the average of the closing sale price of
Buyer Common Stock on the 21 trading days immediately preceding the date of
final determination of the right of Buyer to receive distribution of Escrow
Shares from the Escrow Agent, as such closing sale price
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is quoted on the OTC Bulletin Board, or such other national public market or
exchange on which the Buyer Common Stock is then registered and sold.
3.4. Contingent Consideration.
(a) Due Date. The Contingent Payment shall be due and payable by Buyer
to the Shareholders no later than 30 days after the completion of the 2006
Audit (the "Due Date"), provided, however, that (i) all or any portion of
the Contingent Payment that is not subject to a Contingent Payment Dispute
(the "Uncontested Amount") shall be due and payable at any time after
completion of the 2006 Audit within two business days after Buyer shall
have received written authorization from the Principal Shareholders to make
delivery of the Uncontested Amount to the Shareholders and (ii) the Due
Date shall automatically and without further action by any of the parties
hereto be extended with respect to all or any portion of the Contingent
Payment that is subject to a Contingent Payment Dispute (the "Disputed
Amount") only until the final resolution of a Contingent Payment Dispute
pursuant to Section 3.4(e). Any Uncontested Amount that is not paid by
Buyer within two business days after Buyer shall have received written
authorization from the Principal Shareholders to make delivery of the
Uncontested Amount to the Shareholders shall bear interest accrued thereon
from the date of delivery by the Principal Shareholders of such
authorization until the date of payment of the Uncontested Amount at a rate
equal to the "prime rate," as published in the "Money Rates" table of The
Wall Street Journal (Southwest Edition) (the "Prime Rate"), in effect as of
the date of payment of the Uncontested Amount.
(b) Preparation and Audit of Financial Statements. Prior to March 15,
2007, (i) Buyer shall cause to be prepared (at Buyer's sole cost and
expense), in accordance with GAAP and on a basis consistent with the
Buyer's regular accounting practices, the balance sheet and related
statements of operations with respect to the Buyer's operations for the
fiscal year ended December 31, 2006 (the "2006 Financials") and (ii) Buyer
(at Buyer's sole cost and expense) shall cause the Accountants to prepare
the 2006 Audit. Buyer shall deliver the 2006 Financials to the Principal
Shareholders at the same time and shall make the Accountants available to
discuss with the Principal Shareholders the audit of the 2006 Financials.
(c) Payment. The Contingent Payment payable by Buyer to the
Shareholders hereunder shall be the amount determined pursuant to Exhibit
B. Buyer shall distribute the Contingent Payment to the Shareholders in
accordance with the Shareholders' proportionate ownership of the Shares as
of the Closing Date.
(d) Contingent Payment Notices. Not later than 25 days prior to the
Due Date, Buyer shall deliver to the Principal Shareholders a written
notice (a "Contingent Payment Notice") setting forth the amount of the
Contingent Payment to be paid and reasonably specific details as to the
manner in which the calculation of the amount due was made. The Contingent
Payment Notice shall be accompanied by the 2006 Financials. Buyer shall
provide the Principal Shareholders and their representatives with
reasonable access to all books and records of Buyer and to the work papers
of Accountants reasonably requested by the Principal Shareholders and their
representatives in order to verify the determination of the amount of such
Contingent Payment and the compliance by Buyer with this Section 3.4 and
Exhibit B. If the Principal Shareholders disagree with the calculation
provided by Buyer in the Contingent Payment Notice
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(a "Contingent Payment Dispute"), the Principal Shareholders shall notify
Buyer of the Contingent Payment Dispute in writing (the "Dispute Notice"),
specifying the nature and amount of the Contingent Payment Dispute, within
24 days of receipt by the Principal Shareholders of the Contingent Payment
Notice (the "Response Period"). If the Principal Shareholders fail to
deliver to Buyer a Dispute Notice within the Response Period, the
calculation by Buyer shall be final and binding.
(e) Resolution of Accounting Disputes. If the Principal Shareholders
timely deliver a Dispute Notice to Buyer, the Principal Shareholders and
Buyer shall, during the 14 days following Buyer's receipt of the Dispute
Notice, use the Principal Shareholders' and Buyer's reasonable best efforts
to reach agreement on the Disputed Amount. Any Disputed Amount resolved in
writing between the Principal Shareholders and Buyer within such 14-day
period shall be final and binding upon all parties hereto with respect to
such items. Any Disputed Amount so resolved shall be paid, or caused to be
paid, by Buyer within five business days after written resolution of the
Disputed Amount. If after such period, the Principal Shareholders and Buyer
have not resolved all such differences, all such disputes shall be settled
by arbitration in Kansas City, Missouri, before three arbitrators pursuant
to the rules of the American Arbitration Association. Each of Buyer, on the
one hand, and the Principal Shareholders, on the other hand, shall select
one arbitrator and the two arbitrators shall select a third. The
arbitrators shall be authorized to resolve only the Disputed Amount
remaining in dispute between Buyer and the Principal Shareholders within
the range of differences between Buyer's position and the Principal
Shareholders' position with respect thereto. Any award rendered by the
arbitrators shall be conclusive and binding upon the parties hereto;
provided, however, that any such award shall be accompanied by a written
opinion giving the reasons for the award (the "Arbitrator Report"). If the
arbitrators determine that the Shareholders are entitled to all or any
portion of the Disputed Amount (the "Awarded Disputed Amount"), Buyer shall
pay, or cause to be paid, to the Shareholders within five business days
after issuance of the Arbitrator Report the Awarded Disputed Amount
together with interest accrued thereon from the date of delivery by the
Principal Shareholders of the Dispute Notice until the date of payment of
the Awarded Disputed Amount at a rate equal to the Prime Rate, in effect as
of the date of payment of the Awarded Disputed Amount. This provision for
arbitration shall be specifically enforceable by the parties, and the
decision of the arbitrators shall be final and binding, with no right of
appeal therefrom. Each party shall pay its own expenses of arbitration and
the expenses of the arbitrators shall be equally shared.
(f) Waiver by the Option Shareholders. The Option Shareholders hereby
agree and acknowledge that (i) the Principal Shareholders shall be solely
responsible for disputing any calculation or determination of the
Contingent Payment to be paid to the Shareholders pursuant to this
Agreement, (ii) the consent, agreement or authorization of the Option
Shareholders is not required in connection with Buyer's delivery of the
Contingent Payment or the resolution of any Contingent Payment Dispute and
(iii) any action by the Principal Shareholders pursuant to this Section 3.4
shall bind all of the Shareholders. Each of the Option Shareholders hereby
irrevocably waives and releases claims he or she may have against the
Principal Shareholders, Buyer or the Company arising out of or related to
the calculation or determination of the Contingent Payment to be paid to
the Shareholders pursuant to this Agreement.
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ARTICLE IV
CLOSING
4.1. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxxxxxxxx & Xxxxx,
P.A. located at 000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxxxx, Xxxxxxxxx
00000-0000, commencing at 2:00 p.m. local time on December 23, 2005 (the
"Closing Date"), or such other place or such other date and time as Buyer and
the Shareholders may mutually determine. The transactions contemplated by this
Agreement shall be effective as of 11:59:59 p.m. on the Closing Date.
4.2. Deliveries by Buyer. At Closing, Buyer shall deliver the following to
the Shareholders:
(a) Payment of $4,000,000, which may be increased or decreased at
Closing based on the adjustments set forth in Section 8.1C of the
Disclosure Schedule, by wire transfer of immediately available funds to
bank accounts designated by the Shareholders, allocated among the
Shareholders in proportion to their respective percentage ownership of the
Shares as set forth on Section 4.2(a) of the Disclosure Schedule.
(b) Stock certificates representing the Closing Shares and the Escrow
Shares, issued in the names of the respective Shareholders in proportion to
their respective percentage ownership of the Shares as set forth on Section
4.2B of the Disclosure Schedule. Two stock certificates shall be delivered
for each Shareholder: (i) one certificate to be delivered to each
Shareholder representing such Shareholder's allocation of the portion of
the Closing Shares required to be delivered to them at Closing and (ii) one
certificate to be delivered to the Escrow Agent representing such
Shareholder's allocation of the Escrow Shares required to be delivered to
the Escrow Agent at Closing.
(c) Employment Agreements between Buyer and the Shareholders
identified in Section 9.1(j)(iv) (the "Employment Agreements"), duly
executed by Buyer.
(d) The Escrow Agreement, duly executed by Buyer.
(e) The Shareholders Agreement, by and among the Buyer and the
Principal Shareholders (the "Shareholders Agreement"), duly executed by
Buyer.
(f) Any further or other documents required to be delivered to the
Shareholders pursuant to ARTICLE IX.
4.3. Deliveries by Shareholders. At Closing, the Shareholders shall deliver
the following to Buyer:
(a) Stock certificates representing the Shares, duly endorsed to Buyer
or accompanied by duly executed stock powers.
(b) The Employment Agreements, duly executed by the Shareholders
identified in Section 9.1(j)(iv).
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(c) The Shareholder Agreement, duly executed by the Shareholders.
(d) Any further or other documents required to be delivered to Buyer
pursuant to ARTICLE IX.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS
As a material inducement to Buyer to enter into this Agreement, with the
understanding that Buyer will be relying thereon in consummating the
transactions contemplated by this Agreement, and except as set forth in the
Disclosure Schedule delivered by the Company to Buyer on the Closing Date (the
"Disclosure Schedule") (which Disclosure Schedule sets forth the exceptions to
the representations and warranties contained in this ARTICLE V under captions
referencing the Sections to which such exceptions apply), each of the Principal
Shareholders jointly and severally hereby makes the representations and
warranties set forth in this ARTICLE V.
5.1. Incorporation and Power.
(a) The Company (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Texas; (ii)
has all requisite power and authority to carry on and conduct its business
as it is now being conducted and to own or lease its properties and assets;
and (iii) is duly qualified or licensed and in good standing in each
jurisdiction in which failure to be so qualified and in good standing would
have a Material Adverse Effect on the Company. The Company is not qualified
to do business in any jurisdiction other than the State of Texas. The
Company is not in default under or in violation of any provisions of its
Articles of Incorporation or Bylaws.
(b) The copy of the Articles of Incorporation and Bylaws of the
Company that have been previously delivered to Buyer are the complete, true
and correct charter documents and bylaws of the Company in effect on the
date hereof. The minutes of Board of Directors' and shareholder meetings
and the minute books of the Company that have previously been delivered to
or reviewed by Buyer are the true and correct records of Directors' and
shareholder meetings and stock issuances through and including the date
hereof and reflect all transactions appropriate to be contained in such
records, and to the Knowledge of the Principal Shareholders, there are no
material omissions therefrom.
5.2. Execution; Delivery; Valid and Binding Agreements. Each of the
Principal Shareholders has the right, power and capacity to execute, deliver and
perform this Agreement, the Employment Agreements to which he is a party, and
each of the other agreements, documents and instruments contemplated by this
Agreement to which he is a party (collectively, the "Principal Shareholder
Documents") and to consummate the transactions contemplated hereby and thereby.
The Principal Shareholder Documents have been duly and validly executed and
delivered by each of the Principal Shareholders and constitute the legal, valid
and binding obligation of each of the Principal Shareholders enforceable in
accordance with their terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, arrangement, moratorium or similar laws
relating to or limiting creditors' rights generally or by
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equitable principles relating to enforceability. Neither of the Principal
Shareholders is acting in a fiduciary or representative capacity other than
pursuant to Section 3.4.
5.3. No Breach. Except as set forth on Section 5.3 of the Disclosure
Schedule, the execution, delivery and performance of the Principal Shareholder
Documents by each of the Principal Shareholders and the consummation by each of
the Principal Shareholders of the transactions contemplated hereby and thereby
do not and will not conflict with, or result in any breach of, any of the
provisions of, constitute a default under, result in a violation of, result in
the creation of a right of termination or acceleration of any lien, security
interest, charge or encumbrance upon any of the assets of the Company or either
of the Principal Shareholders or require any authorization, consent, approval,
exemption or other action by, or notice to, any court or other governmental body
under, the provisions of the Articles of Incorporation or Bylaws of the Company
or any indenture, mortgage, lease, loan agreement or other agreement or
instrument by which the Company or any Principal Shareholder is bound or
affected, or any law, statute, rule or regulation or order, judgment or decree
to which the Company or any Principal Shareholder is subject.
5.4. Governmental Authorities; Consents. Neither of the Principal
Shareholders is required to submit any notice, report or other filing with any
governmental authority in connection with the execution or delivery of this
Agreement or the consummation of the transactions contemplated hereby. No
consent, approval or authorization of any governmental authority or any other
party or person is required to be obtained by either of the Principal
Shareholders in connection with the execution, delivery and performance of this
Agreement or the transactions contemplated hereby by the Principal Shareholders.
