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QUALITY SYSTEMS INC | BUD MERGER SUB, LLC | LACKLAND ACQUISITION II, LLC. RealDealDocs™ contains millions of easily searchable legal documents and clauses from top law firms. Search for free - click here. |
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AGREEMENT AND PLAN OF MERGER BY AND AMONG QUALITY SYSTEMS, INC. BUD MERGER SUB, LLC AND LACKLAND ACQUISITION II, LLC dba Healthcare Strategic Initiatives May 16, 2008
TABLE OF CONTENTS
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Disclosure
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AGREEMENT AND PLAN OF MERGER This Agreement and Plan of Merger (this “ Agreement ”) is entered into as of May 16, 2008 by and among (i) QUALITY SYSTEMS, INC., a California corporation (the “ Parent ”), (ii) BUD MERGER SUB, LLC, a Missouri limited liability company and a wholly-owned subsidiary of the Parent (the “ Merger Sub ”), (iii) LACKLAND ACQUISITION II, LLC, dba Healthcare Strategic Initiatives, a Missouri limited liability company (the “ Company ”), and (iv) the Members of the Company who have executed this Agreement (each an “ Indemnifying Member ” and collectively, the “ Indemnifying Members ”). This Agreement contemplates a merger of the Merger Sub with and into the Company with the Company as the surviving entity. In such merger, the Members will receive cash and Parent Stock in exchange for their Membership Interests in the Company . Now, therefore, in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows. 1.1 The Merger . Upon and subject to the terms and conditions of this Agreement, the Merger Sub shall merge with and into the Company. From and after the Effective Time, the separate company existence of the Merger Sub shall cease and the Company shall continue as the Surviving Company. The Merger shall have the effect set forth in Section 347.133 of the Missouri Revised Statutes (the “ MRS ”). 1.2 The Closing . The Closing shall take place at the offices of Rutan & Tucker, LLP, Costa Mesa, California, or at such other place as the Company and Parent may mutually agree in writing, commencing at 10:00 a.m. local time on the third Business Day following the date on which the last of the conditions set forth in Article VI have been satisfied or waived (other than conditions that may only be satisfied on the Closing Date, but subject to the satisfaction of such conditions) or on such other date as the Parent and the Company may mutually agree in writing (the “ Closing Date ”). (a) At the Closing: (i) the Company shall deliver to the Parent the various certificates, instruments and documents referred to in Section 6.1 of this Agreement; (ii) the Parent and/or Merger Sub shall deliver to the Company the various certificates, instruments and documents referred to in Section 6.2 of this Agreement; and (iii) the Surviving Company shall file the Notice of Merger with the Missouri Secretary of State. -1-
(b) At or prior to the Closing, each Member, shall deliver to the Parent an appropriate letter of transmittal and instruction of any documentation or certification, if any, of such Member’s Membership Interests (each, a “ Member Transmittal Letter ”) substantially in the form attached hereto as Exhibit A ; (c) Commencing at the Effective Time, immediately upon receipt of a properly completed Member Transmittal Letter from a Member the Parent shall pay to such Member: (A) by wire transfer of immediately available funds to an account designated by such Member in the Member Transmittal Letter the cash portion of the Closing Amount; and (B) by delivery (or electronic transfer) from the Parent’s transfer agent, to each Member the Parent Stock portion of the Closing Amount; into which such Member’s Membership Interests are converted or exchanged pursuant to Section 1.5(a) ; (d) At the Effective Time, the Parent shall deposit the cash and Parent Stock in to the Escrow Fund account with the Escrow Agent in accordance with Section 1.8 . 1.4 Additional Action . The Surviving Company may, at any time after the Effective Time, take any action, including executing and delivering any document, in the name and on behalf of the Company or the Merger Sub, in order to consummate the series of transactions contemplated by this Agreement. 1.5 Conversion of Membership Interests; Purchase Consideration . At the Effective Time, by virtue of the Merger without any further action on the part of any Party or holder of any of the Membership Interests: (a) Each Membership Interest shall be converted, in accordance with the formula set forth in Exhibit B attached hereto, into the right to receive a pro-rata portion, relative to all outstanding Membership Interests, of the Aggregate Transaction Consideration which shall be payable, without interest, at any time in which a portion of the Aggregate Transaction Consideration is distributed in accordance with the provisions of this Agreement or the Escrow Agreement (each a “ Payment Date ”). (b) Whenever cash payments are due by the Parent under this Agreement, Parent shall pay each Member by wire transfer of immediately available funds to the account designated by such Member in his or her Member Transmittal Letter, the amount determined in accordance with the preceding provision of Section 1.5(a) . (c) One hundred percent (100%) of the membership interest of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and thereafter evidence one hundred percent (100%) of the Membership Interests of the Surviving Company. (d) For illustrative purposes only, a spreadsheet showing the calculations for the assumed distributions to each Member is set forth on Exhibit C attached hereto. -2-
1.6 Closing Amount Adjustment . (a) Estimated Net Debt . (i) The Closing Amount will be adjusted downward by the amount, if any, by which the Estimated Net Debt as of the Closing is greater than Three Million Six Hundred Fifty-five Thousand Two Hundred Six Dollars ($3,655,206). (ii) Two Business Days before the anticipated Closing Date, the Company will deliver to Parent a certificate setting forth, as of the date thereof, an estimate of the amount of Cash and Debt expected as of the Closing Date (on a pro forma basis giving effect to the transactions contemplated by the Agreement)(the difference between such Debt less Cash, the “ Estimated Net Debt ”). The amount of Debt will be itemized by creditor, with supporting detail, and the amount of Cash will specify cash on hand and each cash equivalent, with supporting detail. If the amount of Estimated Net Debt as of the Closing Date is more than Three Million Six Hundred Fifty-five Thousand Two Hundred Six Dollars ($3,655,206) (the “ Target Net Debt ”), the cash portion of the Closing Amount will be reduced by the amount of such excess (the amount of such decrease, if any, shall be referred to as the “ Estimated Net Debt Adjustment ”). Under no circumstances shall the amount of Debt be in excess of $3,750,000 (the “ Maximum Allowable Closing Debt ”) unless such restriction is waived in writing by Parent. (b) Estimated Working Capital Adjustment (i) The Closing Amount will be adjusted downward by the amount by which Estimated Closing Date Working Capital is less than a negative ($586,103) exclusive of $385,000 subordinated member debt owing to Maxine Hirsch (the “ Target Working Capital ”). (ii) Two Business Days before the anticipated Closing Date, the Company will deliver to Parent a certificate setting forth, as of the date thereof, an estimate of the Closing Date Working Capital (the “ Estimated Working Capital ”), with supporting detail. If the Estimated Working Capital set forth in such certificate is less than the Target Working Capital, the cash portion of the Closing Amount will be decreased by such shortfall (the amount of such decrease shall be referred to as the “ Estimated Working Capital Adjustment ”). (c) Closing Amount Adjustment . Within five (5) Business Days after the final determination of the Final Balance Sheet pursuant to Section 1.6(d) of this Agreement, the Closing Amount will be adjusted again (the amount of any such adjustment shall be referred to as the “ Closing Amount Adjustment ”) and the Members will make such payments to the Surviving Company as are necessary, if any, as follows: (i) an amount equal to that amount by which the Estimated Net Debt is less than the Net Debt reflected on such Final Balance Sheet (only in the event that Net Debt is greater than the Target Net Debt); and (ii) an amount equal to that amount by which the Estimated Working Capital is greater than the Closing Date Working Capital reflected on such Final Balance Sheet (only in the event that Closing Date Working Capital is less than Target Working Capital). In the event a Closing Amount Adjustment is due to the Parent hereunder, the amount shall be disbursed (i) first, from the cash portion of the Escrow Fund, (ii) second, from the Parent Stock portion of the Escrow Fund (valued using the Escrow Stock Valuation), (iii) third, to the extent the Escrow Fund is insufficient to pay in full -3-
