EXHIBIT 10.18
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ASSET PURCHASE AGREEMENT
AMONG
ADVANCED AESTHETICS, INC.
ADVANCED K, LLC
GEORGETTE KLINGER, INC.
THOMAS F. PYLE, JR.
AND
JUDITH D. PYLE
DATED APRIL 23, 2004
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S>
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1. Transfer of
Assets.......................................................................................1
------------------
1.1 Acquired
Assets.................................................................................1
---------------
1.2 Excluded
Assets.
..............................................................................1
---------------
1.3 Assumption
of Liabilities.
....................................................................1
-------------------------
2.
Purchase
Price...........................................................................................1
--------------
2.1 Purchase
Price.
...............................................................................1
--------------
2.2 Estimated
Closing
Statement.....................................................................1
---------------------------
2.3 Closing
Payments and
Deliveries.................................................................1
-------------------------------
2.4 Final
Closing Statement.
......................................................................1
-----------------------
2.5 Changes to
the Purchase
Price...................................................................1
-----------------------------
2.6 Access to
Records...............................................................................1
-----------------
2.7
Prorations.
...................................................................................1
----------
2.8 Allocation
of Purchase Price.
.................................................................1
----------------------------
3.
Closing.
...............................................................................................1
-------
4.
Representations and Warranties of the Shareholders and the Seller.
.....................................1
-----------------------------------------------------------------
4.1
Organization.
.................................................................................1
------------
4.2
Capitalization; No Subsidiaries.
..............................................................1
-------------------------------
4.3
Authorization; Validity of
Agreement............................................................1
------------------------------------
4.4 No
Violations; Consents and
Approvals...........................................................1
-------------------------------------
4.5 Financial
Statements............................................................................1
--------------------
4.6 No
Material Adverse Change.
...................................................................1
--------------------------
4.7 No
Undisclosed Liabilities.
..................................................................1
--------------------------
4.8 Adverse
Effect..................................................................................1
--------------
4.8 Legal
Proceedings; Compliance with Law;
Licenses................................................1
------------------------------------------------
4.9 Employee
Benefit Plans;
ERISA...................................................................1
-----------------------------
4.10
Real
Property...................................................................................1
-------------
4.11
Intellectual Property Assets.
.................................................................1
----------------------------
4.12
Title to Acquired Assets.
.....................................................................1
------------------------
4.13
Assumed Contracts.
............................................................................1
------------------
4.14
Taxes...........................................................................................1
-----
4.15
Affiliated Party Transactions.
................................................................1
-----------------------------
4.16
Environmental
Matters...........................................................................1
---------------------
4.17
No Brokers.
...................................................................................1
----------
4.18
Insurance.
....................................................................................1
---------
4.19
Delivery of Documents; Corporate Records.
.....................................................1
----------------------------------------
4.20
Labor Matters.
................................................................................1
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4.21
Condition and
Sufficiency of
Assets............................................................1
------------------------------------
4.22
No Termination of Key or Significant Employees.
...............................................1
----------------------------------------------
4.23
Investment Undertaking,
Etc.....................................................................1
---------------------------
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5.
Representations and Warranties of the Shareholders.
....................................................1
--------------------------------------------------
5.1 Ownership.
....................................................................................1
---------
5.2
Authorization; Validity of
Agreement............................................................1
------------------------------------
5.3 No
Violations; Consents and
Approvals...........................................................1
-------------------------------------
6.
Representations and Warranties of the Buyer Group.
.....................................................1
-------------------------------------------------
6.1
Organization....................................................................................1
------------
6.2
Capitalization..................................................................................1
--------------
6.3
Authorization; Validity of
Agreement............................................................1
------------------------------------
6.4 No
Violations; Consents and
Approvals...........................................................1
-------------------------------------
6.5 Financial
Statements............................................................................1
--------------------
6.6 No
Material Adverse Change.
...................................................................1
--------------------------
6.7 No
Undisclosed Liabilities.
...................................................................1
--------------------------
6.8 Legal
Proceedings...............................................................................1
-----------------
6.9
Taxes...........................................................................................1
-----
6.10
Shares of Capital Stock.
......................................................................1
-----------------------
7.
Other Agreements of the
Parties..........................................................................1
-------------------------------
7.1 Tax
Returns;
Taxes..............................................................................1
------------------
7.2
Non-Disclosure of Confidential
Information......................................................1
------------------------------------------
7.3 No
Solicitation of Employees or
Customers.......................................................1
-----------------------------------------
7.4
Non-Competition.................................................................................1
---------------
7.5 Public
Statements.
............................................................................1
-----------------
7.6
Cooperation on Taxes.
.........................................................................1
--------------------
7.7 Employees
and
Benefits..........................................................................1
----------------------
7.8
Stockholders Agreement; Registration Rights Agreement.