5.5. Capitalization. The authorized capital stock of the Company consists
of 1,000,000 shares of common stock, par value $0.001 per share, of which
450,000 are issued and outstanding as of the date hereof. The Shares have been
duly authorized, and are validly issued, fully paid and nonassessable. The
Company has no other equity securities or securities containing any equity
features authorized, issued or outstanding. Other than the options described in
the following sentence, there are no agreements or other rights or arrangements
existing which provide for the sale or issuance of capital stock by the Company,
and there are no rights, subscriptions, warrants, options, conversion rights or
agreements of any kind outstanding to purchase or otherwise acquire from the
Company any shares of capital stock or other securities of the Company of any
kind. As of the date hereof, there are outstanding options to acquire 100,700
shares of common stock of the Company (the "Option Shares"), and at Closing all
such outstanding options will be exercised. The resulting Option Shares issued
pursuant thereto will total 100,700 shares. At Closing, there will be 550,700
shares of the Company's common stock issued and outstanding, which shall
constitute all of the issued and outstanding shares of the Company's capital
stock. At Closing, all then outstanding securities of the Company will not have
been issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities.
5.6. Subsidiaries. The Company owns no, nor at any time during the past
five years has owned, any stock, partnership interest, joint venture interest,
limited liability company interest or any other security or ownership interest
issued by any other corporation, organization, limited liability company,
partnership or other entity.
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5.7. Ownership of Capital Stock. The Principal Shareholders together own,
or at Closing will own, beneficially and of record, all right, title and
interest in and to 450,000 shares of common stock of the Company, free and clear
of any Restrictions.
5.8. Financial Statements. The Company has delivered to Buyer, or its
authorized representatives, copies of (i) its unaudited balance sheet as of
November 30, 2005 (the "Latest Balance Sheet") and unaudited profit and loss
report for the most recent period ended November 30, 2005 (the "Latest Financial
Statements"), and (ii) its audited balance sheets, as of December 31, 2004 and
2003, and its audited statements of income, stockholders' equity and cash flows
for the year ended December 31, 2004 (the "Annual Financial Statements" and,
collectively with the Latest Financial Statements, the "Financial Statements").
To the Knowledge of the Principal Shareholders, the Financial Statements other
than the Latest Financial Statements, including the notes thereto, are based
upon and in accordance with the information contained in the books and records
of the Company and fairly present the financial condition of the Company in all
material respects as of the dates thereof and results of operations for the
periods referred to therein. The Latest Financial Statements are based upon and
in accordance with the information contained in the books and records of the
Company and fairly present the financial condition of the Company in all
material respects as of the dates thereof and results of operations for the
periods referred to therein. The books and records of the Company have been
maintained in the ordinary course of business and in all material respects are
accurate. The Annual Financial Statements have been prepared in accordance with
GAAP. The Latest Financial Statements have been prepared in accordance with
Historical Accounting Policies and reflect all adjustments necessary to a fair
statement of the financial condition and results of operations in all material
respects for the interim period presented therein.
5.9. Liabilities. Except as set forth in Section 5.9 of the Disclosure
Schedule or as reflected in the Latest Balance Sheet, the Company has no
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, whether known or unknown, and regardless of when
asserted), that either should be but are not reflected on or reserved in the
Latest Balance Sheet in accordance with GAAP or the Company's Historical
Accounting Policies, or that otherwise exist to the Knowledge of the Principal
Shareholders, in each case arising out of transactions or events heretofore
entered into, or any action or inaction, or any state of facts existing, with
respect to, or based upon, transactions or events heretofore occurring, other
than liabilities which have arisen after the date of the Latest Balance Sheet
that do not exceed $20,000 in the aggregate or that were incurred in the
ordinary course of business consistent with past practices (none of which is a
material uninsured liability for breach of contract, breach of warranty, tort,
infringement, claim or lawsuit). Except with respect to payments for employment
services in the ordinary course of business, the Company has no outstanding
liabilities to any Shareholders.
5.10. No Material Adverse Changes. Other than as set forth on Section 5.10
of the Disclosure Schedule, since the date of the Latest Balance Sheet, there
has been no material adverse change in the assets, financial condition,
operating results, employee, customer or supplier relations, business condition
or prospects of the Company. To the Knowledge of the Principal Shareholders, no
event has occurred which, so far as can be reasonably foreseen, might result in
any such material adverse change.
- 9 -
5.11. Absence of Certain Developments. Other than the Company's issuance of
the Option Shares to the Option Shareholders and the merger of E2 Consulting,
LLC, a Texas limited liability company ("E2 Consulting") with and into the
Company, since the date of the Latest Balance Sheet, the business of the Company
has been operated in the ordinary course, consistent with past practices. As
amplification and not limitation of the foregoing, since the date of the Latest
Balance Sheet, other than as set forth on Section 5.11 of the Disclosure
Schedule, the Company has not engaged in any of the following acts which are not
reflected in the Latest Balance Sheet or any appendices or notes thereto:
(a) borrowed any amount or incurred or become subject to any liability
or obligation in excess of $10,000 (whether absolute, accrued, contingent
or otherwise and whether due or to become due), except (i) current
liabilities incurred in the ordinary course of business consistent with
past practices, and (ii) liabilities under contracts entered into in the
ordinary course of business consistent with past practices;
(b) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any of its assets, except (i) liens for current property taxes
not yet due and payable, (ii) liens imposed by law and incurred in the
ordinary course of business consistent with past practices for obligations
not yet due to carriers, warehousemen, laborers, materialmen and the like,
(iii) liens in respect of pledges or deposits under workers' compensation
laws, or (iv) liens voluntarily created in the ordinary course of business
consistent with past practices, all of which liens in clauses (i) through
(iv) are less than $10,000 in the aggregate;
(c) discharged or satisfied any lien or encumbrance or paid any
liability, in each case with a value in excess of $10,000, other than
current liabilities paid in the ordinary course of business consistent with
past practices;
(d) sold, assigned, leased, licensed, transferred or otherwise
disposed of (including, without limitation, transfers to any employees,
affiliates or shareholders) any tangible assets which, individually or in
the aggregate, have a fair market value in excess of $5,000 or canceled any
debts or claims, in each case, except in the ordinary course of business
consistent with past practices;
(e) sold, assigned, leased, licensed, transferred or otherwise
disposed of (including, without limitation, transfers to any employees,
affiliates or shareholders) any patents, trademarks, trade names,
copyrights, trade secrets or other intangible assets;
(f) disclosed to any person, other than Buyer or authorized
representatives of Buyer or the Company, any proprietary confidential
information, other than pursuant to confidentiality agreements prohibiting
the use and further disclosure of such information, which agreements are
identified on Section 5.11(f) of the Disclosure Schedule and are in full
force and effect on the date hereof;
(g) waived any rights of material value or suffered any extraordinary
losses or adverse changes in collection loss experience;
- 10 -
(h) declared, set aside, paid any dividends or other distributions
with respect to any shares of its capital stock or redeemed, purchased or
otherwise acquired, directly or indirectly, any shares of its capital stock
or options to purchase capital stock;
(i) issued, sold or transferred any of its equity securities,
securities convertible into or exchangeable for its equity securities or
warrants, options or other rights to acquire its equity securities, or any
bonds or debt securities;
(j) taken any other action or entered into any other transaction other
than in the ordinary course of business consistent with past practices, or
entered into any transaction with any Insider (as defined in Section 5.22)
other than the transactions contemplated by this Agreement;
(k) suffered any material theft, damage, destruction, casualty or loss
of or to any property or properties owned or used by it, whether or not
covered by insurance;
(l) made, granted, promised or announced any bonus or any wage, salary
or compensation increase to any director, officer, employee or consultant
or made or granted any increase in any employee benefit plan or
arrangement, or amended or terminated any existing employee benefit plan or
arrangement, or adopted any new employee benefit plan or arrangement, or
made any commitment or incurred any liability to any labor organization;
(m) made any single capital expenditure or commitment therefor in
excess of $20,000;
(n) made any loans or advances to, or guarantees for the benefit of,
any persons such that the aggregate amount of such loans, advances or
guarantees at any time outstanding is in excess of $5,000;
(o) made charitable contributions or pledges which, individually or in
the aggregate, exceed $5,000;
(p) made any change in accounting or tax principles or practices from
those utilized in the preparation of the Financial Statements or the
Returns referred to in Section 5.15(a);
(q) experienced any amendment, modification or termination of any
existing, or entered into any new, contract, agreement, plan, lease,
license, permit or franchise which is, either individually or in the
aggregate, material to its business, operations, financial position or
prospects other than in the ordinary course of business consistent with
past practices;
(r) experienced any labor dispute material to its business,
operations, financial position or prospects;
(s) experienced any change in any assumption underlying or method of
calculating, any bad debt, inventory, warranty, contingency or other
reserve;
- 11 -
(t) written off as uncollectible any note or account receivable, or
canceled any debts, other than in the ordinary course of business
consistent with past practices;
(u) failed to replace or replenish supplies as such supplies may have
been depleted from time to time, use its best efforts to collect accounts
receivable, pay accounts payable or shorten or lengthen the customary
payment cycles for any of its payables or receivables or otherwise manage
its working capital accounts in the ordinary course of business consistent
with past practices;
(v) experienced any write-down or write-up of (or failed to write-down
or write-up in accordance with past practices) the value of any
inventories, receivables or other assets, or revalued any of its assets not
reflected in the Latest Balance Sheet;
(w) failed to maintain all material assets in accordance with good
business practice and in good operating condition and repair, ordinary wear
and tear excepted; or
(x) discontinued or altered, in any material respect, its advertising
or promotional activities or its pricing and purchasing policies.
5.12. Title to Properties.
(a) The real property demised by the lease or leases (collectively
referred to as the "Lease") set forth under Section 5.12(a) of the
Disclosure Schedule constitutes all of the real property currently used or
occupied by the Company (the "Real Property").
(b) The Lease is in full force and effect, and the Company holds a
valid and existing leasehold interest under the Lease for the term set
forth under such caption in the Disclosure Schedule. The Shareholders have
delivered to Buyer a complete and accurate copy of the Lease, and the Lease
has not been modified in any respect, except to the extent that such
modifications are disclosed by the copy delivered to Buyer. The Company is
not in default, and no circumstances exist which, if unremedied, would,
either with or without notice or the passage of time or both, result in
such default under the Lease; nor, to the Knowledge of the Principal
Shareholders, is any other party to the Lease in default.
(c) The Company does not own, and has not at any time owned, any real
property.
(d) The Company owns good and marketable title to each of the tangible
properties and tangible assets reflected on its Latest Balance Sheet or
acquired since the date thereof, free and clear of all Restrictions, except
for (i) liens for current taxes not yet due and payable, (ii) liens set
forth under Section 5.12(d) of the Disclosure Schedule, (iii) the
properties subject to the Lease, (iv) assets disposed of since the date of
its Latest Balance Sheet in the ordinary course of business consistent with
past practices, (v) liens imposed by law and incurred in the ordinary
course of business consistent with past practices for obligations not yet
due to carriers, warehousemen, laborers and materialmen and (vi) liens in
respect of pledges or deposits under workers' compensation laws, all of
which liens in classes (i) through (vi) aggregate less than $10,000.
- 12 -
(e) Section 5.12.E of the Disclosure Schedule lists all equipment,
machinery, motor vehicles, trailers, furniture, fixtures and leasehold
improvements which are (i) owned by the Company (ii) leased by the Company
as lessee, or (iii) owned by any third party for which the Company is
responsible. All items of such property are in good operating and readily
usable condition and state of repair, ordinary wear and tear excepted, have
been properly serviced and maintained in accordance with the Company's
usual and customary business practices and, in the Principal Shareholders'
opinion, are fit for the purposes for which they have been used.
(f) The Company has received no notice of any condemnation proceeding
with respect to any of the Real Property.
5.13. Accounts Receivable. The accounts receivable, notes receivable and
other receivables of the Company reflected on its Latest Balance Sheet and as
acquired by the Company since November 30, 2005, are valid receivables created
in the ordinary course of business consistent with past practices and are not
subject to valid counterclaims or set-offs. The goods and services sold and
delivered by the Company or by E2 Consulting that gave rise to such accounts
receivable were sold and delivered in conformity with all applicable purchase
orders, agreements and specifications consistent with past practices.
5.14. Customers. No customer that is material to the Company has provided
notice that it will stop or decrease the rate of business done with the Company
except for changes in the ordinary course of the Company's business consistent
with past practices.
5.15. Tax Matters.
(a) The Company, E2 Consulting, any affiliated, combined, consolidated
or unitary group of which the Company is or was a member, and any "Plans"
(as defined in Section 5.20), as the case may be (each, a "Tax Affiliate"
and, collectively, the "Tax Affiliates"), has: (i) timely filed, or has had
timely filed on its behalf, or will timely file, all returns, declarations,
reports, estimates, information returns, and statements ("Returns")
required to be filed or sent by it in respect of any "Taxes" (as defined in
subsection H below) for all periods prior to the Closing Date; (ii) timely
and properly paid, or has had paid on its behalf or has reflected such
obligation on the Latest Balance Sheet, all Taxes due and payable with
respect to such Returns; and (iii) complied with all applicable laws,
rules, and regulations relating to the withholding of Taxes and the payment
thereof (including, without limitation, withholding of Taxes under Sections
1441 and 1442 of the Internal Revenue Code of 1986, as amended (the "Code))
and timely and properly withheld from individual employee wages and paid
over to the proper governmental authorities all amounts required to be so
withheld and paid over under all applicable laws.