such Closing Amount Adjustment, from any other amounts of the Aggregate Transaction Consideration payable to the Members hereunder, whether by right of setoff or otherwise upon notice of such election to the Member Representatives, or (iii) fourth, if amounts of the Aggregate Transaction Consideration payable hereunder are not sufficient, upon demand from the Indemnifying Members. No Closing Amount Adjustment shall be paid or due to any of the Members. (d) Adjustment Procedures . The adjustments described in Section 1.6(c) will be determined as follows: (i) Within fifty (50) days after the Closing Date, the Parent shall prepare, in accordance with GAAP, and deliver to the Member Representatives a balance sheet of the Company as of the Closing Date (the “ Final Balance Sheet ”). The parties acknowledge and agree that, for purposes of determining the Closing Amount Adjustment pursuant to this Section 1.6(d)(i) , the Final Balance Sheet shall be prepared on a basis consistent with and utilizing the same principles, practices and policies of the Company, as those used in preparing the Most Recent Balance Sheet, subject to the Accounting Policies. The Parties acknowledge and agree that the items listed on Section 1.6(d)(i) of the Disclosure Schedules shall be included on the Final Balance Sheet. (ii) Upon receipt of the Final Balance Sheet, the Member Representatives and any professionals chosen by them shall have the right to review the Surviving Company’s books and records relating to, and the work papers of the Parent and its advisors utilized in preparing the Final Balance Sheet. The Final Balance Sheet shall be binding for purposes of the Closing Amount Adjustment unless the Member Representatives present to the Parent within 20 Business Days after receipt of the Final Balance Sheet from the Parent written notice of disagreement specifying in reasonable detail the nature and extent of the disagreement. (iii) If the Member Representatives deliver a timely notice of disagreement, the Parent and the Member Representatives shall attempt in good faith during the thirty (30) days immediately following the Parent’s receipt of timely notice of disagreement to resolve any disagreement with respect to the Final Balance Sheet. If, at the conclusion of such 30-day period, the Parent and the Member Representatives have not resolved their disagreements regarding the Final Balance Sheet, the Parent and the Member Representatives shall refer the items of disagreement for final determination to the Orange County, California office of a regional accounting firm which is mutually acceptable to the Parent and the Member Representatives (the “ Adjustment Accountants ”). However, if the Parent and Member Representatives are unable to agree on such a firm which is willing to so serve, the Parent shall deliver to the Member Representatives a list of three independent California regional accounting firms with offices in Orange County, California, that are not currently nor have they been during the past five (5) years, auditors, tax advisors or other consultants to the Parent (or Parent’s then current subsidiaries, officers, or directors), the Company or the Member Representatives, and the Member Representatives shall select one of such three firms to be the Adjustment Accountants within five (5) Business Days. The parties will be reasonably available for such firm, and shall instruct such firm to render a final determination within the 20 days immediately following the referral to the Adjustment Accountants. The Final Balance Sheet shall be deemed to be -4-
conclusive and binding on the Parent and the Members upon (A) the failure of the Member Representatives to deliver to the Parent a notice of disagreement within 20 Business Days of their receipt of the Final Balance Sheet prepared by the Buyer, (B) resolution of any disagreement by mutual agreement of the Parent and the Member Representatives after a timely notice of disagreement has been delivered to the Parent, or (C) notification by the Adjustment Accountants of their final determination of the items of disagreement submitted to them. (e) The fees and disbursements of the Adjustment Accountants under this Section 1.6(e) shall be paid by the Parent, on the one hand, and the Members, on the other hand, based on their Pro Rata Award. In the event the Members are obligated to pay the fees and disbursements of the Adjustment Accountants hereunder, such amounts shall be disbursed (i) first, from the cash portion of the Escrow Fund, (ii) second, to the extent the cash portion of the Escrow Fund is insufficient to pay in full such Closing Amount Adjustment, then from the Parent Stock portion of the Escrow Fund (valued using the Escrow Stock Valuation), (iii) third, from any other amounts of the Aggregate Transaction Consideration payable to the Members hereunder, whether by right of setoff or otherwise, or (iv) fourth, if amounts payable hereunder are not sufficient, upon demand by Parent, from the Indemnifying Members. (a) Within fifty (50) days after the second anniversary of the Closing Date (which two year period from the Closing Date shall be referred to as the “Earnout Period”), the Parent will determine in good faith a contingent payment for such Earnout Period in an amount not to exceed $1,000,000 (the “ Earnout Payment ”) (subject to the additional $650,000 earnout override described below (the “ Earnout Override ”) and deliver a written certificate containing a calculation of such amount specifying in reasonable detail the elements of each component thereof (the “ Earnout Certificate ”)) as set forth herein such that the Member Representatives can confirm such calculation was made pursuant to the terms of this Agreement, GAAP and subject to the Accounting Policies. The Earnout Payment and Earnout Override shall be divided into two equal parts with each part separately earned independent of the other part except as set forth in the criteria set forth below:
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Earnout Payment Definitions : The definitions of (i) Fiscal Year 2009 Earnout Targets, (ii) Fiscal Year 2010 Earnout Targets, and (iii) Aggregate Fiscal Year 2009/2010 Earnout Target, are each set forth on Exhibit J attached hereto. The Earnout calculation : 1. If, for Fiscal Year 2009, either: (i) the Company’s gross revenues are less than 80% of the Fiscal Year 2009 Revenue Target; or (ii) the Company’s pre-tax income is less than 80% of the Fiscal Year 2009 Income Target; (iii) then, no Earnout Payment or Earnout Override shall be made at the end of the Earnout Period. 2. If, for Fiscal Year 2010, either: (i) the Company’s gross revenues are less than 80% of the Fiscal Year 2010 Revenue Target; or (ii) the Company’s pre-tax income is less than 80% of the Fiscal Year 2010 Income Target; (iii) then, no Earnout Payment or Earnout Override shall be made at the end of the Earnout Period. 3. If: (i) for Fiscal Year 2009, (A) the Company achieves at least 80% of the Fiscal Year 2009 Revenue Target, and (B) the Company achieves at least 80% of the Fiscal Year 2009 Income Target; and (ii) for Fiscal Year 2010, (A) the Company achieves at least 80% of the Fiscal Year 2010 Revenue Target, and (B) the Company achieves at least 80% of the Fiscal Year 2010 Income Target, -6-
(iii) then, the Earnout Payment shall be made at the end of the Earnout Period according to the following (the amounts set forth are examples of data points along the continuum; it being the intention of the parties that the amounts are to be calculated on a continuous, linear basis – (for example, in the first table immediately below, a percentage of Fiscal Year 2009/2010 Aggregate Gross Revenue of 82.5 in the first column would result in percentage of Revenue Earnout Earned of 56.25): Revenue Earnout Calculation
Income Earnout Calculation
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The Earnout Override: Subject to the conditions of parts 1., 2. and 3. set forth under the “ The Earnout calculation ” paragraph of this Section 1.7 (see above), the following Earnout Override Payments may be made: 4. If the Company achieves 115% or greater of its Fiscal Year 2009/2010 Aggregate Revenue Target, $325,000 shall be paid pursuant to the Earnout Override; and 5. If the Company achieves 115% or greater of its Fiscal Year 2009/2010 Aggregate Pre-Tax Income Target, $325,000 shall be paid pursuant to the Earnout Override. 6. Provided, however, that in no case shall the total Earnout Payments (inclusive of the Earnout Override set forth in parts 4 and 5 immediately above) under this Agreement exceed, in the aggregate, $1,650,000. 7. Examples of possible outcomes for the Earnout and Earnout Override are set forth on Exhibit I attached hereto. (b) Dispute Resolution . (i) The amount of the Earnout Payment and Earnout Override set forth in the Earnout Certificate shall be binding on the Members unless the Member Representatives present to the Parent within thirty (30) days after receipt of the Earnout Certificate written notice of disagreement specifying in reasonable detail the nature and extent of the disagreement. Upon receipt of the Earnout Certificate, the Member Representatives and any professionals chosen by them shall have the right to review the Surviving Company’s books and records relating to any information contained in or related to the Earnout Certificate. If the Member Representatives deliver a timely notice of disagreement, Parent and the Member Representatives shall attempt in good faith during the sixty (60) days immediately following the Parent’s receipt of the Member Representatives’ timely notice of disagreement to resolve any disagreement with respect to such Earnout Payment or Earnout Override. (ii) If, at the end of the 60-day period referenced in subsection (i) above, Parent and the Member Representatives have not resolved all disagreements with respect to whether the calculation of the Earnout Payment or the Earnout Override is in accordance with the terms of Section 1.7 of this Agreement, GAAP, and the Accounting Policies, Parent and the Member Representatives will refer the items of disagreement to the Orange County, California office of a regional Orange County, California accounting firm mutually acceptable to the Parent and the Member Representatives (the “ Earnout Accountants ”) for final determination. However, if the Parent and the Member Representatives are unable to agree on an accounting firm willing to so serve, the Parent shall deliver to the Member Representatives a list of three independent -8-