........................................1
-----------------------------------------------------
7.9 Documents
relating to the Leased Real Property.
...............................................1
----------------------------------------------
8.
Other Documents to be Delivered at the
Closing...........................................................1
----------------------------------------------
8.1 Deliveries
of the Shareholders and the Seller.
................................................1
---------------------------------------------
8.2 Deliveries
of the Buyer Group.
................................................................1
-----------------------------
9.
Survival of Representations and
Warranties...............................................................1
------------------------------------------
9.1 Survival
of Representations and Warranties of the Shareholders and the
Seller.
................1
-----------------------------------------------------------------------------
9.2 Survival
of Representations and Warranties of the Buyer Group.
................................1
-------------------------------------------------------------
9.3 Survival
of Liabilities for which Notice is
Given...............................................1
-------------------------------------------------
10.
Indemnification..........................................................................................1
---------------
10.1
Indemnification by the Shareholders and the Seller.
...........................................1
--------------------------------------------------
10.2
Indemnification by the Buyer
Group..............................................................1
----------------------------------
10.3
Indemnification
Procedures......................................................................1
--------------------------
10.4
Limitations.....................................................................................1
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10.5
Exclusive Remedy.
.............................................................................1
----------------
10.6
Materiality Qualification.
....................................................................1
-------------------------
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11.
Miscellaneous............................................................................................1
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11.1
Transaction Fees and Expenses.
................................................................1
-----------------------------
11.2
Bulk Transfer
Laws..............................................................................1
------------------
11.3
Notices.
......................................................................................1
-------
11.4
Further
Assurances..............................................................................1
------------------
11.5
No Waiver.
....................................................................................1
---------
11.6
Entire Agreement.
.............................................................................1
----------------
11.7
Governing Law.
................................................................................1
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11.8
Jurisdiction;
Venue.............................................................................1
--------------------
11.9
Assignment......................................................................................1
----------
11.10
Binding Effect.
...............................................................................1
--------------
11.11 No
Third Party Beneficiaries.
.................................................................1
----------------------------
11.12
Amendment and Waiver.
.........................................................................1
--------------------
11.13
Severability.
.................................................................................1
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11.14
Specific Performance.
.........................................................................1
--------------------
11.15
Counterparts.
.................................................................................1
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SCHEDULES
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Schedule 1.1
Certain Acquired Assets; Permitted Liens
Schedule 1.2
Excluded Assets
Schedule 1.3(h)
Trade Payables and Accrued Expenses
Schedule 2.3(d)
Chicago Reimbursement
Schedule 4.1
Foreign Qualifications
Schedule 4.2
Capitalization of Seller; Options
Schedule 4.4
Consents
Schedule 4.6
Exceptions to No Material Adverse Change
Schedule 4.7
Exceptions to No Undisclosed Liabilities
Schedule 4.8
Legal Proceedings; Licenses
Schedule 4.9(a)
Employee Benefits Plans
Schedule 4.9(b)
Legal Compliance
Schedule 4.9(c)
Exceptions to Insured Plans
Schedule 4.9(d)
Determination Letter
Schedule 4.9(e)
Exceptions to Qualified Status
Schedule 4.9(i)
Benefit Plans that Cannot be Amended of Terminated
Schedule 4.9(k)
List of Agreements
Schedule 4.9(l)
Acceleration of Benefits
Schedule 4.9(q)
Unfunded Obligations
Schedule 4.9(s)
Termination of Plans
Schedule 4.10
Leased Real Property
Schedule 4.13
Certain Seller Contracts and Consents
Schedule 4.15
Certain Affiliate Transactions
Schedule 4.16
Environmental Matters
Schedule 4.18
Insurance Policies
Schedule 4.21
Condition and Sufficiency of Assets
Schedule 6.2
Capitalization of Buyer
Schedule 6.4
Certain Buyer Consents
Schedule 6.8
Buyer Group Legal Proceedings
Schedule 7.7(a)
Transferred Employees
Schedule 7.7(c)
Transferred Plans
Schedule 7.7(h)
Vacation Policy
Schedule 7.9
Lease Assignments
EXHIBITS
Exhibit A
Form of Promissory Note
Exhibit B
Certificate of Designation
Exhibit C
Intentionally Omitted
Exhibit D
Form of Stockholders Agreement
Exhibit E
Form of Registration Rights Agreement
Exhibit F
Form of Opinion of Counsel for the Seller and the Shareholders
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Exhibit G
Form of Bill of Sale and Assignment
Exhibit H
Form of Opinion of Counsel for the Buyer Group
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v
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ASSET PURCHASE AGREEMENT
April 23, 2004
The
parties to this agreement are Advanced Aesthetics, Inc., a
Delaware
corporation (the "Parent"), Advanced K,
LLC, a Delaware limited liability
company and an indirect, wholly-owned
subsidiary of the Parent (the "Buyer" and,
together with the Parent, the "Buyer
Group"), on the one hand, and Georgette
Klinger, Inc., a Delaware corporation (the
"Seller"), and Thomas F. Pyle, Jr.
and Judith D. Pyle, who together own in
excess of 90% of the issued and
outstanding capital stock of the Seller
(each, a "Shareholder"), on the other
hand.