(b) All Taxes of the Company and any Tax Affiliate which will be due
and payable, whether now or hereafter, for any period ending on or prior to
the Closing Date, shall have been paid by or on behalf of the Company or a
good faith estimate thereof shall have been reflected on the Latest Balance
Sheet.
(c) The Company has in effect a valid and continuing election to be
taxed under Subchapter S of the Code, and has been duly qualified as a
Subchapter S corporation for all tax
- 13 -
periods commencing November 13, 1997. The Company and the Principal
Shareholders have taken all action necessary to preserve Subchapter S
status.
(d) There are no liens for Taxes upon any assets of the Company or of
any Tax Affiliate, except liens for Taxes not yet due and payable. The
Company is not a party to any tax sharing agreement or other arrangement
for the payment or reimbursement of Taxes.
(e) No deficiency for any Taxes has been proposed, asserted or
assessed against the Company or any Tax Affiliate that has not been
resolved and paid in full. No waiver, extension or comparable consent given
by the Company or the Tax Affiliates regarding the application of the
statute of limitations with respect to any Taxes or Returns is outstanding,
nor is any request for any such waiver or consent pending. There has been
no Tax audit or other administrative proceeding or court proceeding with
regard to any Taxes or Returns, nor is any such Tax audit or other
proceeding pending, nor has there been any notice to the Company or any Tax
Affiliate by any Taxing authority regarding any such Tax audit or other
proceeding, or, to the Knowledge of the Principal Shareholders, is any such
Tax audit or other proceeding threatened with regard to any Taxes or
Returns. The Shareholders do not expect the assessment of any additional
Taxes of the Company or the Tax Affiliates and are not aware of any
unresolved questions, claims or disputes concerning the liability for Taxes
of the Company or the Tax Affiliates which would exceed the estimated
reserves established on the Latest Financial Statements.
(f) Neither the Company nor any Tax Affiliate is a party to any
agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code and the consummation of the
transactions contemplated by this Agreement will not be a factor causing
payments to be made by the Company or any Tax Affiliate that are not
deductible (in whole or in part) under Section 280G of the Code.
(g) Neither the Company nor any Tax Affiliate has requested any
extension of time within which to file any Return, which Return has not
since been filed.
(h) For purposes of this Agreement, the term "Taxes" means all taxes,
charges, fees, levies, or other assessments, including, without limitation,
all net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment,
social security, unemployment, excise, estimated, severance, stamp,
occupation, property, or other taxes, customs duties, fees, assessments, or
charges of any kind whatsoever, including, without limitation, all interest
and penalties thereon, and additions to tax or additional amounts imposed
by any taxing authority, domestic or foreign, upon the Company or any Tax
Affiliate.
5.16. Contracts and Commitments.
(a) Section 5.16 of the Disclosure Schedule lists the following
agreements, whether written or, to the Knowledge of the Principal
Shareholders, oral, to which the Company is a party and which are currently
in effect:
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(i) bonus, pension, profit sharing, retirement or other form of
deferred compensation plan, other than as described under Section 5.20
the Disclosure Schedule (or excluded thereby from inclusion
thereunder) ;
(ii) hospitalization insurance or other welfare benefit plan or
practice, whether formal or informal, other than as described under
Section 5.20 of the Disclosure Schedule (or excluded thereby from
inclusion thereunder);
(iii) stock purchase or stock option plan;
(iv) contract for the employment of any officer, individual
employee or other person on a full-time or consulting basis or
relating to severance pay for any such person;
(v) confidentiality agreements other than described in Section
5.11(f) of the Disclosure Schedule;
(vi) agreement or indenture relating to the borrowing of money or
to mortgaging, pledging or otherwise placing a lien on any of the
assets of the Company;
(vii) guaranty by it or any Shareholder of any obligation for
money borrowed by or for the benefit of the Company;
(viii) lease, guaranty of any lease by any Shareholder of which
the Company is a party or agreement under which the Company is lessee
of, or holds or operates any property, real or personal, owned by any
other party, for which the annual rental exceeds $10,000 other than as
described on Section 5.12 of the Disclosure Schedule;
(ix) lease or agreement under which it is lessor of, or permits
any third party to hold or operate, any property, real or personal,
for which the annual rental exceeds $10,000 other than as described on
Section 5.12 of the Disclosure Schedule;
(x) contract or group of related contracts with the same party
for the purchase of products or services under which the undelivered
balance of such products or services is in excess of $10,000 (other
than purchase orders entered into in the ordinary course of business
consistent with past practices);
(xi) contract or group of related contracts with the same party
for the sale of products or services under which the undelivered
balance of such products or services has a sales price in excess of
$10,000 (other than purchase orders entered into in the ordinary
course of business consistent with past practices);
(xii) contract or group of related contracts with the same party
(other than any contract or group of related contracts for the
purchase or sale of products or services) continuing over a period of
more than six months from the date or dates thereof, not terminable by
it on 30 days' or less notice without penalty and involving more than
$10,000;
- 15 -
(xiii) contract or group of related contracts with the same party
calling for any rebates, allowances, discounts, performance money or
compensation of any type previously paid or granted or to be paid or
granted to or by the Company;
(xiv) contract which prohibits the Company from freely engaging
in business anywhere in the world;
(xv) franchise agreement;
(xvi) license agreement or agreement providing for the payment or
receipt of royalties or other compensation by the Company in
connection with the intellectual property rights listed on Section
5.17 of the Disclosure Schedule;
(xvii) contract or commitment for capital expenditures in excess
of $20,000;
(xviii) agreement for the sale of any capital asset;
(xix) contract with any Affiliate which in any way relates to the
Company (other than for employment on customary terms);
(xx) contract under which a change in control of the Company
terminates or modifies any of the Company's rights or obligations;
(xxi) any agreement pursuant to which the Company is providing,
or proposes to provide, services or products, including but not
limited to any maintenance agreements, or volume sales agreements;
(xxii) any strategic alliance and business partnership agreements
or subcontract agreements; or
(xxiii) other agreement which is either material to the business
of the Company or the transactions contemplated hereby or which was
not entered into in the ordinary course of business consistent with
past practices.
Section 5.16 of the Disclosure Schedule shall separately indicate whether
any contract, commitment or obligation of the Company listed on such schedule
has been guaranteed by any of the Shareholders.
(b) The Company has performed all material obligations required to be
performed by it in connection with the contracts or commitments required to
be disclosed on Section 5.16 of the Disclosure Schedule and is not in
receipt of any written claim of default under any contract or commitment
required to be disclosed under such caption. The Company has no present
expectation or intention of not fully performing any material obligation
pursuant to any contract or commitment required to be disclosed under such
caption. To the Knowledge of the Principal Shareholders, no other party to
any contract or commitment required to be disclosed under such caption has
committed any material breach or anticipated material breach of such
contracts or commitments.
- 16 -
(c) As of the Closing Date, the Principal Shareholders have provided
to Buyer a true and correct copy of each material written contract or
commitment, and to the Knowledge of the Principal Shareholders, a written
description of each material oral contract or commitment, referred to on
Section 5.16 of the Disclosure Schedule, together with all amendments,
waivers or other changes thereto.
5.17. Intellectual Property Rights. Section 5.17 of the Disclosure Schedule
lists all patents, patent applications, trademarks, service marks, trade names,
corporate names and registered copyrights owned by or licensed to the Company,
but not including intellectual property rights in mass-market software, e.g.,
Microsoft Word and Windows XP, that are necessary to the conduct of the
Company's business as now conducted. The Company owns and possesses all right,
title and interest, or holds a valid license, in and to the intellectual
property rights that are necessary to the conduct of the Company's business as
now conducted (excluding generally commercially available off-the-shelf software
programs licensed to the Company pursuant to shrinkwrap or "click-to-accept"
agreements ("Commercial Software"). Except where noted above, Section 5.17 of
the Disclosure Schedule describes all intellectual property rights that have
been licensed to third parties and those intellectual property rights that are
licensed from third parties. Except as described on Section 5.17 of the
Disclosure Schedule, the Company has taken commercially reasonable action to
protect the intellectual property rights set forth under such caption. Except as
described on Section 5.17 of the Disclosure Schedule, to the Knowledge of the
Principal Shareholders, there is no infringement or misappropriation by any
third party with respect to the intellectual property rights which are listed,
and no infringement, illicit copying or misappropriation has occurred by any
third party with respect to intellectual property rights in products currently
being sold by the Company or with respect to the intellectual property rights in
products currently under development (in their present state of development). To
the Knowledge of the Principal Shareholders, no claim by any third party
contesting the validity of any intellectual property rights listed on Section
5.17 of the Disclosure Schedule has been made or threatened; to the Knowledge of
the Principal Shareholders, the Company has received no notice of any
infringement, misappropriation or violation by the Company of any intellectual
property rights of any third parties, and the Company, to the Knowledge of the
Principal Shareholders, has not infringed, misappropriated or otherwise violated
any such third-party intellectual property rights.
5.18. Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the Knowledge of the Principal Shareholders,
threatened against the Company, at law or in equity, or before or by any
arbitrator or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign. To
the Knowledge of the Principal Shareholders, no governmental entity has at any
time challenged or questioned the legal right of the Company to offer or sell
any of its products or services in the present manner or style thereof.
5.19. Employees. To the Knowledge of the Principal Shareholders, no
executive employee of the Company and no group of employees has any plans to
terminate his, her or their employment, whether in connection with the
transactions contemplated by this Agreement or otherwise. There are no
discrimination, wage or employment claims pending against the Company nor to the
Knowledge of the Principal Shareholders are there any facts that would give
- 17 -
rise to such a claim. There are no workers' compensation claims pending against
the Company nor are the Principal Shareholders aware of any facts that would
give rise to such a claim. To the Knowledge of the Principal Shareholders, no
employee of the Company is subject to any secrecy or noncompetition agreement or
any other agreement or restriction of any kind that would impede in any way the
ability of such employee to carry out fully all activities of such employee in
furtherance of the business of the Company. Other than as set forth on Section
5.19 of the Disclosure Schedule, to the Knowledge of the Principal Shareholders,
no employee or former employee of the Company has any claim with respect to any
intellectual property rights of the Company set forth on Section 5.17 of the
Disclosure Schedule. The Company has provided to Buyer a list, as of the date of
this Agreement, of each full-time employee of the Company and each employee
whose annual compensation, including salary, bonus and any other remuneration,
exceeded $40,000 during the year ended December 31, 2004. Such list also states
the position, title, remuneration (including any scheduled salary or
remuneration increases), date of employment and accrued vacation pay of each
such employee.
5.20. Employee Benefit Plans.
(a) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and "Plan" means every plan, fund, contract, program and
arrangement (whether written or not) which is maintained or contributed to
by the Company (or any company or affiliate thereof acquired by the
Company) for the benefit of present or former employees or with respect to
which the Company otherwise has current or potential liability. "Plan"
includes any arrangement intended to provide: (i) medical, surgical, health
care, hospitalization, dental, vision, workers' compensation, life
insurance, death, disability, legal services, severance, sickness or
accident benefits (whether or not defined in Section 3(1) of ERISA), (ii)
pension, profit sharing, stock bonus, retirement, supplemental retirement
or deferred compensation benefits (whether or not tax qualified and whether
or not defined in Section 3(2) of ERISA), (iii) bonus, incentive
compensation, stock option, stock appreciation right, phantom stock or
stock purchase benefits, or (iv) salary continuation, unemployment,
supplemental unemployment, termination pay, vacation or holiday benefits
(whether or not defined in Section 3(3) of ERISA). Section 5.20 of the
Disclosure Schedule sets forth all Plans by name and brief description
identifying: (i) the type of Plan, (ii) the funding arrangements for the
Plan, and (iii) the sponsorship of the Plan.
(b) To the extent required (either as a matter of law or to obtain the
intended tax treatment and tax benefits), all Plans comply with the
requirements of ERISA and the Code. With respect to the Plans, (i) all
required contributions which are due have been made and a proper accrual
has been made on the books and records of the Company for all future
contribution obligations; (ii) there are no actions, suits or claims
pending, other than routine uncontested claims for benefits; and (iii)
there have been no prohibited transactions (as defined in Section 406 of
ERISA or Section 4975 of the Code). All benefits under the Plans are
payable either through a fully-funded trust or an insurance contract and no
Plan is self-funded.