Orange County, California regional accounting firms that are not (and have not been for the past five (5) years) auditors, tax advisors or other consultants to the Parent (or its then current subsidiaries, officers or directors) or any of its Affiliates or the Company or the Member Representatives or their respective Affiliates, and the Member Representatives shall select one of such three firms to be the Earnout Accountants within five (5) Business Days. The parties will be reasonably available for such firm, and shall instruct such firm to render a final determination and work diligently to facilitate the Earnout Payment and Earnout Override within the 30-day period immediately following the referral to the Earnout Accountants. The Earnout Accountants, Parent and the Member Representatives will enter into such engagement letters as required by the Earnout Accountants to perform under this Section 1.7(c)(ii) . The determination of the Earnout Accountants will be final and binding on the Parties. The fees and disbursements of the Earnout Accountants under this Section 1.7(c)(ii) will be paid by the Parent, on the one hand, and the Member, on the other hand, based on their Pro Rata Award. If any amount is payable by the Members, such amount will be (i) first deducted from the Earnout Payments and Earnout Overrides, if any, (ii) second, from the cash portion of the Escrow Fund, (iii) third, to the extent the cash portion of the Escrow Fund is insufficient to pay in full such fees, then from the Parent Stock portion of the Escrow Fund (valued using the Escrow Stock Valuation), and (iv) fourth, if amounts payable in this Section 6(b)(ii) are still not sufficient, from the Indemnifying Members. (c) Conduct of Business . (i) Parent is entitled to manage and operate the Surviving Company and its businesses in its sole and absolute discretion; provided, however, that (i) Parent will not make any special allocations of expenses or deferrals of revenue with respect to the Surviving Company outside the historical, usual and customary business and accounting practices of Parent with a view toward negatively impacting the Earnout Payment and Earnout Override and (ii) Parent will not cause the Surviving Company to share the burden of “Corporate” allocations of overhead as historically accounted for by Parent. (ii) The Parties acknowledge and agree that, unless otherwise agreed to in writing by each of Parent and the Member Representatives, in its and their sole discretion, during the Earnout Period, Parent will not cause to be operated through the Surviving Company any business other than the Business as of the Closing Date. (iii) Parent will maintain or cause to be maintained separate or otherwise identifiable ( e.g ., in the case of a shared general ledger) books and records for the Surviving Company at all times during the Earnout Period in a manner reasonably necessary for the financial statements of the Surviving Company to be prepared in accordance with GAAP (and in a manner consistent with the Accounting Policies) and the Earnout Payment and Earnout Override to be readily calculable therefrom. In calculating the Earnout Payment and Earnout Override, Parent shall use the same Accounting Policies, procedures, policies, methods, elections and allocations as were used in preparing the Final Balance Sheet. (d) The Earnout Payment and the Earnout Override, if any, shall be paid to the Members within fourteen (14) calendar days after such amounts have been determined for the Earnout Period, in the manner set forth under Section 1.5(b) . -9-
(e) The Parties agree to discuss in good faith any issues concerning the Earnout and Earnout Override as administered pursuant to this Section 1.7 . (a) Escrow Fund . On the Closing Date, the Parent or the Merger Sub shall deposit with the Escrow Agent the Escrow Fund. The Escrow Fund shall represent contingent Aggregate Transaction Consideration payable to the Members hereunder to the extent the Escrow Fund has not been reduced by operation of this Agreement or in accordance with the Escrow Agreement. The Escrow Fund shall be held by the Escrow Agent under the Escrow Agreement pursuant to the terms thereof. The Escrow Fund shall be held until the second anniversary of the Closing Date (except as specifically provided in Section 1.8(a)(ii) , below) as a trust fund and shall not be subject to any lien, attachment trustee process or any other judicial process of any creditor of any party, and shall be held and disbursed solely for the purposes and in accordance with the terms of the Escrow Agreement and as otherwise set forth herein; provided, however, notwithstanding anything to the contrary contained in this Agreement or the Escrow Agreement (i) one-third of all shares of Parent Stock then in the Escrow Fund shall be released therefrom on the first anniversary of the Closing Date and (ii) One Million Four Hundred Thousand Dollars ($1,400,000) of Escrowed Parent Stock, valued using the Escrow Stock Valuation, shall be released on the earlier of (A) the fifth anniversary of the Closing Date; or (B) upon joint agreement of Parent and the Member Representatives confirming the termination or other final resolution of the “Coding Activities” matter with respect to the Company (as referenced in the Disclosure Schedule) has occurred. (b) The adoption of this Agreement and the approval of the Merger by the Members shall constitute approval of the Escrow Agreement and of all of the arrangements relating thereto, including the placement of the Escrow Fund in escrow and the appointment of the Member Representatives to act on behalf of the Members. 1.9 Articles of Organization and Operating Agreement of Surviving Company . (a) The Articles of Organization of the Surviving Company immediately following the Effective Time shall be the same as the Articles of Organization of the Company immediately prior to the Effective Time. (b) The Operating Agreement of the Company immediately following the Effective Time shall be the same as the Operating Agreement of the Company immediately prior to the Effective Time. 1.10 No Further Rights . From and after the Effective Time, membership interests of the Merger Sub shall be deemed to be outstanding, and holders of certificates, if any, or evidence of Merger Sub ownership shall cease to have any rights with respect thereto except as provided herein or by law. (a) Effective as of the Closing, each of the Indemnifying Members agrees not to sue and fully releases and discharges the Company and its Members, managers, officers, -10-
assigns and successors, past and present (collectively, “ Releasees ”), with respect to and from any and all claims, issuances of the Company’s units, notes or other securities, any demands, rights, liens, contracts, covenants, proceedings, causes of action, obligations, debts, and losses of whatever kind or nature in law, equity or otherwise, whether now known or unknown, and whether or not concealed or hidden, all of which each Indemnifying Member now owns or holds or has at any time owned or held against Releasees connected with or relating to any matter occurring on or prior to the Closing Date; provided, however, that nothing in this Section 1.11 will be deemed to constitute a release by any Indemnifying Member of any right or claim of such Indemnifying Member arising out of this Agreement or any agreement entered into in connection with this Agreement or any employee benefit plan of the Company which benefit is separately disclosed on the Disclosure Schedule and identifying the Indemnifying Member entitled to such benefit. (b) It is the intention of each Indemnifying Member that such release be effective as a bar to each and every claim, demand and cause of action hereinabove specified. 1.12 Company Closing Expenses . At the Closing, subject to Section 5.7 , Company shall cause the payment of the Company Closing Expenses directly to those Persons designated in writing on Section 1.12 of the Disclosure Schedule as being entitled thereto. The Company and the Member Representatives hereby represents and warrants that there will be no other Company Closing Expenses owed except to those parties set forth in Section 1.12 of the Disclosure Schedule as the same may be updated from time to time with Parent’s prior written consent (which shall not be unreasonably withheld). The Company Closing Expenses shall be taken in to account in the computation of the Final Balance Sheet under Section 1.6(d) . 1.13 Appointment of Member Representatives . (a) The Member Representatives are hereby authorized to act as the Members’ representatives and agents for all purposes under this Agreement, including all agreements and documents annexed as Exhibits hereto. (b) Should either or both Member Representatives resign or be unable to serve, the Member or Members having received a majority of the Aggregate Transaction Consideration distributed as of the latest Payment Date shall appoint a single substitute agent to take on the responsibilities of the Member Representatives, whose appointment shall be effective on the date of the prior Members Representative’s resignation or incapacity. (c) By way of illustration only, and without limitation, the Member Representatives shall have the authority to (i) execute on behalf of each Member, as fully as if the Members were acting on their own behalf, any and all documents and agreements referred to herein, including the Escrow Agreement as the Members’ representative, (ii) give and receive notice or instructions permitted or required under this Agreement or the Escrow Agreement, (iii) authorize the release of the amounts held in the Escrow Fund to pay any Claimed Amount, or (iv) to undertake any actions with respect to the resolution of a Dispute or any disagreement with respect to the amount of any Earnout Payment or Earnout Override, including partaking in any dispute resolution process. -11-