The Buyer
desires to acquire from the Seller, and the Seller desires to
sell to the Buyer, substantially all of the
Seller's assets and properties, and
the Buyer desires to assume and agree to
discharge certain of the Seller's
liabilities, in consideration for the
payment of cash, a promissory note and
preferred stock.
It is
therefore agreed as follows:
1.
Transfer of Assets.
1.1
Acquired Assets. Upon the terms and subject to the conditions
contained in this agreement, the Seller is
hereby transferring and assigning to
the Buyer the following assets and rights
owned and used by the Seller (all of
such assets are referred to as the
"Acquired Assets"), free and clear of any and
all liens or other encumbrances ("Liens")
except Permitted Liens (as hereinafter
defined):
(a) all
Seller's accounts receivable, notes receivable, drafts or other
similar instruments;
(b) all
inventory, including but not limited to finished goods, work in
process, raw materials and supplies
(including, without limitation, all
proprietary products held for sale by
Seller), including without limitation the
items listed on Schedule 1.1;
(c) the
Seller's prepaid security deposits listed on Schedule 1.1 and
up
to $8,000 in total of petty cash balances
maintained at Seller's facilities;
(d) all
Seller's machinery, equipment, tools and dies, hand tools,
vehicles, computers and other data
processing hardware (and all software related
thereto or used therewith) and other
tangible personal property of similar
nature;
(e) all
Seller's office furniture, office equipment, fixtures and other
tangible personal property of similar
nature;
(f)
interests to the extent owned by the Seller in any patent,
copyright,
trademark, trade name, brand name, service
mark, logo, symbol, trade dress,
design or representation or expression of
any thereof, or registration or
application for registration thereof, or
any other invention, trade secret,
technical information, know-how,
proprietary right or intellectual property,
technologies, methods, designs, drawings,
software (including
<PAGE>
documentation and source code listings),
processes and other proprietary
properties or information, including,
without limitation, the name "Georgette
Klinger" and all variations thereof and all
similar names and the goodwill
associated therewith, together with all
trademarks, service marks and trade
names of the Seller relating thereto
(collectively, the "Intellectual Property
Assets"); provided, however, that the term
"Intellectual Property Assets" shall
not include any software, hardware or
network servers owned by The Pyle Group,
LLC related to the Citrix initiative
undertaken on behalf of the Seller.
(g) all
leases, agreements and other rights to use, occupy or possess,
or
otherwise, with respect to machinery,
equipment, vehicles and other tangible
personal property of similar nature to
which the Seller is a party, and all
rights arising under or pursuant to such
leases, agreements and rights, except
for Licenses (as such term is hereinafter
defined) that cannot be transferred by
the Seller;
(h) all
alterations, fixtures, trade fixtures and personal property
relating to the Leases (as hereinafter
defined) to the extent owned by the
Seller;
(i) all of
the Seller's contracts, agreements, options, commitments,
licenses, leases, instruments and other
understandings (including the
Transferred Plans as defined in Section
7.7) (collectively, "Assumed
Contracts"), except Excluded Contracts (as
such term is hereinafter defined);
(j) the
Seller's customer and supplier lists, mailing lists, catalogs,
brochures and handbooks;
(k) other
books, records, files, plans, notebooks, production and sales
data and other data of the Seller, whether
or not in tangible form or in the
form of intangible computer storage media
such as optical disks, magnetic disks,
tapes and all similar storage media;
and
(l) the
insurance policies listed and described on Schedule 1.1.
For
purposes of this agreement, "Permitted Liens" means (a)
mechanics,
materialmen's, carrier's, repairer's,
construction and other Liens arising from
or incurred in the ordinary course of
business or that are not yet due and
payable or are being contested in good
faith (including, without limitation,
Liens created in connection with the
matters that are the subject of the Chicago
Reimbursement, as such term is hereinafter
defined); (b) Liens for Taxes not yet
due and payable or which are being
contested in good faith; (c) encumbrances and
restrictions on real property (including
easements, covenants, rights of way and
similar restrictions of record) that do not
materially interfere with the
present uses of such real property; and (d)
Liens described on Schedule 1.1.