(c) Buyer has received true and complete copies of (i) all Plan
documents, including related trust agreements or funding arrangements; (ii)
the most recent determination letter, if any, received by the Company from
the IRS regarding the Plans and any amendment to any Plan made subsequent
to any Plan amendments covered by any such determination letter;
- 18 -
(iii) the most recent financial statements for the Plans; (iv) the most
recently prepared actuarial valuation reports; (v) current summary plan
descriptions; (vi) annual returns/reports on Form 5500 and summary annual
reports for each of the most recent three plan years; (vii) any filings
with the IRS or the Department of Labor ("DOL") within the last five years
preceding the date of this Agreement; and (viii) any material
correspondence to or from the IRS or DOL within the last three years
preceding the Closing Date in connection with any Plan. To the Knowledge of
the Principal Shareholders, nothing has occurred that could adversely
affect the qualification of the Plans and their related trusts.
(d) The Company does not maintain or contribute to (and has never
contributed to) any multi-employer plan, as defined in Section 3(37) of
ERISA. The Company has no actual or potential liabilities under Title IV of
ERISA, including under Section 4201 of ERISA for any complete or partial
withdrawal from a multi-employer plan. The Company has no actual or
potential liability for death or medical benefits after separation from
employment, other than (i) death benefits under the employee benefit plans
or programs (whether or not subject to ERISA) set forth on Section 5.20 of
the Disclosure Schedule and (ii) health care continuation benefits
described in Section 4980B of the Code.
(e) Neither the Company nor, to the Knowledge of the Principal
Shareholders, any of its directors, officers, employees or other
"fiduciaries", as such term is defined in Section 3(21) of ERISA, has
committed any breach of fiduciary responsibility imposed by ERISA or any
other applicable law with respect to the Plans which would subject the
Company, Buyer, Buyer's subsidiaries or any of their respective directors,
officers or employees to any liability under ERISA or any applicable law.
(f) The Company has incurred no liability for any tax or civil penalty
or any disqualification of any Plan imposed by Sections 4980B and 4975 of
the Code and Part 6 of Title I and Section 502(i) of ERISA.
(g) Except with respect to Taxes on benefits paid or provided, no Tax
has been waived or excused, has been paid or is owed by any person
(including, but not limited to, any Plan, any Plan fiduciary or the
Company) with respect to the operations of, or any transactions with
respect to, any Plan. No reserve for any Taxes has been established with
respect to any Plan by the Company nor has any advice been given to the
Company with respect to the need to establish such a reserve.
(h) There are no (i) legal, administrative or other proceedings or
governmental investigations or audits, or (ii) complaints to or by any
governmental entity, which are pending, anticipated or, to the Knowledge of
the Principal Shareholders, threatened, against any Plan or its assets, or
against any Plan fiduciary or administrator, or against the Company or its
officers or employees with respect to any Plan.
(i) There are no leased employees, as defined in Section 414(n) of the
Code, that must be taken into account with respect to the requirements
under Section 414(n)(3) of the Code.
- 19 -
(j) Each Plan may be terminated directly or indirectly by Buyer and
the Company, in their sole discretion, at any time after the Closing Date
in accordance with its terms, without causing Buyer or the Company or any
of their subsidiaries to incur any liability to any person, entity or
government agency for any conduct, practice or omission of the Company
which occurred prior to the Closing Date, except for liabilities to and the
rights of the employees thereunder accrued prior to the Closing Date, or if
later, the time of termination, and except for continuation rights required
by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
or other applicable law.
5.21. Insurance. Section 5.21 of the Disclosure Schedule sets forth all of
the Company's insurance relating to its business and covering property, fire,
casualty, liability, life, workmen's compensation. Such insurance is in full
force and effect and in the Principal Shareholders' opinion provides adequate
insurance coverage for the activities of the Company.
5.22. Affiliate Transactions. Except as set forth on Section 5.22 of the
Disclosure Schedule, no officer, director, employee or shareholder of the
Company or any member of the immediate family of any such officer, director,
employee or shareholder, or any entity in which any of such persons owns any
beneficial interest (other than any publicly held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market and
less than one percent of the stock of which is beneficially owned by any of such
persons) (collectively "Insiders"), has any agreement with the Company or any
interest in any property, real, personal or mixed, tangible or intangible, used
in or pertaining to the business of the Company (other than ownership of capital
stock of the Company). None of the insiders has any direct or indirect interest
in any competitor, supplier or customer of the Company or in any person, firm or
entity from whom or to whom the Company leases any property, or in any other
person, firm or entity with whom the Company transacts business of any nature.
For purposes of this Section 5.22, members of the immediate family of an
officer, director or employee shall consist of the spouse, parents, children and
siblings of such officer, director or employee. All agreements and transactions
between the Company and any insider were made for bona fide business purposes on
terms no less favorable than could be obtained from an unaffiliated third party.
5.23. Officers and Directors; Bank Accounts. Section 5.24 of the Disclosure
Schedule lists (a) all officers and directors of the Company and (b) all bank
accounts of the Company (designating each authorized signer).
5.24. Compliance with Laws; Permits.
(a) The Company and its officers, directors, agents and employees have
complied with all applicable laws, regulations and other requirements,
including, but not limited to, federal, state, local and foreign laws,
ordinances, rules, regulations and other requirements including, without
limitation, those pertaining to equal employment opportunity, employee
retirement, affirmative action and other hiring practices, occupational
safety and health, workers' compensation, unemployment and building and
zoning codes, which materially affect the business of the Company or the
Real Property and to which the Company may be subject, other than such
non-compliance which could not reasonably be expected to result in a
Material Adverse Effect on the Company. No claims have been filed against
the Company alleging a violation of any such laws, regulations or other
requirements. There are no pending or, to the
- 20 -
Knowledge of the Principal Shareholders, threatened actions to change the
zoning or building ordinances or any other laws, rules, regulations or
ordinances affecting the Real Property. The Company is not relying on any
exemption from or deferral of any such applicable law, regulation or other
requirement that would not be available to Buyer after the Closing Date.
(b) The Company has, in full force and effect, all authorizations,
licenses, permits and certificates, from federal, state, local and foreign
authorities necessary to conduct its business and own and operate its
properties (other than Environmental Permits, as such term is defined in
Section 5.25(c)) (collectively, the "Permits"), other than such
authorizations, licenses, permits and certificates which, if lacking, could
not reasonably be expected to result in a Material Adverse Effect on the
Company. A true, correct and complete list of all of the Permits is set
forth on Section 5.24(b) of the Disclosure Schedule. The Company has
conducted its business in compliance with all material terms and conditions
of the Permits.
(c) Except as set forth on Section 5.24(c) of the Disclosure Schedule,
the Company has not made or agreed to make any gifts of money, other
property or similar benefits (other than incidental gifts of articles of
nominal value) to any actual or potential customer, supplier, governmental
employee or any other person in a position to assist or hinder the Company
in connection with any actual or proposed transaction.
5.25. Environmental Matters. Section 5.12(a) of the Disclosure Schedule
lists all of the Real Property currently or previously owned, used, occupied or
leased by the Company.
(a) As used in this Section 5.25, the following terms shall have the
following meanings:
(i) "Hazardous Materials" means any dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance as
defined in or governed by any Environmental Laws including, without
limitation, any asbestos and asbestos-containing material, lead paint,
urea formaldehyde, radon, PCBs, petroleum, petroleum hydrocarbons,
benzene, toluene and other products based on or derived from
petroleum.
(ii) "Environmental Laws" means all applicable foreign, federal,
state and local laws, rules, regulations, codes, ordinances, orders,
decrees, directives, permits, licenses and judgments relating to
pollution, contamination or protection of the environment, human
health or safety or Hazardous Materials.
(iii) "Release" shall mean the spilling, leaking, disposing,
discharging, emitting, depositing, ejecting, leaching, escaping or any
other release or threatened release, however defined, whether
intentional or unintentional, of any Hazardous Material.
(iv) "Environmental Claim" shall mean any claim, action, cause of
action, investigation or written notice by any person alleging
potential liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting from the
presence or Release of any Hazardous Material at any location, whether
or not owned or operated by the Company.
- 21 -
(b) All activities and conduct of the Company related to the Real
Property substantially comply and have substantially complied with
Environmental Laws;
(c) There has been no Release or threatened Release by the Company of
Hazardous Materials on, under, in, from or about the Real Property or
otherwise related to the operations of the Company, that has subjected the
Company to an Environmental Claim;
(d) The Company has not disposed or arranged for disposal of Hazardous
Materials on any third party real property that has subjected the Company
to an Environmental Claim; and
(e) The Company has not received any written notice, demand, letter,
claim or request for information relating to the Real Property alleging
violation of or liability under any Environmental Laws and there are no
claims or threatened claims relating to or otherwise alleging liability on
the part of the Company under any Environmental Law.
5.26. Brokerage. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company or
either of the Principal Shareholders.
5.27. E2 Consulting. As of the Closing Date, the Company shall be the owner
of all right, title and interest in the business and assets previously held by
E2 Consulting. The representations and warranties set forth in Sections 5.9 to
5.25, except for Sections 5.13, 5.14 and 5.23, shall apply in all respects to
such business and assets.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE OPTION SHAREHOLDERS
As a material inducement to Buyer to enter into this Agreement, with
the understanding that Buyer will be relying thereon in consummating the
transactions contemplated by this Agreement, each of the Option Shareholders
jointly and but not severally hereby makes the representations and warranties
set forth in this ARTICLE VI.
6.1. Execution; Delivery; Valid and Binding Agreements. Each of the Option
Shareholders has the right, power and capacity to execute, deliver and perform
this Agreement and, if applicable, the Employment Agreements to which he is a
party, and each of the other agreements, documents and instruments contemplated
by this Agreement to which he is a party (collectively, the "Option Shareholder
Documents") and to consummate the transactions contemplated hereby and thereby.
The Option Shareholder Documents have been duly and validly executed and
delivered by each of the Option Shareholders and constitute the legal, valid and
binding obligation of each of the Option Shareholders enforceable in accordance
with their terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, arrangement, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability. None of the Option Shareholders is acting in a fiduciary or
representative capacity.
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6.2. No Breach. The execution, delivery and performance of the Option
Shareholder Documents by each of the Option Shareholders and the consummation by
each of the Option Shareholders of the transactions contemplated hereby and
thereby do not and will not conflict with, or result in any breach of, any of
the provisions of, constitute a default under, result in a violation of, result
in the creation of a right of termination or acceleration of any lien, security
interest, charge or encumbrance upon any of the assets of the Company or any of
the Option Shareholders or require any authorization, consent, approval,
exemption or other action by, or notice to, any court or other governmental body
under, the provisions of the Articles of Incorporation or Bylaws of the Company
or any indenture, mortgage, lease, loan agreement or other agreement or
instrument by which the Company or any Option Shareholder is bound or affected,
or any law, statute, rule or regulation or order, judgment or decree to which
the Company or any Option Shareholder is subject.
6.3. Governmental Authorities; Consents. None of the Option Shareholders is
required to submit any notice, report or other filing with any governmental
authority in connection with the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby. No consent, approval or
authorization of any governmental authority or any other party or person is
required to be obtained by any of the Option Shareholders in connection with the
execution, delivery and performance of this Agreement or the transactions
contemplated hereby by the Option Shareholders.
6.4. Ownership of Capital Stock. The Option Shareholders shall own at
Closing, beneficially and of record, all right, title and interest in and to the
shares of the Company's common stock set forth opposite their names on Schedule
A, free and clear of any Restrictions.
6.5. Brokerage. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company or any
of the Option Shareholders.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Shareholders that:
7.1. Incorporation and Corporate Power. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Minnesota, with the requisite corporate power and authority to enter into
this Agreement and perform its obligations hereunder.
7.2. Execution, Delivery; Valid and Binding Agreement. The execution,
delivery and performance of this Agreement, the Employment Agreements, the
Escrow Agreement and each of the other agreements, documents and instruments
contemplated by this Agreement to which Buyer is a party (the "Buyer Documents")
by Buyer and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite action of Buyer's
Board of Directors, and no other proceedings on its part are necessary to
authorize the execution, delivery or performance of this Agreement. The Buyer
Documents have been duly
- 23 -
executed and delivered by Buyer, and the Buyer Documents constitute the valid
and binding obligations of Buyer enforceable in accordance with their terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
7.3. No Breach. The execution, delivery and performance of the Buyer
Documents by Buyer and the consummation by Buyer of the transactions
contemplated hereby and thereby do not and will not conflict with or result in
any breach of any of the provisions of, constitute a default under, result in a
violation of, result in the creation of a right of termination or acceleration
or any lien, security interest, charge or encumbrance upon any assets of Buyer,
or require any authorization, consent, approval, exemption or other action by or
notice to any court or other governmental body under, the provisions of the
Certificate of Incorporation or Bylaws of Buyer or any indenture, mortgage,
lease, loan agreement or other agreement or instrument by which Buyer is bound
or affected, or any law, statute, rule or regulation or order, judgment or
decree to which Buyer is subject.
7.4. Governmental Authorities; Consents. Buyer is not required to submit
any notice, report or other filing with any governmental authority in connection
with the execution or delivery by it of this Agreement or the consummation of
the transactions contemplated hereby. No consent, approval or authorization of
any governmental or regulatory authority or any other party or person is
required to be obtained by Buyer in connection with its execution, delivery and
performance of this Agreement or the transactions contemplated hereby.