(d) Any notice, direction or communication received by Parent, Merger Sub or the Surviving Company from the Member Representatives, or delivered to the Member Representatives by Parent, Merger Sub or the Surviving Company, shall be binding upon the Members, and each of them. The Member Representatives shall act in all matters on behalf of the Members and Parent and Merger Sub and, after the Effective Time, the Surviving Company shall be entitled to rely on the actions of the Member Representatives hereunder acting in concert or alone as the actions of the Members. Parent, Merger Sub and the Surviving Company may deliver notices and communications to the Members hereunder through the Member Representatives at the address set forth in this Agreement for notices, and such delivery shall be deemed to have been made to any or all of the Members. None of Parent, Merger Sub nor the Surviving Company shall pay any costs or expenses incurred by the Member Representatives in carrying out their obligations hereunder. Each of Parent, Merger Sub and the Surviving Company consents to the appointment of the Member Representatives to act as described hereunder. ARTICLE II The Company represents and warrants to the Parent that, except as set forth in the Disclosure Schedule, the statements contained in this Article II are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties will be true and correct as of such date). The Company shall have the right to supplement and update the Disclosure Schedule to reflect events that have occurred between the date of this Agreement and the Closing and could not have been disclosed at the date of this Agreement; provided , however , that no such supplemental or updated information shall be deemed to avoid or cure any misrepresentation or breach of warranty or constitute an amendment of any breach of representation or warranty made by the Company as of the date of this Agreement; and provided, further , however , that such right shall not be deemed in any way to waive, modify or amend the condition to Closing set forth in Section 6.1(i) hereof unless the Parent expressly waives the condition in writing. The Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Article II . The disclosures in any section or subsection of the Disclosure Schedule shall be deemed to be listed or disclosed on other sections of the Disclosure Schedule to the extent such disclosure is either (i) appropriately cross referenced in the other applicable sections or (ii) clear and unambiguous that such disclosure is applicable to the other sections and subsections of the Disclosure Schedule. 2.1 Organization, Qualification and Corporate Power . The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Missouri. The Company is duly qualified to conduct business and is in good standing under the laws of each jurisdiction listed in Section 2.1 of the Disclosure Schedule, which jurisdictions constitute the only jurisdictions in which the nature of the Company’s businesses or the ownership or leasing of its properties requires such qualification, except where the failure to be so authorized, qualified or licensed would not result in a Material Adverse Effect. The Company has all requisite company power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Company has furnished to -12-
the Parent true, complete and correct copies of its Articles of Organization and Operating Agreement. The Company is not in default under or in violation of any provision of its Articles of Organization or Operating Agreement. (a) Section 2.2(a) of the Disclosure Schedule sets forth the authorized and outstanding Membership Interests of the Company which consists of such ownership interests in the Company as set forth in the Operating Agreement. (b) Section 2.2(b) of the Disclosure Schedule sets forth a complete and accurate list, as of the date of the Agreement, of the Members, showing the percentage of Membership Interests, and the class or series, if any, of such Membership Interests, held by each Member. No outstanding Membership Interests constitute restricted Membership Interests or are otherwise subject to a repurchase or redemption right, indicating the name of the applicable Member, the vesting schedule (including any acceleration provisions with respect thereto), and the repurchase price payable by the Company. All of the issued and outstanding Membership Interests of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All of the issued and outstanding Membership Interests and securities of the Company have been offered, issued and sold by the Company in compliance with all applicable federal and state securities laws. None of the issued and outstanding Membership Interests are certificated. (c) The Company does not have any Membership Interest Purchase Plans. (d) No subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any Membership Interest of the Company is authorized or outstanding. The Company has no obligation (contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right, or to issue or distribute to holders of any Membership Interest, any evidences of indebtedness or assets of the Company. The Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any Membership Interest or any subinterest therein or to pay any dividend or to make any other distribution in respect thereof. There are no outstanding or authorized Membership Interest appreciation, phantom Membership Interest or similar rights with respect to the Company. (e) Except as set forth in Section 2.2(e) of the Disclosure Schedule, there is no outstanding agreement, written or oral, between the Company and any holder of its securities, or, to the best of the Company’s Knowledge, among any holders of its securities, relating to the sale or transfer (including agreements relating to rights of first refusal, co-sale rights or “drag-along” rights), registration under the Securities Act, or voting, of the Membership Interests of the Company. 2.3 Authorization of Transaction . The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary -13-
company action on the part of the Company, except for the Requisite Member Approval. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent such enforceability is subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or other law affecting or relating to creditors’ rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2.4 Noncontravention . Subject to the filing of the Notice of Merger as required by the MRS and the receipt of the Requisite Member Approval, neither the execution and delivery by the Company of this Agreement, nor the consummation by the Company of the transactions contemplated hereby, will (a) conflict with or violate any provision of the Articles of Organization or Operating Agreement of the Company, (b) require on the part of the Company any notice to or filing with, or any permit, authorization, consent or approval of, any Governmental Entity, (c) except as set forth in Section 2.4(c) of the Disclosure Schedule, conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument of a value in excess of $50,000 per year or duration in excess of 12 months, to which the Company is a party or by which the Company is bound or to which any of its assets is subject, (d) result in the imposition of any Security Interest upon any assets of the Company, or (e) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its properties or assets. 2.5 Subsidiaries . Except as disclosed in Section 2.5 of the Disclosure Schedule, neither the Company, nor its Members that are to become employees of the Surviving Company as part of the transactions contemplated hereby, have any direct or indirect equity participation or similar interest in any corporation, partnership, limited liability company, joint venture, trust or other business association or entity, other than (i) as a passive investor who does no more than hold such investor’s investment in the entity and does not directly or indirectly render services or advice to such entity, and (ii) outside the area and market in which the Business is conducted. 2.6 Financial Statements . The Company has provided to the Parent the Financial Statements, copies of which are attached to Section 2.6 of the Disclosure Schedule. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of the respective dates thereof and for the periods referred to therein and are consistent with the books and records of the Company; provided , however , that the Financial Statements are subject to normal recurring year-end adjustments (which will not be material) and do not include notes. 2.7 Absence of Certain Changes . Since the Most Recent Balance Sheet Date, the Company has operated its business only in the Ordinary Course of Business, and, except as set forth on Section 2.7 of the Disclosure Schedule: (a) the Company has not incurred any Debt other than changes in the principal balance of the Company’s line of credit; -14-