7.5. Capitalization. Immediately prior to the issuance of the Closing
Shares, the authorized capital stock of Buyer will consist of the shares as
reported and reflected on the most current Buyer SEC Documents as described in
Section 7.7.
7.6. Issuance of Buyer Common Stock. Upon issuance in accordance with the
terms and conditions of this Agreement, the Closing Shares, including the Escrow
Shares, shall be duly and validly issued and outstanding, fully paid and
nonassessable, free and clear of any Restrictions with respect to issuance and
shall not be subject to preemptive rights or similar rights of any other
shareholders of Buyer. The Closing Shares, including the Escrow Shares, will
have be issued in material compliance with all applicable United States federal
and state securities laws.
7.7. SEC Reports.
(a) All registration statements, reports and definitive proxy
statements required to be filed by Buyer with the Securities and Exchange
Commission ("SEC") between January 1, 2002 and the date hereof (the "Buyer
SEC Documents") have been so filed. As of the time it was filed with the
SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the Buyer SEC
Documents complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as the case may be,
and the rules and regulations of the SEC thereunder applicable thereto and
(ii) none of the Buyer SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact
- 24 -
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) As of the time filed with the SEC, the financial statements
(including any related notes) contained in the Buyer SEC Documents: (i)
complied as to form in all material respects with the published rules and
regulations of the SEC applicable thereto, (ii) were prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered
(except as may be indicated in the notes to such financial statements or,
in the case of unaudited statements, as permitted by Form 10-Q of the SEC
or the regulations promulgated under the Exchange Act by the SEC) and (iii)
fairly presented, in all material respects, the financial position of Buyer
and its consolidated subsidiaries, as of the respective dates thereof and
the results of operations of Buyer and its consolidated subsidiaries for
the periods covered thereby.
7.8. No Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the Knowledge of Buyer, threatened against Buyer,
at law or in equity, or before or by any arbitrator or any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign which could affect the enforceability of
this Agreement, or the ability of Buyer to consummate the transactions
contemplated by, or perform Buyer's obligations under, this Agreement, the
Employment Agreements or the Escrow Agreement.
7.9. Availability of Funds. Buyer has now, or has available to it,
sufficient immediately available funds, in cash, to pay the Purchase Price and
to pay any other amounts payable pursuant to this Agreement and to effect the
transactions contemplated hereby. Buyer's ability to pay the Purchase Price and
to perform its other obligations hereunder are not contingent on Buyer or any of
its Affiliates raising any equity capital, obtaining specific financing thereof
or obtaining the consent of any lender.
7.10. Brokerage. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of Buyer except with
respect to compensation payable by Buyer to Xxxxxx, Xxxxxxx & Xxxxxx LLC.
ARTICLE VIII
COVENANTS
8.1. Conduct of the Business. The Principal Shareholders agree to cause the
Company to observe each term set forth in this Section 8.1 and agree that, from
the date of this Agreement until the Closing Date, unless otherwise consented to
by Buyer in writing or expressly contemplated herein and other than the
Company's issuance of the Option Shares to the Option Shareholders:
(a) The business of the Company shall be conducted only in, and the
Company shall not take any action or enter into any contract or agreement
except in, the ordinary course of its business, on an arm's-length basis
and in accordance with all applicable laws, rules and regulations and the
Company's past practices;
- 25 -
(b) Except as contemplated by this Agreement or with the prior written
consent of Buyer, the Company shall not, directly or indirectly, do or
permit to occur any of the following:
(i) issue or sell any additional shares of, or any options,
warrants, conversion privileges or rights of any kind to acquire any
shares of, any of its capital stock, other than the Company's issuance
of the Option Shares to the Option Shareholders;
(ii) sell, pledge, dispose of or encumber any of its assets,
except in the ordinary course of business consistent with past
practices;
(iii) amend or propose to amend its articles of incorporation or
bylaws;
(iv) split, combine or reclassify any of the outstanding shares
of its capital stock, or declare, set aside or pay any dividend or
other distribution payable in cash, stock, property or otherwise with
respect to shares of its capital stock;
(v) redeem, purchase or acquire or offer to acquire any of its
outstanding capital stock;
(vi) acquire (by merger, exchange, consolidation, acquisition of
stock or assets or otherwise) any corporation, partnership, joint
venture or other business organization or division or material assets
thereof;
(vii) incur, assume or guarantee any indebtedness for borrowed
money or issue any debt securities, except the borrowing of working
capital in the ordinary course of business consistent with past
practices, incur any obligations or liabilities (whether absolute,
accrued, contingent or otherwise and whether due or to become due), or
create, assume or incur any lien, claim, encumbrance or other charge
on any asset, other than in the ordinary course of business consistent
with past practices;
(viii) accelerate or defer the payment of undisputed accounts
payable or other accrued expenses owed to trade creditors or other
third parties having business relationships with the Company;
(ix) accelerate, beyond the normal collection cycle, or defer
collection of accounts receivable, manufacturers' rebates, promotional
allowances and other receivables;
(x) enter into or propose to enter into, or modify or propose to
modify, any Lease or exercise or waive any option, or consent to any
modification, act or omission by any landlord requiring tenant's
consent under any Lease;
(xi) enter into or propose to enter into or modify or propose to
modify any agreement, arrangement or understanding with respect to any
of the matters set forth in this Section 8.1(b);
(xii) sell, lease, license or otherwise dispose of any assets or
properties, other than in the ordinary course of business consistent
with past practices;
- 26 -
(xiii) accelerate or defer the construction of improvements at
any of the locations of its business; or
(xiv) accelerate or defer the purchase of fixtures, equipment,
leasehold improvements, vehicles, other items of machinery and
equipment and other capital expenditures.
(c) The Company shall not, directly or indirectly:
(i) enter into or modify any employment, severance, change in
control or similar agreements or arrangements with, or grant any
bonuses, salary increases, severance, change in control or termination
pay to, any officers or directors or consultants;
(ii) except as set forth on Section 8.1(c) of the Disclosure
Schedule, take any action with respect to the grant of any bonuses,
salary increases, severance, change in control or termination pay, or
with respect to any increase of benefits payable in effect on the date
hereof or pay or incur any legal, accounting or other expenses
relating to or attributable to the transactions described and
contemplated by this Agreement; or
(iii) intentionally take any action which would render, or which
reasonably may be expected to render, any representation or warranty
made by it in this Agreement untrue or inaccurate at the Closing.
(d) The Company shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement
for the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director or consultant,
other than the acceleration of the options to purchase the Option Shares
owned by the Option Shareholders;
(e) The Company shall not cancel or terminate its current insurance
policies or cause any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage equal to or greater than the coverage under the
canceled, terminated or lapsed policies for substantially similar premiums
are in full force and effect;
(f) The Company shall:
(i) use its commercially reasonable efforts to preserve intact
its business organization and goodwill, keep available the services of
its officers and employees as a group and maintain satisfactory
relationships with suppliers, customers and others having business
relationships with it;
(ii) confer on a commercially reasonable basis with
representatives of Buyer to report operational matters and the general
status of ongoing operations;
(iii) promptly notify Buyer of any emergency or other change in
the normal course of its business and of any governmental or third
party complaints, investigations
- 27 -
or hearings (or communications indicating that the same may be
contemplated) if such emergency, change, complaint, investigation or
hearing would be material, individually or in the aggregate, to the
business, operations or financial condition of it or to its ability to
consummate the transactions contemplated by this Agreement; and
(iv) promptly notify Buyer in writing if it shall discover that
any representation or warranty made by it in this Agreement was when
made untrue in any material respect;
(g) Except as otherwise set forth on Section 8.1(g) of the Disclosure
Schedule, the Company (for purposes of this Section 8.1(g), all references
to the Company shall include the Affiliates, and any former subsidiaries
and Affiliates, of the Company) shall file or cause to be filed, on or
prior to the due date, all Returns, including all returns and reports
relating to the Plans, that are required to be filed on or before the
Closing Date (all Returns described in this Section 8.1(g) and any
schedules to be included therewith shall be prepared on a basis consistent
with those of the Company prepared for prior Tax periods); provided,
however, that the Company shall not file any such Returns, or other
Returns, elections, claims for refund or information statements with
respect to any liabilities for Taxes (other than federal, state or local
sales, use, withholding or employment tax returns or statements) for any
Tax period, or consent to any adjustment or otherwise compromise or settle
any matters with respect to Taxes, without the prior written consent of
Buyer, which may be withheld or granted in its sole and absolute
discretion; the Principal Shareholders shall provide Buyer with a copy of
appropriate work papers, schedules, drafts and final copies of each federal
and state income Return or election of the Company at least 20 days before
filing such Return or election and shall reasonably cooperate with any
request by Buyer in connection therewith;
(h) The Company shall not (i) make or rescind any express or deemed
election or take any other discretionary position relating to Taxes, (ii)
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes or (iii)
change any of its methods of reporting income or deductions for federal
income Tax purposes from those employed in the preparation of the federal
income Returns for the taxable year ended December 31, 2004;
(i) The Company shall not authorize, recommend, propose or announce an
intention to do any of the foregoing actions proscribed by this Section
8.1, or enter into any contract, agreement, commitment or arrangement to do
any of the foregoing actions.
8.2. Tax Returns after the Closing. Buyer shall be responsible for the
preparation of and timely filing (taking into account any extensions received
from the relevant taxing authorities) of all Returns required by Law to be filed
by the Company after the Closing Date, including, but not limited to, all
Returns for the Tax period ending on the Closing Date (the "Stub Period
Returns"). Buyer shall provide the Principal Shareholders with a copy of
appropriate work papers, schedules, drafts and final copies of each Stub Period
Return at least 20 days before filing such Stub Period Return and shall
reasonably cooperate with any request by the Principal Shareholders in
connection therewith. If the Principal Shareholders notify Buyer in writing
prior to the expiration of such 20-day period concerning any specific objections
to any such Stub Period Return, the parties and their tax advisors shall meet
within 20 days after Buyer's receipt
- 28 -
of such notice to discuss and attempt to resolve such objections. Buyer shall
send a new Stub Period Return to the Principal Shareholders within 10 days
following such meeting, reflecting any resolutions that may have resulted from
such meeting, and Buyer may file the same at any time more than 20 days
thereafter.
8.3. Assistance and Cooperation. After the Closing Date, each Principal
Shareholder and Buyer shall:
(a) assist (and cause its respective affiliates to assist) the other
party in preparing any Returns which such other party is responsible for
preparing and filing in accordance with Section 8.2;
(b) make available to the other and to any taxing authority as
reasonably requested all information, records and documents relating to Tax
liabilities which are attributable to the Company;
(c) preserve all such information, records and documents until the
expiration of any applicable statutes of limitations or extensions thereof
and as otherwise required by Law;
(d) make available to the other, as reasonably requested, personnel
responsible for preparing or maintaining information, records and documents
in connection with Tax matters;
(e) keep confidential any information obtained pursuant to this
Section 8.3, except as may otherwise be necessary in connection with the
filing of Returns or claims for refund or in conducting any audit or other
Tax proceeding; and
(f) furnish the other with adequate information which would enable the
other to determine its entitlement to, and the amount of, any refund or
credit to which either reasonably believes the other may be entitled.
8.4. Access to Books and Records. Between the date hereof and the Closing
Date, the Principal Shareholders shall cause the Company to afford to Buyer and
its authorized representatives (the "Buyer's Representatives") full access at
all reasonable times during normal business hours and upon reasonable notice to
the offices, properties, books, records, officers, employees and other items of
the Company and the work papers of the Company's independent accountants,
relating to work done by such accountants, with respect to the Company for each
of the fiscal years ended December 31, 2004 and December 31, 2003 (and prior
years if requested), and otherwise provide such assistance as is reasonably
requested by Buyer in order that Buyer may have a full opportunity to make such
investigation and evaluation as it shall reasonably desire to make of the
business and affairs of the Company. In addition, the Principal Shareholders
shall cause the Company to cooperate fully (including providing introductions
where necessary) with Buyer to enable Buyer to contact such third parties,
including landlords, lenders, agencies, vendors or suppliers of the Company, as
Buyer deems reasonably necessary to complete its due diligence; provided,
however, that any such contact shall be made only with the prior consent of the
Company which consent will not be unreasonably withheld.
- 29 -
8.5. Conditions. The Shareholders shall cause the Company to take all
commercially reasonable actions necessary or desirable to cause the conditions
set forth in Section 9.1 to be satisfied. Buyer shall take all commercially
reasonable actions necessary or desirable to cause the conditions set forth in
Section 9.2 to be satisfied.