(b) the Company has not made any acquisition (by merger, consolidation, or acquisition of stock or assets or otherwise) of any other Person; (c) the Company has not created any Security Interest on any of its assets, tangible or intangible; (d) except for sales to customers of the Company’s products and services in the Ordinary Course of Business, the Company has not sold, assigned or transferred any of its tangible assets; (e) the Company has not entered into or amended (i) any customer agreement with a Person that is a Significant Person or (ii) any agreement, other than a customer agreement, that is or would be a Material Contract; (f) the Company has not (i) entered into or amended any employment or severance or similar agreement with any employee or any collective bargaining agreement, (ii) adopted or amended, or increased the payments to or benefits under, any profit sharing, bonus, thrift, option, deferred compensation, savings, insurance, restricted equity, pension, retirement, or other employee benefit plan for or with any of its directors, officers or employees or (iii) granted any increase in compensation payable or to become payable or the benefits provided to its directors, officers or employees, other than in the Ordinary Course of Business; (g) the Company has not (i) made or changed any Tax election or (ii) made any material change in any method of accounting or accounting practice used by it, other than any such changes required by GAAP; (h) the Company has conducted and reflected in its books and records each transaction referenced in Section 2.26 of the Disclosure Schedule on an arm’s-length basis; (i) there has been no change, event or development that has individually or in the aggregate, a Material Adverse Effect; (j) there has not been any material casualty, loss, damage or destruction (whether or not covered by insurance) to any asset of the Company; (k) the Company has not made any single expenditure or commitment to purchase personal property or for additions to property, plant and equipment in excess of $10,000; (l) the Company has not issued, sold or otherwise disposed of any debenture, note, or Equity Interest or modified or amended any right of any holder thereof; (m) the Company has not amended, terminated, waived, disposed of, or permitted to lapse, any material Permit; (n) there has not been any amendment to the Articles of Organization or Operating Agreement of the Company; and -15-
(o) the Company has not materially altered the nature of its business or business plan. 2.8 Undisclosed Liabilities . Except as provided in Section 2.8 of the Disclosure Schedule, the Company has no liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due), except for (a) liabilities shown or reserved for on the Most Recent Balance Sheet, (b) liabilities which have arisen since the Most Recent Balance Sheet Date in the Ordinary Course of Business, (c) liabilities incurred in connection with the negotiation of this Agreement and specifically set forth in Section 2.8 of the Disclosure Schedule and clearly identified as “liabilities not reflected on the Most Recent Balance Sheet”, (d) liabilities specifically and clearly set forth in other sections of the Disclosure Schedule and clearly identified as “liabilities not reflected on the Most Recent Balance Sheet”, and (e) contractual and other liabilities incurred in the Ordinary Course of Business which are not required by GAAP to be reflected on a balance sheet or that would not otherwise be required to be disclosed in the notes of the Company’s financial statements if such notes had been prepared. (a) The Company has properly filed on a timely basis all material Tax Returns that it is and was required to file, and all such Tax Returns were true, correct and complete in all respects and it has set forth in Section 2.9(a) of the Disclosure Schedule a list of all such Tax Returns that it is required to file. Except as set forth in Section 2.9(a) of the Disclosure Schedule, the Company has properly paid on a timely basis all Taxes, whether or not shown on any of its Tax Returns, that were due and payable. All Taxes that the Company is or was required by law to withhold or collect have been withheld or collected and, to the extent required, have been properly paid on a timely basis to the appropriate Governmental Entity. The Company has complied with all information reporting and back-up withholding requirements including maintenance of the required records with respect thereto, in connection with amounts paid to any employee, independent contractor, creditor or other third party. (b) Except as set forth on Section 2.9(b) of the Disclosure Schedule, the unpaid Taxes of the Company for periods ended on or prior to the Most Recent Balance Sheet Date do not exceed the accruals and reserves for Taxes (excluding accruals and reserves for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Most Recent Balance Sheet. (c) The Company is not and has never been taxed as a corporation or association taxable as a corporation under the Code or the laws of any state. The Corporation is not and has never been a member of any group of corporations with which it has filed (or been required to file) consolidated, combined, or unitary Tax Returns. The Company has no actual or potential liability under Treasury Regulation Section 1.1502-6 (or any comparable or similar provision of federal, state, local, or foreign law), or as a transferee or successor, by contract, or otherwise for any Taxes of any Person (including without limitation any affiliated, combined, or unitary group of corporations or other entities that included the Company during a prior Taxable period). The Company is not a party to, bound by, or obligated under any Tax allocation, Tax sharing, Tax indemnity or similar agreement. -16-
(d) The Company has delivered to the Parent (i) complete and correct copies of all income Tax Returns of the Company relating to income Taxes for all Taxable periods for which the applicable statute of limitations has not yet expired beginning on or after January 1, 2004, and (ii) complete and correct copies of all private letter rulings, revenue agent reports, notices of proposed deficiencies, deficiency notices, protests, petitions, closing agreements, settlement agreements, and pending ruling requests submitted by, received by or agreed to by or on behalf of the Company relating to Taxes for all Taxable periods for which the applicable statute of limitations has not yet expired. The income Tax Returns of the Company for the period beginning after January 1, 2004 have not been audited by the Internal Revenue Service or other applicable Governmental Entity or are closed by the applicable statute of limitations for all periods through and including the Taxable period specified in Section 2.9(d) of the Disclosure Schedule. The Company has delivered or made available to the Parent complete and correct copies of all other Tax Returns of the Company relating to Taxes for all Taxable periods beginning on or after January 1, 2004. No examination or audit of any Tax Return of the Company by any Governmental Entity is currently in progress or, to the Knowledge of the Company, threatened or contemplated, and the Company does not know of any basis upon which a Tax deficiency or assessment could reasonably be expected to be asserted against the Company. The Company has not been informed in writing by any jurisdiction that the jurisdiction believes that the Company was required to file any Tax Return that was not filed. (e) The Company has not (i) waived any statute of limitations which waiver is still in effect with respect to Taxes or agreed to extend the period for assessment or collection of any Taxes, (ii) requested any extension of time within which to file any Tax Return, which Tax Return has not yet been filed, or (iii) executed or filed any power of attorney relating to Taxes with any Governmental Entity. (f) The Company is not a party to any Tax litigation. The Company is not nor has it ever been a party to any specific transaction which will result in the imposition of penalties upon the Company by any taxing authority. (g) There are no Security Interests or other encumbrances with respect to Taxes upon any of the assets or properties of the Company, other than with respect to Taxes not yet due and payable. (h) The Company has not made any payments, nor is it obligated to make any payments, nor is it a party to any agreement, contract, arrangement, or plan that could obligate it to make any payments, that are or could be, separately or in the aggregate, “excess parachute payments” within the meaning of Section 280G of the Code (without regard to Sections 280G(b)(4) and 280G(b)(5) thereof). (i) No Member holds Membership Interests that are non-transferable and subject to a substantial risk of forfeiture within the meaning of Section 83 of the Code with respect to which a valid election under Section 83(b) of the Code has not been made, and no payment to any Member of any portion of the consideration payable pursuant to this Agreement will result in compensation or other income to such Member with respect to which the Parent or the Company would be required to deduct or withhold any Taxes. -17-