8.6. No Negotiations. Neither the Company nor any Shareholder shall,
directly or indirectly, through any officer, director, shareholder, agent or
otherwise (a) solicit, initiate or encourage submission of any proposal or offer
from any person or entity (including any of its or their officers, shareholders
or employees) relating to any liquidation, dissolution, recapitalization,
merger, consolidation or acquisition or purchase of all or a material portion of
the assets of, or any equity interest in, the Company or other similar
transaction or business combination involving the Company, or (b) participate in
any negotiations regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person or entity to
do or seek any of the foregoing. The Shareholders shall promptly notify Buyer if
any such written proposal or offer, or any inquiry from or contact with any
person with respect thereto, is made and shall promptly provide Buyer with such
information regarding such proposal, offer, inquiry or contact as Buyer may
request.
8.7. UCC Searches. Buyer shall, at its expense, obtain reports of UCC
searches as to the Company, made of the Uniform Commercial Code records and
federal and state tax lien searches as to the Company for all business locations
thereof.
8.8. Consents and Approvals. The Principal Shareholders shall, at the
Company's expense, obtain, or cause to be obtained, each consent and approval
designated by Buyer prior to the date hereof.
8.9. Waivers. Each of the Principal Shareholders hereby irrevocably and
unconditionally waives any right to indemnification from the Company, whether
available under the charter documents of the Company, an agreement or policy or
state law, arising in connection with any breach by the Principal Shareholders
of any representation, warranty or covenant in this Agreement.
8.10. Noncompetition Covenant. Each of the Shareholders entering into the
Employment Agreements agrees, as additional consideration for the transactions
described herein, to be bound by the provisions of this Section 8.10.
(a) Noncompetition Agreement.
(i) During the Principal Shareholders' employment with Buyer and
for a period of the greater of three years from the Closing Date or 24
months after Principal Shareholder's resignation or termination of
employment for any reason, other than without Cause or for Good Reason
(as each term is defined in the Employment Agreement) (the "Noncompete
Period"), Principal Shareholder shall not render services, directly or
indirectly, to any Conflicting Organization (as defined below) in the
United States or in any foreign country or territory in which the
services Principal Shareholder may provide could enhance the use or
marketability of a Conflicting Product (as defined below) by
application of confidential
- 30 -
information that Principal Shareholder shall have had access to during
Principal Shareholder's employment with the Buyer or the Company or
during the period of Principal Shareholder's ownership of stock of the
Company, except that Principal Shareholder may accept employment with
a Conflicting Organization whose business is diversified and which is,
as to that part of its business in which Principal Shareholder accepts
employment, not a Conflicting Organization, provided that Buyer, prior
to Principal Shareholder's accepting such employment, shall receive
separate written assurances satisfactory to Buyer from such
Conflicting Organization and from Principal Shareholder, that
Principal Shareholder will not render services directly or indirectly,
for a 24-month period, in connection with any Conflicting Product.
Principal Shareholder also agrees that during Principal Shareholder's
employment with Buyer and for a period of 24 months thereafter,
Principal Shareholder will not render services to any other
organization or person in a position in which Principal Shareholder
could use Confidential Information (as defined in the Employment
Agreements) to the detriment of Buyer.
(ii) "Conflicting Organization" means any person or organization
that is engaged in (or about to become engaged in) research on,
consulting regarding, or development, production, marketing or selling
of a Conflicting Product.
(iii) "Conflicting Product" means any product, process,
technology, machine, invention or service of any person or
organization other than Buyer in existence or under development which
resembles or competes with a product, process, technology, machine,
invention or service upon which Principal Shareholder shall have
worked or about which Principal Shareholder has become or hereafter
becomes knowledgeable as a result of employment with the Company or
Buyer and whose use or marketability could be enhanced by application
to it of Confidential Information which Principal Shareholder shall
have had access to during Principal Shareholder's employment with the
Buyer or the Company or during the period of Principal Shareholder's
ownership of stock of the Company.
(b) Non-Solicitation Agreement. During the Principal Shareholder's
employment with Buyer and for a period of the greater of three years from
the Closing Date or 24 months after Principal Shareholder's resignation or
termination of employment for any reason, other than without Cause or for
Good Reason (as each term is defined in the Employment Agreement),
Principal Shareholder shall not:
(i) Solicit Buyer's or the Company's current or former customers
or potential or prospective customers on behalf of himself or any
other business, person or entity for the purpose of selling, offering,
providing or otherwise making available products or services that are
the same as or similar to those products and services that were
offered by Buyer or the Company at any time during Principal
Shareholder's employment with the Buyer or the Company or during the
period of Principal Shareholder's ownership of stock of the Company
(ii) Exploit or use contacts, developed or made during Principal
Shareholder's employment with Buyer or the Company, for the purpose of
soliciting Buyer's or the Company's current or former customers or
potential or prospective customers on Principal Shareholder's behalf
or the behalf of any other business, person or entity for purposes of
selling, offering, providing or otherwise making available products or
services that are the same as or similar to those products and
services that were offered by Buyer or the Company at any time
- 31 -
during Principal Shareholder's employment with the Buyer or the
Company or during the period of Principal Shareholder's ownership of
stock of the Company; or
(iii) Directly or indirectly induce or attempt to induce any of
Buyer's then current employees or independent contractors to terminate
their employment, contractual or other relationship with Buyer, or
otherwise interfere or attempt to interfere with that existing
employment or other relationship with Buyer.
(c) Non-Disparagement. During Principal Shareholder's employment with
Buyer and at all times thereafter, Principal Shareholder shall not
disparage or defame, or allow or cause others to disparage or defame, Buyer
or the Company, its Board of Directors, directors, officers, employees,
customers or vendors.
(d) Irreparable Harm. The parties acknowledge that Buyer will suffer
irreparable harm if Principal Shareholder breaches the provisions of this
Section 8.10. Accordingly, Buyer shall be entitled, in addition to any
other right and remedy it may have at law or equity, to a temporary
restraining order and/or injunction, without the posting of a bond or other
security or with the posting of a minimal bond or security where required
by applicable law, enjoining or restraining Principal Shareholder from any
violation of this Section 8.10, and Principal Shareholder hereby consents
to Buyer's right to seek the issuance of such injunction. If Buyer
institutes any such action against Principal Shareholder, alone or in
conjunction with any third party or parties, to enforce any terms or
provisions of this Section 8.10, the applicable court or judicial authority
shall determine whether Buyer or Principal Shareholder is entitled to
receive from the opposing party (or parties) in the action reasonable
attorneys' fees incurred by Buyer or Principal Shareholder in such action
and all costs and expenses incurred in connection therewith.
(e) Limit to Extent Enforceable. In the event that a court of
competent jurisdiction determines that any of the provisions of this
Section 8.10 are unreasonable, it may limit such provision to the extent it
deems reasonable, without declaring the provisions of Section 8.10 invalid
in its entirety. This provision shall not be construed as an admission by
Buyer, but is only included to provide Buyer with the maximum possible
protection for its business, confidential information, trade secrets and
data, consistent with the right of Principal Shareholder to earn a
livelihood subsequent to the termination of Principal Shareholder's
employment.
(f) Compliance. To enable Buyer to monitor Principal Shareholder's
compliance with the obligations imposed by this Agreement, including this
Section 8.10, Principal Shareholder shall during the Noncompete Period,
following Principal Shareholder's termination or resignation, inform Buyer
of the identity of any new employer of Principal Shareholder and of
Principal Shareholder's job title and responsibilities with any such
employer.
(g) Survival of Provisions. The parties agree that the provisions in
this Section 8.10 shall survive termination of this Agreement and Principal
Shareholder's resignation or the termination of Principal Shareholder's
employment for any reason except as otherwise provided in this Agreement.
- 32 -
8.11. Conduct of Buyer's Business. During the period from the date hereof
to the Closing Date, Buyer shall:
(a) promptly notify the Shareholders in writing if it shall discover
that any representation or warranty made by it in this Agreement was when
made, or has subsequently become, untrue in any material respect; and
(b) not intentionally take any action which would render, or which
reasonably may be expected to render, any representation or warranty made
by it in this Agreement untrue or inaccurate at Closing.
8.12. Tax Audits. In the event of a tax audit or other similar proceeding
involving the transactions contemplated by the terms of this Agreement involving
the Company, any of the Shareholders or Buyer, the parties not subject to such
audit or proceeding shall cooperate with the party subject to such audit or
proceeding (the "Audited Party") in such a manner and to such an extent as is
reasonably requested by the Audited Party. The Audited Party shall pay all
reasonable expenses incurred by such cooperating party. Neither the Company nor
any of the Shareholders shall consent to any adjustment or otherwise compromise
or settle any matters with respect to any Taxes resulting from the transactions
contemplated by this Agreement, without the prior written consent of Buyer,
which will not be unreasonably withheld. Buyer shall not consent to any
adjustment or otherwise compromise or settle any matters with respect to any
Taxes resulting from the transactions contemplated by the terms of this
Agreement which create, impose or potentially create or impose any Tax liability
on the Shareholders, without the Shareholders' prior written consent which will
not be unreasonably withheld. In the event of a tax audit or other similar
proceeding involving the Company that relates to the period of time prior to the
Closing, the Shareholders shall have the right to participate in such audit or
proceeding at their own expense.
8.13. Section 338(h)(10) Election. Buyer and each of the Shareholders will
join in making, and will take any and all action necessary to effect, a timely
and irrevocable election under Section 338(h)(10) of the Internal Revenue Code
(and the Treasury Regulations and administrative pronouncements thereunder) and
any comparable provision of state, local, or foreign Tax law (collectively a
"Section 338(h)(10) Election"). Buyer and each of the Principal Shareholders
shall file all Tax returns in a manner consistent with the Section 338(h)(10)
Election and will not take any position contrary thereto.
8.14. Allocation of Purchase Price. Buyer, the Company and the Shareholders
shall cooperate in good faith after the Closing to allocate the total
consideration paid for the assets deemed to be acquired at Closing (the
"Assets") pursuant to the parties' Section 338(h)(10) Election pursuant to
Section 8.13 in the form set forth in Section 8.14 of the Disclosure Schedule.
Such allocation shall be completed and reflected therein by mutual written
agreement on or before February 15, 2006, and shall be used by the parties
hereto for all Tax purposes and filings, including IRS Form 8594 and similar
forms that may be promulgated in the future.
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ARTICLE IX
CONDITIONS TO CLOSING
9.1. Conditions to Buyer's Obligations. Except as may be waived by Buyer,
the obligation of Buyer to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of the following conditions on or
before the Closing Date:
(a) The representations and warranties set forth in ARTICLE V and
ARTICLE VI shall be true and correct at and as of the Closing Date.
(b) The Shareholders shall have performed all of the covenants and
agreements required to be performed and complied with by them under this
Agreement prior to the Closing Date.
(c) The Company shall have acquired all of the business and assets of
E2 Consulting.
(d) The Principal Shareholders shall have caused the Company to have
obtained each consent and approval designated by Buyer prior to the Closing
Date.
(e) All other material governmental filings, authorizations and
approvals that are required for the consummation of the transactions
contemplated hereby and are designated by Buyer prior to the Closing Date
will have been duly made and obtained.
(f) There shall not be threatened, instituted or pending any action or
proceeding brought by the Shareholders, the Company or any other person not
a party hereto, before any court or governmental authority or agency,
domestic or foreign, (i) challenging or seeking to make illegal, or to
delay or otherwise directly or indirectly restrain or prohibit, the
consummation of the transactions contemplated hereby or seeking to obtain
material damages in connection with such transactions, (ii) seeking to
prohibit direct or indirect ownership or operation by Buyer of all or a
material portion of the business or assets of the Company, or to compel
Buyer or any of its subsidiaries or the Company to dispose of or to hold
separately all or a material portion of the business or assets of Buyer and
its subsidiaries or of the Company, as a result of the transactions
contemplated hereby, (iii) seeking to invalidate or render unenforceable
any material provision of this Agreement, or (iv) otherwise relating to and
materially adversely affecting the transactions contemplated hereby.
(g) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated
hereby by any federal, state or foreign court, government or governmental
authority or agency, which would reasonably be expected to result, directly
or indirectly, in any of the consequences referred to in Section 9.1(f).
(h) Buyer shall not have discovered any fact or circumstance existing
as of the date of this Agreement which has not been disclosed to Buyer
regarding the business, assets, properties, condition (financial or
otherwise), results of operations or prospects of the Company which would
have a Material Adverse Effect on the Company.
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(i) There shall have been no damage, destruction or loss of or to any
property or properties owned or used by the Company, whether or not covered
by insurance, which would have a Material Adverse Effect on the Company.
(j) At the Closing, the Shareholders shall have delivered (or caused
to be delivered) to Buyer all of the following:
(i) Certificates of each of the Principal Shareholders, dated the
Closing Date, stating that the conditions precedent set forth in
Sections 9.1(a) and 9.1(b) have been satisfied.
(ii) Copies of the third party and governmental consents,
approvals and other documents referred to in Sections 9.1(d) and
9.1(e) or elsewhere herein.
(iii) A copy of the Articles of Incorporation of the Company
certified by the Secretary of State of the State of Texas, a
Certificate of Existence from the Texas Secretary of State and a
Certificate of Good Standing from the Texas Comptroller of Public
Accounts evidencing the good standing and existence of the Company in
the State of Texas, each dated within a reasonable period of the
Closing Date.
(iv) An executed copy of the Employment Agreements between Buyer
and each of Xxxxx X. Xxxx, Xxxx X. Xxxxx and Xxxx Xxxxx in the form of
Exhibit D.
(v) An executed copy of the Shareholders Agreement.
(vi) An executed copy of the Escrow Agreement.
(vii) Stock certificates representing the Shares, duly endorsed
to Buyer or accompanied by duly executed stock powers.
9.2. Conditions to the Shareholders' Obligations. Except as may be waived
by the Shareholders, obligations of the Shareholders to consummate the
transactions contemplated by this Agreement are subject to the satisfaction of
the following conditions on or before the Closing Date:
(a) The representations and warranties set forth in ARTICLE 7 will be
true and correct at and as of the Closing;
(b) Buyer shall have performed all the covenants and agreements
required to be performed by it under this Agreement prior to the Closing;
(c) All material governmental filings, authorizations and approvals
that are required for the consummation of the transactions contemplated
hereby will have been duly made and obtained;
(d) There shall not be threatened, instituted or pending any action or
proceeding brought by Buyer or any other person not a party hereto, before
any court or governmental authority or agency, domestic or foreign, (i)
challenging or seeking to make illegal, or to delay or
- 35 -
otherwise directly or indirectly restrain or prohibit, the consummation of
the transactions contemplated hereby or seeking to obtain material damages
in connection with such transactions, (ii) seeking to invalidate or render
unenforceable any material provision of this Agreement, or (iii) otherwise
relating to and materially adversely affecting the transactions
contemplated hereby;
(e) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated
hereby by any federal, state or foreign court, government or governmental
authority or agency, which would reasonably be expected to result, directly
or indirectly, in any of the consequences referred to in Section 9.2(d);
and
(f) The Shareholders shall not have discovered any fact or
circumstance existing as of the date of this Agreement which has not been
disclosed to the Shareholders regarding the business, assets, properties,
condition (financial or otherwise), or results of operations of Buyer which
would have a material adverse effect on Buyer.
(g) At the Closing, Buyer shall have delivered (or caused to be
delivered) to the Shareholders (i) a certificate of an appropriate officer
of Buyer, dated the Closing Date, stating that the conditions precedent set
forth in Sections 9.2(a) and 9.2(b) have been satisfied, (ii) copies of the
governmental consents, approvals and other documents referred to in
subsection C above and (iii) all of the documents, certificates and
instruments required to be delivered by Buyer pursuant to Section 4.2.
ARTICLE X
TERMINATION
10.1. Termination. This Agreement may be terminated at any time after the
execution hereof and prior to the Closing:
(a) by the mutual written consent of Buyer and the Shareholders;
(b) by Buyer or the Shareholders if there has been a material breach
of a covenant on the part of the other in the covenants set forth in this
Agreement; provided, however, that Buyer or the Shareholders shall have 10
days to cure any breach of a covenant upon receipt of notice of such breach
of a covenant by another party hereto;
(c) by either Buyer or the Shareholders, by written notice to the
other, if the transactions contemplated hereby have not been consummated by
January 31, 2006; provided that neither Buyer nor the Shareholders will be
entitled to terminate this Agreement pursuant to this Section 10.1(b) if
such party's willful breach of this Agreement has prevented the
consummation of the transactions contemplated hereby; or
(d) by Buyer if, after the date hereof, there shall have been a
material adverse change in the business, assets, properties, condition
(financial or otherwise), results of operations or prospects of the Company
or if an event shall have occurred which, so far as reasonably can
- 36 -
be foreseen, would result in any such change, provided that such change has
a Material Adverse Effect on the Company.
10.2. Effect of Termination. In the event of termination of this Agreement
by either Buyer or the Shareholders as provided in Section 10.1, this Agreement
shall become void and there shall be no liability on the part of Buyer, or the
Shareholders, or their respective stockholders, officers, trustees or directors;
provided, however, that upon such a termination, Sections 12.1, 12.2, 12.5 and
12.10 shall survive indefinitely. Within two days after the termination of this
Agreement, Buyer and its representatives will return any and all copies of
information related to the Company received by them, without retaining any
copies thereof, and Buyer shall destroy, or cause to be destroyed, any and all
notes, compilations, analyses, reports, or other documents prepared by Buyer or
its representatives from such information, and the Chief Executive Officer of
Buyer shall deliver to the Company a certificate that all such notes,
compilations, analyses, reports and documents have been destroyed.
ARTICLE XI
INDEMNIFICATION; SURVIVAL
11.1. Reliance and Survival of Representations and Warranties.
Notwithstanding any investigation made by or on behalf of any of the parties
hereto or the results of any such investigation and notwithstanding the
participation of such party in the Closing, each party shall be deemed to have
relied on the representations, warranties and covenants of the other parties and
the representations and warranties contained in ARTICLE V, ARTICLE VI and
ARTICLE VII shall survive the Closing in accordance with the terms of this
ARTICLE XI. The provisions of ARTICLE III and the covenants of the parties
contained in this Agreement shall survive the Closing according to their
respective terms.
11.2. Indemnification by the Principal Shareholders. Subject to the
limitations of Section 11.6, the Principal Shareholders agree to indemnify in
full, defend and hold harmless Buyer and its officers, directors, employees,
agents and stockholders, and after Closing, the Company (collectively, the
"Buyer Indemnified Parties"), jointly and severally, against any loss,
liability, deficiency, damage, expense or cost (including reasonable legal fees
and expenses) (collectively, "Losses"), whether or not actually incurred or paid
prior to the expiration of the indemnification obligation of the Principal
Shareholders hereunder, which the Buyer Indemnified Parties may suffer, sustain
or become subject to, as a result of any of the following:
(a) any misrepresentation in any of the representations and warranties
of either of the Principal Shareholders contained in this Agreement;
(b) any breach of, or failure to perform, any agreement or covenant of
either of the Principal Shareholders or the Company contained in this
Agreement;
(c) any Claim (as defined in Section 11.5(a)) or threatened Claim not
set forth in the Disclosure Schedule against the Buyer Indemnified Parties
that arises solely in connection with the actions or inactions of the
Company or either of the Principal Shareholder with respect to the
Company's business prior to the Closing Date; or
- 37 -
(d) any action brought or claim made by any third party alleging
personal injury, death or other damage caused by the services provided by
the use of any products, services or programs delivered and placed in
commerce by the Company on or before the Closing Date without regard to
when the event, occurrence, continuance, injury or condition giving rise to
such action or claim shall occur.
(e) Any action brought or claim made asserting that the Company does
not possess valid licenses to all Commercial Software or that the Company
is in default of its license fee obligations under any of such such
licenses.
11.3. Indemnification by the Option Shareholders. Subject to the
limitations of Section 11.6, each of the Option Shareholders agrees to indemnify
in full, defend and hold harmless the Buyer Indemnified Parties, jointly but not
severally, against any Losses, whether or not actually incurred or paid prior to
the expiration of the indemnification obligation of the Option Shareholders
hereunder, which the Buyer Indemnified Parties may suffer, sustain or become
subject to, as a result of any of the following:
(a) any misrepresentation in any of the representations and warranties
of such Option Shareholder contained in this Agreement; or
(b) any breach of, or failure to perform, any agreement or covenant of
such Option Shareholder contained in this Agreement.
11.4. Indemnification by Buyer. Subject to the limitations of Section 11.6,
Buyer agrees to indemnify in full, defend and hold harmless each of the
Shareholders and their agents and Affiliates against any Losses, whether or not
actually incurred or paid prior to the expiration of indemnification obligation
of Buyer hereunder, which such Shareholder may suffer, sustain or become subject
to as a result of any of the following:
(a) any misrepresentation in any of the representations and warranties
of Buyer contained in this Agreement;
(b) any breach of, or failure to perform, any agreement or covenant of
Buyer contained in this Agreement;
(c) any Claim or threatened Claim against any Shareholder that arises
solely in connection with the actions or inactions of the Company or Buyer
with respect to the business of the Company after the Closing Date;
(d) any Claim or threatened Claim against any Shareholder that arises
out of or is related to any fees or expenses payable to any broker engaged
by Buyer, including, but not limited to, Xxxxxx, Xxxxxxx & Xxxxxx LLC, in
connection with the transactions contemplated by this Agreement;
(e) any action brought or claim made by any third party alleging
personal injury, death or other damage caused by the services provided by
the use of any products, services or programs delivered and placed in
commerce by the Company after the Closing Date without
- 38 -
regard to when the event, occurrence, continuance, injury or condition
giving rise to such action or claim shall occur; or
(f) any action brought or claim made against any Shareholder that
arises in connection with any personal guaranty that such Shareholder may
have executed on a contract for the benefit of the Company.
11.5. Method of Asserting Claims. As used herein, an "Indemnified Party"
shall refer to a Buyer Indemnified Party or a Shareholder, as applicable, and
the "Indemnifying Party" shall refer to the party or parties hereto obligated to
indemnify such Indemnified Party.
(a) In the event that any Indemnified Party is named as a defendant or
respondent in or party to any action or legal proceeding, judicial or
administrative, instituted by any third party for the liability or the
costs or expenses of which are Losses (any such third party action or
proceeding being referred to as a "Claim"), then such Indemnified Party
shall give the Indemnifying Party notice within ten (10) days of its
receipt of notice thereof. The failure to give such notice shall not affect
any Indemnified Party's ability to seek reimbursement unless such notice
has been given after the applicable period for indemenification has lapsed
or such failure has materially and adversely affected the Indemnifying
Party's ability to defend successfully a Claim. The Indemnifying Party
shall then be entitled to contest and defend such Claim; provided, that the
Indemnifying Party acknowledges, in writing, its indemnification obligation
with respect to such Claim under the terms of this Article 11 within ten
(10) days of its receipt of the notice of such Claim. Notice of the
intention so to contest and defend (the "Defend Notice") shall be given by
the Indemnifying Party to the Indemnified Party within ten (10) business
days after its receipt of the Indemnified Party's notice of such Claim
(but, in any event, at least ten (10) business days prior to the date that
an answer to such Claim is due to be filed). If the Indemnifying Party
fails to give the Defend Notice, then the Indemnified Party shall be
entitled to undertake such defense and its reasonable costs and expenses
(including, without limitation, attorney fees and expenses) shall be
included in the Loss to be indemnified by the Indemnifying Party. If the
Indemnifying Party elects to contest and defend a Claim, the Indemnified
Party shall be entitled at any time, at its own cost and expense (which
expense shall not constitute a Loss unless the Indemnified Party reasonably
determines that, because of a conflict of interest, the Indemnifying Party
may not adequately represent, any interests of the Indemnified Parties, and
only to the extent that such expenses are reasonable), to participate in
such contest and defense and to be represented by attorneys of its or their
own choosing. If the Indemnified Party elects to participate in such
defense, the Indemnified Party will cooperate with the Indemnifying Party
in the conduct of such defense. Neither the Indemnified Party nor the
Indemnifying Party may concede, settle or compromise any Claim without the
consent of the other party, which consents will not be unreasonably
withheld or delayed. Notwithstanding the foregoing, (i) if a Claim seeks
equitable relief or (ii) if the subject matter of a Claim relates to the
ongoing business of any of the Indemnified Parties, which Claim involves
anything other than money damages and which, if decided against any of the
Indemnified Parties, would materially adversely affect the ongoing business
or reputation of any of the Indemnified Parties, then, in each such case,
the Indemnified Parties alone shall be entitled to contest, defend and
settle such Claim in the first instance and, if the Indemnified Parties do
not contest, defend or settle such
- 39 -
Claim, the Indemnifying Party shall then have the right to contest and
defend (but not settle) such Claim.
(b) In the event any Indemnified Party should have a claim for
indemnification against any Indemnifying Party (whether such claim does not
involve a Claim or involves a settled or resolved Claim which the
Indemnifying Party has not delivered the Defend Notice, or a Claim from
which an Indemnified Party has suffered Losses by reason of the
Indemnifying Party's failure to indemnify the Indemnified Party), the
Indemnified Party shall deliver a notice of such claim to the Indemnifying
Party, setting forth in reasonable detail the identity, nature and
estimated amount of Losses (if reasonably determinable) related to such
claim or claims, with reasonable promptness and in all events prior to the
expiration of the Indemnifying Party's indemnification obligation
hereunder. If the Indemnifying Party notifies the Indemnified Party that it
does not dispute the claim described in such notice or fails to notify the
Indemnified Party within thirty (30) days after its receipt of such notice
whether it disputes the claim described in such notice, the Loss in the
amount specified in the Indemnified Party's notice will be conclusively
deemed a liability of the Indemnifying Party and the Indemnifying Party
shall pay the amount of such Loss to the Indemnified Party on demand. If
the Indemnifying Party has timely disputed its liability with respect to
such claim, the Indemnifying Party and the Indemnified Party will proceed
in good faith to negotiate a resolution of such dispute for a period of at
least thirty (30) days prior to seeking judicial or other relief.