(j) None of the assets of the Company (i) is property that is required to be treated as being owned by any other person pursuant to the provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, (ii) is “tax-exempt use property” within the meaning of Section 168(h) of the Code, (iii) directly or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of the Code, or (iv) is subject to a lease under Section 7701(h) of the Code or under any predecessor section. (k) The Company is not subject to (i) any change in method of accounting for a Taxable period ending on or prior to the Closing Date (or as a result of the transactions contemplated by this Agreement) under Section 481 of the Code (or any corresponding or similar provision of federal, state, local or foreign Tax law); (ii) any “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign Tax law) executed on or prior to the Closing Date; or (iii) any installment sale or open transaction disposition made on or prior to the Closing Date. The Company will include in its income tax returns for periods ending on or prior to the Closing Date any prepaid amounts received on or prior to the Closing Date. The Company currently utilizes, the cash method of accounting for income Tax purposes and such method of accounting has not changed in the past five (5) years. (l) The Company has not participated in or cooperated with an international boycott within the meaning of Section 999 of the Code. (m) Section 2.9(m) of the Disclosure Schedule sets forth each jurisdiction (other than United States federal) in which the Company files, or, is required to file or has been required to file a Tax Return or is or has been liable for Taxes on a “nexus” basis and each jurisdiction that has on or after January 1, 2004 sent notices or communications of any kind requesting information relating to the Company’s nexus with such jurisdiction. (a) Except as set forth in Section 2.10(a) of the Disclosure Schedule, the Company is the true and lawful owner, and has good title to, all of the assets (tangible or intangible) purported to be owned by the Company, free and clear of all Security Interests. The Company owns or leases all tangible assets sufficient for the conduct of its businesses as presently conducted and as presently contemplated to be conducted by any business plans or projections delivered by the Company to the Parent. Each such tangible asset material to the operation of the Company’s business is free from material defects, has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear) and is suitable for the purposes for which it presently is used and contemplated to be used per such business plan. (b) Section 2.10(b) of the Disclosure Schedule lists (i) all fixed assets (within the meaning of GAAP) of the Company having a book value greater than $5,000, indicating the cost, accumulated book depreciation (if any) and the net book value of each such fixed asset as of the Most Recent Balance Sheet Date, and (ii) all other assets of a tangible nature (other than inventories) of the Company whose book value exceeds $5,000. -18-
(c) Each item of equipment, motor vehicle and other asset that the Company has possession of pursuant to a lease agreement or other contractual arrangement is in such condition that, upon its return to its lessor or owner under the applicable lease or contract, the obligations of the Company to such lessor or owner to maintain such item will have been discharged in full and no additional amounts will be due and owing thereunder. 2.11 Owned Real Property . The Company does not own, and has never owned, any real property. 2.12 Real Property Leases . Section 2.12 of the Disclosure Schedule lists all Leases and lists the term of such Lease, any extension and expansion options, and the rent payable thereunder. The Company has delivered to the Parent complete and accurate copies of the Leases. With respect to each Lease: (a) such Lease is legal, valid, binding, enforceable and in full force and effect; (b) except as disclosed on Section 2.12 of the Disclosure Schedule, such Lease will continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing; (c) the Company is not in material breach or violation of, or material default under, any such Lease, and to the Company’s Knowledge no event has occurred, is pending or, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by the Company or, to the Knowledge of the Company, any other party under such Lease and to the Knowledge of the Company, each parcel of Leased Real Property is in compliance in all material respects with all applicable Laws and Governmental Orders. The Lease for each parcel of Leased Real Property is in full force and effect, there are no material defaults under such leases by the Company, or, to the Knowledge of the Company, any other party to such leases; (d) there are no disputes, oral agreements or forbearance programs in effect as to such Lease; (e) the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold; (f) based on the Company’s experience during the past full fiscal year and up to the Closing Date, all facilities leased or subleased thereunder are supplied with utilities and other services adequate for the operation of said facilities; (g) to the Company’s Knowledge, there is not any Security Interest, easement, covenant or other restriction applicable to the real property subject to such Lease which materially impairs the current uses or the occupancy by the Company of the property subject thereto; and -19-
(h) other than the rental payment amounts set forth in Section 2.12 of the Disclosure Schedule, no other amounts are owed by the Company with respect to any parcel of Leased Real Property. (a) Section 2.13(a) of the Disclosure Schedule lists (i) each patent, patent application, copyright registration or application therefor, and trademark, service mark and domain name registration or application therefor owned or used by the Company. (b) The Company owns or has the right to use all Company Intellectual Property reasonably necessary (i) to use, sell, market and distribute the Customer Deliverables and (ii) to operate the Business. Each item of Company Intellectual Property will be owned or available for use by the Surviving Company immediately following the Closing on substantially identical terms and conditions as it was owned or available for use by the Company immediately prior to the Closing. The Company has taken commercially reasonable measures to protect the proprietary nature of each item of Company Intellectual Property, and to maintain in confidence all trade secrets and confidential information, that it owns or uses. No other Person has any rights to any of the Company Intellectual Property owned by the Company and, to the Knowledge of the Company, no other Person is infringing, violating or misappropriating any of the Company Intellectual Property. (c) None of the Company Intellectual Property, Customer Deliverables, or the sale, marketing, distribution, provision or use thereof, infringes or violates, or constitutes a misappropriation of, any Intellectual Property rights of any Person. No complaint, claim or notice, or threat thereof, has been received by the Company alleging any infringement, violation or misappropriation. The Company has provided to the Parent complete access to all written documentation in the Company’s possession relating to claims or disputes known to the Company concerning any Company Intellectual Property. (d) The Company not has licensed, distributed or otherwise granted any rights to any third party with respect to, any Company Intellectual Property or any Intellectual Property owned by a party other than the Company. The Company has not agreed to indemnify any Person against any infringement, violation or misappropriation of any Intellectual Property rights with respect to any Customer Deliverables. The Company is not, nor will it or any party hereto be as a result of the execution and delivery of this Agreement or the performances of its obligations under this Agreement, in breach of any license, sublicense or other agreement relating to the Company Intellectual Property. (e) Section 2.13(e) of the Disclosure Schedule identifies each item of Intellectual Property used or possessed by the Company that is owned by a party other than the Company, and the license or agreement pursuant to which the Company uses it (excluding off-the-shelf software programs licensed by or to the Company pursuant to nonnegotiable standard form, mass market or “shrink wrap” licenses). The Company is a party to all necessary licenses or other agreements necessary to properly use the Intellectual Property which it currently uses in the Business (in both type and number of licenses and whether off-the-shelf, shrink wrap or -20-
otherwise) and all such licenses are fully paid (or accrued for) and cover all the software and other Intellectual Property used by the Company in the Business. (f) All of the copyrightable materials (but excluding materials created, developed or otherwise provided by a third party) embedded in, or integrated in, incorporated in or bundled with the Customer Deliverables have been created by employees of the Company within the scope of their employment by the Company, or by independent contractors of the Company who have executed agreements expressly assigning all right, title and interest in such copyrightable materials to the Company. No portion of such copyrightable materials was jointly developed with any third party. (g) The Customer Deliverables, the Internal Systems, and the Company Intellectual Property are free from significant defects or programming errors, and conform in all material respects to the written documentation and specifications therefore. (h) The Internal Systems, Customer Deliverables, and the Company Intellectual Property currently used by the Company to provide products and services to their customers are fully adequate for the business of the Company as of the date of this Agreement. (a) Section 2.14 of the Disclosure Schedule lists the following agreements (written or oral) to which the Company is a party as of the date of this Agreement (each, a “ Material Contract ”): (i) any agreement (or group of related agreements) for the lease of personal property from or to third parties providing for lease payments in excess of $10,000 per annum and the expiration date of the term of each such agreement; (ii) any agreement (or group of related agreements) with software vendors, distributors or sales agents allowing for the resale, marketing or distribution of the Company’s services of products; (iii) any agreement concerning confidentiality (A) with respect to such agreement’s existence or the existence of an existing customer or vendor agreement, or (B) containing covenants restraining or limiting the freedom of the Company to engage in any line of business or compete with any Person including, without limitation, by restraining or limiting the right to solicit customers or that would be expected, following the Closing, to restrain or limit the freedom of the Parent or the Surviving Company to engage in any line of business in which it currently engages or, in the course of such activity, compete with any Person; (iv) any agreement containing a right of first refusal; (v) any agreement (or group of related agreements) that is terminable upon or prohibits a change in ownership or control of the Company, or that requires consent in connection with a change in ownership or control of the Company; -21-
(vi) any agreement (or group of related agreements) that provides for the Company to be the exclusive or a preferred provider of any product or service to any Person or the exclusive or a preferred recipient of any product or service of any Person during any period of time or that otherwise involves the granting by any Person to the Company of exclusive or preferred rights of any kind; (vii) any agreement (or group of related agreements) that provides for any Person to be the exclusive or a preferred provider of any product or service to the Company, or the exclusive or a preferred recipient of any product or service of the Company during any period of time or that otherwise involves the granting by the Company to any Person of exclusive or preferred rights of any kind; (viii) any agreement (or group of related agreements) in which a party has agreed to purchase at least $10,000 per year of goods or services or that includes specific service level commitments; (ix) any agreement (or group of related agreements) in which the Company has granted manufacturing rights, “most favored nation” or similar pricing provisions or marketing or distribution rights relating to any products or territory; (x) any agreement (or group of related agreements) under which it has created, incurred, assumed or guaranteed (or may create, incur, assume or guarantee) Debt or under which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible; (xi) any agreement for the disposition of any significant portion of the assets or business of the Company (other than sales of products in the Ordinary Course of Business) or any agreement for the acquisition of the assets or business of any other entity (other than purchases of inventory or components in the Ordinary Course of Business); (xii) any employment or consulting agreement; (xiii) any agreement, still in effect, involving any current or former officer, director or Member of the Company or an Affiliate thereof; (xiv) any agreement which contains any provisions requiring the Company to indemnify any other party; and (xv) any other agreement (or group of related agreements) either (A) involving more than $50,000 per year, or (B) that is otherwise material to the Company. (b) The Company has made available to the Parent a complete and accurate copy of each agreement listed in Section 2.13 or Section 2.14 of the Disclosure Schedule, or with respect to each such unwritten agreement, the Company has provided a detailed description of the terms of such unwritten agreement. With respect to each agreement so listed: (i) the agreement is legal, valid, binding and enforceable and in full force and effect; (ii) the agreement will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the -22-
Closing; and (iii) neither the Company nor, to the Knowledge of the Company, any other party, is in material breach or violation of, or material default under, any material provision of such agreement, and no event has occurred, is pending or, to the Knowledge of the Company, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a material breach or material default of any material provision of such agreement by the Company or, to the Knowledge of the Company, of any other party under such agreement. 2.15 Accounts Receivable . Each and all Accounts Receivable are valid receivables enforceable and fully collectible in the ordinary course of business as historically conducted, free and clear of any claim, right of setoff or other dispute, demand or future obligation of any nature whatsoever net of any applicable allowance for doubtful accounts reflected in the Most Recent Balance Sheet. Except as set forth in Section 2.15 of the Disclosure Schedule, the Company has not received any written notice from an account debtor stating that any Account Receivable is subject to any contest, claim or setoff by such account debtor. 2.16 Powers of Attorney . Except as set forth in Section 2.16 of the Disclosure Schedule, there are no outstanding powers of attorney executed on behalf of the Company. 2.17 Insurance . Section 2.17 of the Disclosure Schedule lists each insurance policy (including fire, theft/crime, casualty, comprehensive general liability, workers compensation, business interruption, environmental, errors and omissions, directors and officers fiduciary liability, employment practices liability, product liability and automobile insurance policies and bond and surety arrangements) to which the Company is a party, all of which are in full force and effect including the name of the insurer, policy numbers and whether such policy is a claims-made or occurrence policy. Except as set forth in Section 2.17 of the Disclosure Schedule, there is no claim pending or, if having been disclosed, no such claim or existing facts were questioned, denied or disputed by the underwriter of such policy. All premiums due and payable under all such policies have been paid. The Company has not been denied insurance coverage at any time during the past five years and no policies have been cancelled or have been refused to be renewed by the insurer in the past five years except as set forth in Section 2.17 of the Disclosure Schedule. The Company has no Knowledge of any threatened termination of, or premium increase with respect to, any such policy except as set forth in Section 2.17 of the Disclosure Schedule. Each such policy will continue to be enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing. The Company has not failed to timely give any notice required or failed to satisfy any subjectivities under such insurance policies or binders of insurance. 2.18 Litigation . Except as set forth in Section 2.18 of the Disclosure Schedule, there is no Legal Proceeding which is pending or, to the Knowledge of the Company, has been threatened in writing against the Company. There are no judgments, orders or decrees outstanding against the Company. (a) No Customer Deliverable is subject to any guaranty, warranty, right of credit or other indemnity. Section 2.19 of the Disclosure Schedule sets forth the aggregate expenses incurred by the Company in fulfilling its obligations under its guaranty, warranty, right -23-