(c) Upon completion of the procedures described in Sections 11.5(a)
and 11.5(b), any indemnification payable to a Buyer Indemnified Party under
this ARTICLE XI must be, subject to Section 11.6, first set off against the
Escrow Agreement.
11.6. Limitations on Indemnification.
(a) The representations and warranties of the parties contained in
this Agreement shall survive the Closing for a period of 18 months after
the Closing Date, and the covenants and payment obligations of the parties
contained in this Agreement shall survive the Closing according to their
terms; provided, however, that:
(i) the representations and warranties of the Shareholders
contained in Section 5.15 (relating to taxes) and Section 5.20
(relating to employee benefit plans), and the indemnification
obligation of the Principal Shareholders with respect thereto, shall
survive the Closing for thirty (30) days after the period of the
applicable statute of limitations (including any extension thereof);
and
(ii) the representations and warranties contained in Section 5.5
(relating to capital stock) and Sections 5.7 and 6.4 (relating to
ownership of the Shares), and the indemnification obligations of the
Shareholders with respect thereto, shall survive the Closing
indefinitely.
(b) The amount of Losses suffered by the Buyer Indemnified Parties
required to be paid pursuant to this ARTICLE XI shall be reduced to the
extent of any insurance proceeds actually received by the Buyer Indemnified
Parties under insurance policies maintained by the Company and/or Buyer.
- 40 -
(c) The indemnification provisions of the Shareholders and Buyer under
this ARTICLE XI shall constitute the sole and exclusive remedies of the
Shareholders and Buyer, respectively, after the Closing Date for breach of
any of the terms, conditions, covenants, representations or warranties
contained herein or any right, claim or action arising from the
transactions contemplated by this Agreement.
(d) Notwithstanding any other provision of this Agreement, Buyer shall
have the right to payment by the Shareholders under Sections 11.2 and 11.3
only after the aggregate amount of all claims asserted under such
provisions equals or exceeds $50,000 (the "Threshold"), and once the
aggregate amount of all such claims exceeds such amount, Buyer shall be
entitled to full indemnification of all such claims for any amount in
excess of the Threshold. Notwithstanding the foregoing, the Threshold shall
not apply to any misrepresentation or breach under or relating to Section
5.1 (relating to incorporation and power), Sections 5.2 and 6.1 (relating
to execution, delivery and validity), Section 5.5 (relating to capital
stock), Sections 5.7 and 6.4 (relating to ownership of the Shares), or
Section 8.1 (relating to conduct of business).
(e) The aggregate indemnification obligation of the Principal
Shareholders pursuant to Section 11.2 shall be limited to $1,600,000, other
than with respect to any misrepresentation or breach under or relating to
Section 5.1 (relating to incorporation and power), Section 5.2 (relating to
execution, delivery and validity), Section 5.5 (relating to capital stock)
and Section 5.7 (relating to ownership of the Shares), in which case the
aggregate indemnification obligation of the Principal Shareholders pursuant
to Section 11.2 shall be limited to the portion of the Purchase Price
allocated to the Principal Shareholders. The aggregate indemnification
obligation of each Option Shareholder pursuant to Section 11.3 shall be
limited to the Escrow Shares to be issued to such Option Shareholder, other
than with respect to any misrepresentation or breach under or relating to
Section 6.1 (relating to execution, delivery and validity) and Section 6.4
(relating to ownership of the Shares), in which case the aggregate
indemnification obligation of each Option Shareholder pursuant to Section
11.3 shall be limited to the portion of the Purchase Price allocated to
such Option Shareholder. Notwithstanding anything to the contrary contained
in this Agreement, all indemnifiable Losses of the Buyer Indemnified
Parties shall be satisfied first from the Escrow Shares held by the Escrow
Agent pursuant to the Escrow Agreement.
(f) Notwithstanding any provision herein to the contrary, no party's
right to indemnification under this ARTICLE XI shall be limited whatsoever
by Section 11.6(a), 11.6(b), 11.6(c), 11.6(d) or 11.6(e) with respect to
any action, proceeding, Loss or Claim arising out of or brought on the
basis of fraud.
ARTICLE XII
MISCELLANEOUS
12.1. Press Releases and Announcements. Prior to the Closing Date, neither
Buyer nor the Shareholders shall issue, or cause or permit the Company to issue,
any press release (or make any other public announcement) related to this
Agreement or the transactions contemplated hereby or make any announcement to
the customers or suppliers of the Company or any other third parties without
prior written approval of the other party hereto, except as may be necessary,
- 41 -
in the opinion of counsel to the party seeking to make disclosure, to comply
with the requirements of this Agreement or applicable law or any national stock
exchange. If any such press release or public announcement is so required, the
party making such disclosure shall consult with the other party or parties prior
to making such disclosure, and the parties shall use all reasonable efforts,
acting in good faith, to agree upon a text for such disclosure which is
satisfactory to both parties. Neither Buyer nor the Shareholders shall publicly
disclose any confidential information of the other, except as may be necessary,
in the opinion of counsel to the party seeking to make disclosure, to comply
with the requirements of this Agreement or applicable law or any national stock
exchange.
12.2. Expenses. Except as expressly provided otherwise herein, the parties
will pay all of their own expenses in connection with the negotiation of this
Agreement, the performance of their respective obligations hereunder and the
consummation of the transactions contemplated by this Agreement (whether
consummated or not). All legal, accounting and other expenses incurred in
connection with the sale of the Shares hereunder shall be paid by the Company;
provided that such expenses shall not exceed the amounts set forth with respect
thereto on Section 8.1C of the Disclosure Schedule. All costs and expenses
incurred in connection with the audit of the Company's financial statements for
the years ended December 31, 2004 and 2003, and the 2006 Audit shall be paid by
Buyer.
12.3. Further Assurances. Each of the Shareholders, Buyer and the Company
agrees that, on and after the Closing Date, he, she or it shall take all
appropriate action and execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
provisions hereof.
12.4. Amendment and Waiver. This Agreement may not be amended or waived
except in a writing executed by the party against which such amendment or waiver
is sought to be enforced. No course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify or
amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
12.5. Notices. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered or
mailed by first class mail, return receipt requested, or when sent by Federal
Express or other overnight delivery service, or when receipt is acknowledged, if
sent by facsimile, telecopy or other electronic transmission device. Notices,
demands and communications to Buyer and the Shareholders will, unless another
address is specified in writing, be sent to the address indicated below:
(a) Notices to Buyer.
Health Fitness Corporation
Attention: Xxxxx X. Xxxxx, President and CEO
0000 Xxxxxxxx Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Facsimile: 000-000-0000
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with a copy (which shall not constitute notice) to:
Xxxxxxxxxx & Xxxxx, P.A.
Attention: Xxxx X. Xxxxxxxx
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Facsimile: 612-492-7077
(b) Notices to the Principal Shareholders.
Xxxxx X. Xxxx
00 Xxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Telephone: 000-000-0000
Xxxx X. Xxxxx
0000 Xxxxxxxxx Xxxx
Xxxxx, Xxxxx 00000
000-000-0000
with a copy (which shall not constitute notice) to:
Gardere Xxxxx Xxxxxx LLP
Attention: Xxxxxxxx X. Xxxxxxx
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Facsimile: 000-000-0000
(c) Notices to the Option Shareholders. Notice to an Option
Shareholder shall be sent to the address set forth under such Option
Shareholder's name on Exhibit A.
12.6. Assignment. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by any of the
parties hereto without the prior written consent of the other party or parties
hereto.
12.7. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement, and the remainder
of this Agreement shall remain in full force and effect only if, after excluding
the portion deemed to be unenforceable, the remaining terms shall provide for
the consummation of the transactions contemplated hereby in substantially the
same manner as originally set forth at the later of the date this Agreement was
executed or last amended.
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12.8. Complete Agreement. This Agreement, including the exhibits and
schedules hereto, contain the complete agreement between the parties and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral, which may have related to the subject matter
hereof in any way.
12.9. Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
12.10. Company Counsel. GARDERE XXXXX XXXXXX LLP HAS ACTED AS LEGAL COUNSEL
TO THE COMPANY IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND HAS NOT ACTED, AND WILL NOT ACT, AS LEGAL COUNSEL TO THE
SHAREHOLDERS. EACH SHAREHOLDER SHOULD CONSULT WITH SUCH SHAREHOLDER'S OWN LEGAL
COUNSEL WITH RESPECT TO ANY MATTERS RELATED TO THIS AGREEMENT, INCLUDING, BUT
NOT LIMITED TO (I) ENTERING INTO THIS AGREEMENT, (II) UNDERSTANDING ANY ISSUES
THAT MAY AFFECT A SHAREHOLDER INDIVIDUALLY, AND (III) AGREEING TO THE
NONCOMPETITION OBLIGATIONS CONTAINED IN THIS AGREEMENT.
12.11. Governing Law. The internal law, without regard to the conflict of
law principles, of the State of Delaware will govern all questions concerning
the construction, validity and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement, except with respect to
all questions concerning the construction, validity and interpretation of
Section 8.10, which shall be governed by the internal law, without regard to the
conflict of law principles, of the State of Minnesota.
12.12. Dispute Resolution.
(a) Subject to the specific dispute resolutions set forth elsewhere in
this Agreement, all disputes arising directly under the express terms of
this Agreement or the grounds for termination thereof shall be resolved as
follows: The parties to the dispute shall meet to attempt to resolve such
disputes. If the disputes cannot be resolved by such parties, any such
party may make a written demand for formal dispute resolution and specify
therein the scope of the dispute. Within 30 days after such written
notification, the parties shall meet for one day with an impartial mediator
and consider dispute resolution alternatives other than litigation. If an
alternative method of dispute resolution is not agreed upon within 30 days
after the one-day mediation, any party may begin litigation proceedings.
(b) Notwithstanding the provisions of Section 12.12(a), each party
hereto shall have the right, without the requirement of first seeking a
remedy through mediation, to seek preliminary injunctive or other equitable
relief in any court of competent jurisdiction if such party determines that
eventual redress through arbitration will not provide a sufficient remedy
for any violation of this Agreement by any other party or parties hereto.
- 44 -
12.13. Legal Force and Effect. This Agreement shall have no legal force or
effect until all of the parties identified who are signatories hereto have
executed and delivered a copy or counterpart of this Agreement.
12.14. Designees and Spouses. EACH SPOUSE, IF ANY, OF EACH OF THE
SHAREHOLDERS HAS EXECUTED THE AGREEMENT AND ACKNOWLEDGMENT FOLLOWING THE
SIGNATURE PAGE HERETO. BY EXECUTING SUCH AGREEMENT AND ACKNOWLEDGMENT, SUCH
PERSONS ARE CONSENTING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY AND AGREEING AND ACKNOWLEDGING THAT IF ANY SUCH SPOUSE RECEIVES ANY OF
THE PURCHASE PRICE, THEN SUCH SPOUSE SHALL BE OBLIGATED TO THE SAME EXTENT AS
THE SHAREHOLDERS FOR THE SHAREHOLDERS' INDEMNIFICATION OBLIGATIONS UNDER THIS
AGREEMENT, TO THE EXTENT OF SUCH PURCHASE PRICE RECEIVED.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
BUYER:
-----
HEALTH FITNESS CORPORATION,
a Minnesota corporation
By
--------------------------------------------------
Its
--------------------------------------------
COMPANY:
-------
XXXXXXXXXX.XXX, INC.,
a Texas corporation
By
--------------------------------------------------
Its
--------------------------------------------
SHAREHOLDERS:
------------
----------------------------------------------------
Xxxxxx Xxxxxxx, individually
----------------------------------------------------
Xxxxxxx Xxxxxxxxxx, individually
----------------------------------------------------
Xxxxxxxxx Xxxxxxxxxx, individually
----------------------------------------------------
Xxxxx X. Xxxx, Ph.D., individually
----------------------------------------------------
Xxxx X. Xxxxx, individually
----------------------------------------------------
Xxxxxx Xxxxxx, individually
----------------------------------------------------
Xxxxx Xxxxxxxx, individually
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----------------------------------------------------
Xxxx Xxxxx, individually
----------------------------------------------------
Xxxxx Xxxxx, individually
----------------------------------------------------
Xxx Xxxxxxxx, individually
- 47 -
AGREEMENT AND ACKNOWLEDGMENT
The undersigned has read the foregoing Stock Purchase Agreement, and hereby
consents to the Agreement and to the transactions contemplated thereby. The
undersigned further agrees and acknowledges that if the undersigned receives any
of the Purchase Price (either directly from Buyer or indirectly from a
Shareholder), then the undersigned shall be obligated to the same extent as the
Shareholders for the Shareholders' payment obligations under the indemnification
provisions of the Agreement, to the extent of such Purchase Price received. The
undersigned also acknowledges and agrees to the restrictions with respect to
ownership and transfer of any shares of Buyer Common Stock that may be received
by the undersigned.
Print: _________________________________
Signed: ________________________________