of credit and other indemnity provisions during the fiscal year and the interim period covered by the Financial Statements. (b) The Company has no liability arising out of any injury to individuals or property as a result of the ownership, possession, or proper use of any product manufactured, sold, leased or delivered by the Company. (a) Section 2.20 of the Disclosure Schedule contains a list of all employees of the Company, along with the position and the annual rate (or hourly rate, where applicable) of compensation of each such person. (b) The Company is not a party to or bound by any collective bargaining agreement, and has not experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes during the past five years. The Company has not committed any unfair labor practice during the past five years. The Company has no Knowledge of any organizational effort made or threatened, either currently or within the past two years, by or on behalf of any labor union with respect to employees of the Company. (c) All employee expenses and benefits have been accrued on the Most Recent Balance Sheet for all periods prior to and up through the date thereof. (d) To the Knowledge of the Company, no officer, or Key Employee has any plans to terminate employment with the Company. (a) Section 2.21(a) of the Disclosure Schedule contains a complete and accurate list of all Company Plans as of the date of this Agreement. Prior to the date of this Agreement, Company has made available to Parent complete and accurate copies of documents embodying each of the Company Plans and related plan documents including (without limitation) plan documents, trust documents, group annuity contracts, plan, plan amendments, insurance policies or contracts, participant agreements, employee booklets, administrative service agreements, summary plan descriptions, plan summaries or descriptions, minutes, resolutions, compliance and nondiscrimination tests for the last three plan years, standard COBRA forms and related notices, registration statements and prospectuses, and, to the extent still in its possession, any material employee communications relating thereto. With respect to the Company Plans which are subject to ERISA reporting requirements, the Company has provided copies of the Form 5500 reports and any applicable financial statements, including schedules and reports filed for the last four years. The Company has furnished Parent with the most recent Internal Revenue Service determination, advisory or opinion letter issued with respect to each such Company Plan which is intended to be a qualified plan as described in Code Section 401(a), and nothing has occurred since the issuance of each such letter which could reasonably be expected to cause the loss of tax-qualified status of any Company Plan subject to Code Section 401(a). -24-
(b) Each Company Plan has been administered in accordance with its terms and in compliance with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code), except violations that would not have, individually or in the aggregate, a Material Adverse Effect. The Company and the ERISA Affiliates have performed all material obligations required to be performed by them under, are not in any material respect in default under or in violation of, and have no Knowledge of any material default or violation by any other party to, any Company Plan. All contributions which are due and are required to be made by the Company or any ERISA Affiliate have been made within the time period prescribed by ERISA to each Company Plan which is subject to ERISA. All filings and reports required to be made by each Company Plan subject to ERISA were prepared in good faith and timely filed, and the Company has properly and timely filed and distributed or posted all notices and reports to employees or participants in the Company Plans that are required to be filed, distributed or posted by law, other than violations that would not have, individually or in the aggregate, a Material Adverse Effect. There has been no “prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code, with respect to any Company Plan that is not exempt under Section 408 of ERISA. Neither the Company nor any ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any Company Plan. With respect to each Company Plan, no “reportable event” within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has occurred that would, individually or in the aggregate, reasonably be expected to likely result in a Material Adverse Effect. No Company Plan has assets that include securities issued by the Company or any ERISA Affiliate and no Company Plan constitutes a security which is required to be registered under applicable state or federal securities laws. (c) No suit, investigation, audit, administrative proceeding, governmental or legal action, or other litigation (except claims for benefits payable in the normal operation of the Company Plans and proceedings with respect to qualified domestic relations orders and similar orders) is pending, or to the Knowledge of the Company is threatened, against or relating to any Company Plan asserting any rights or claims to benefits under any Company Plan, including audit or investigation by the IRS or United States Department of Labor. (d) With respect to each Company Plan that is intended to be qualified under Section 401(a) of the Code, the Company Plan (i) has obtained a favorable determination letter from the Internal Revenue Service as to the Company Plan’s qualified status under the Code and as to the exemption from tax under the provisions of Code Section 501(a) of the trust created thereunder, (ii) has been established under a standardized master and prototype or volume submitter plan for which a favorable Internal Revenue Service advisory letter or opinion letter has been obtained by the plan sponsor and upon which the adopting employer may rely, or (iii) has time remaining to apply under applicable Treasure Regulations or Internal Revenue Service pronouncements for a determination letter or opinion. Nothing has occurred since the issuance of each such letter that could reasonably be expected to cause the loss of the tax-qualified status of any Company Plan subject to Section 401(a) of the Code. Each Company Plan that is required to satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for compliance with, and satisfies the requirements of Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year ending prior to the Closing Date. -25-
(e) The Company has not nor has any ERISA Affiliate ever maintained, established, sponsored, participated in, contributed to, or is obligated to contribute to, or otherwise incurred any obligation or liability (including, without limitation, any contingent liability) under any “multiemployer plan” as defined in Section 3(37) of ERISA or to any “pension plan” (as defined in Section 3(2) of ERISA) subject to Section 412 of the Code or Title IV of ERISA. With respect to each Company Plan that is a “multiemployer plan” (within the meaning of Section 3(37) of ERISA), neither the Company nor any ERISA Affiliate has any actual or potential withdrawal liability (including, without limitation, any contingent liability) from any complete or partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any such multiemployer plan. (f) With respect to each Company Plan, the Company and each of its ERISA Affiliates have complied in all material respects with the following to the extent applicable to such Company Plan: (i) the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the regulations thereunder or any state law governing health care coverage extension or continuation; (ii) the applicable requirements of the Family Medical Leave Act of 1993 and the regulations thereunder; (iii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”); and (iv) the applicable requirements of the Cancer Rights Act of 1998 and the Newborn and Mother’s Health Protection Act of 1996. (g) All anticipated contributions and funding obligations are accrued on the Company’s financial statements to the extent required by GAAP. The Company has expensed and accrued as a liability the present value of future benefits under each applicable Company Plan for financial reporting purposes to the extent required by GAAP. The assets of each Company Plan that is funded are reported at their fair market value on the books and records of such Company Plan. The Company has no obligation to provide retiree health coverage or other retiree welfare benefits other than continuation coverage required under Section 4980B of the Code or other applicable law and insurance conversion privileges under state law. (h) No act or omission has occurred and no condition exists with respect to any Company Plan that would subject the Company or any ERISA Affiliate to (i) any material fine, penalty, tax or liability of any kind imposed under ERISA or the Code or (ii) any contractual indemnification or contribution obligation protecting any fiduciary, insurer or service provider with respect to any Company Plan. (i) No Company Plan is funded by, associated with or related to a “voluntary employee’s beneficiary association” within the meaning of Section 501(c)(9) of the Code. (j) Each Company Plan may be amended, terminated or otherwise discontinued unilaterally by the Company at any time or after the specified amount of required notice without liability or expense to the, Company (or after the Closing Date, the Parent) or such Company Plan as a result thereof, except insofar as benefits thereunder shall have vested and cannot be modified, in respect of claims incurred prior to such amendment or termination, as may be required under applicable requirements of law, and for reasonable administrative expenses associated with such termination or amendment. No Company Plan, plan documentation or agreement, summary plan description or other written communication -26-
distributed generally to employees by its terms prohibits the Company from amending, terminating or otherwise discontinuing any such Company Plan. (k) The Company does not have any (i) agreement with any Member, director, executive officer or other Key Employee of the Company (A) the benefits of which are contingent, or the terms of which are altered, upon the occurrence of a transaction | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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