1.2
Excluded Assets. The only assets of the Seller that the Buyer is
not
acquiring hereby are (i) the consideration
to be delivered to the Seller for the
Acquired Assets; (ii) any insurance
policies or rights under such policies
(including any prepaid premiums, held by
the Seller), other than the insurance
policies (A) related to the Transferred
Plans, or (B) described on Schedule 1.1;
(iii) the certificate of incorporation and
all other corporate and
capitalization records of the Seller; (iv)
any equity interest in the Seller;
(v) the software, hardware and network
servers listed on Schedule 1.2, owned by
The Pyle Group, LLC related to
2
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the Citrix initiative undertaken on behalf
of the Seller; (vi) cash and cash
equivalents (except for up to $8,000 in
total of petty cash balances maintained
at Seller's leased facilities); (vii) the
Seller's contracts, agreements,
options, commitments, licenses, leases,
instruments and other understandings
listed on Schedule 1.2; (viii) any Employee
Benefit Plan and related trust
assets not included as a Transferred Plan
((vii) and (viii) hereto collectively
the "Excluded Contracts"); (ix) Licenses of
the Seller that cannot be
transferred by the Seller; and (x) bank,
investment and other accounts relating
to cash and cash equivalents.
1.3
Assumption of Liabilities. Subject to the terms and conditions of
this
agreement, Buyer is assuming and will
perform and discharge when due all of the
following liabilities (the "Assumed
Liabilities"):
(a) the
Seller Prepaid Services Liability (as such term is defined in
Section 2.3);
(b) all
liabilities to purchase goods in accordance with the terms of
the
open purchase orders set forth in Schedule
4.13;
(c) all
liabilities first arising after the date hereof ("Closing
Date"),
under and pursuant to the Assumed
Contracts;
(d) the
obligation to sell goods and/or provide services in accordance
with the terms of the sales order set forth
in Schedule 4.13;
(e) the
liabilities related to employees and employee benefit matters
to
the extent expressly assumed by the Buyer
pursuant to Section 7.7 hereof;
(f) all
liabilities to customers for the refund of the purchase price
to,
and/or exchange of products with, customers
who return products sold by Seller,
whether or not sold prior to the Closing
Date;
(g) all
liabilities that arise on account of Buyer Group's conduct of
the
business of Seller, Buyer's use of the
Acquired Assets and the sale of products
by Buyer Group, in each case first arising
after the Closing Date;
(h) the
trade accounts payable and accrued expenses set forth in
Schedule
1.3(h) or incurred subsequent to April 21,
2004, all of which were incurred in
the ordinary course of business consistent
with prior practice (and which do
include any liability to any affiliated
party); and
(i) all
liabilities under the Leases assigned to Buyer under this
agreement.
2.
Purchase Price
2.1
Purchase Price. The consideration for the Acquired Assets is
(such
consideration is the "Purchase Price"): (a)
$4,000,000 in cash, subject to
adjustment pursuant to Section 2.3 and
Section 2.5 (the "Cash Payment"); (b) a
$1,000,000 promissory note to the order of
the Seller in the form of Exhibit A
(the "Promissory Note"); (c) 3,250 shares
of the Parent's
3
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Series A Preferred Stock (the "Preferred
Shares") having the rights and
privileges set forth in the certificate of
designation attached as Exhibit B
(the "Certificate of Designation"), which
sets forth a liquidation preference of
$1,000 per share; and (d) $299,266.07 for
the Chicago Reimbursement (as such
term is hereinafter defined).
2.2
Estimated Closing Statement. The Seller has delivered to the Buyer
a
written statement (the "Estimated Closing
Statement") setting forth the
estimated Seller Prepaid Services Liability
(as defined below) as of the Closing
Date. "Seller Prepaid Services Liability"
means the remaining balance on all
series, gift certificates and cards and
prepaid debit cards of the Seller
outstanding on the Closing Date.
2.3
Closing Payments and Deliveries.
Concurrently herewith, Buyer is
(a) Paying
to the Seller by wire transfer an amount equal to the Cash
Payment, as adjusted by either (i) if the
Seller Prepaid Services Liability
exceeds $8,974,703 (the "Target Prepaid
Services Liability"), then subtracting
from the Cash Payment 35% of the excess of
the Seller Prepaid Services Liability
over the Target Prepaid Services Liability;
or (ii) if the Target Prepaid
Services Liability exceeds the Seller
Prepaid Services Liability, then adding to
the Cash Payment 35% of the excess of the
Target Prepaid Services Liability over
the Seller Prepaid Services Liability;
(b)
Delivering the Promissory Note to the Seller;
(c)
Delivering to the Seller certificates representing the
Preferred
Shares registered in the name of the
Seller; and
(d) Paying
to the Seller by wire transfer an amount equal to $299,266.07
for the Chicago Reimbursement. "Chicago
Reimbursement" means all amounts paid or
incurred by the Seller in connection with
the remodeling of the leased facility
in Chicago, Illinois subsequent to February
20, 2004 that are reflected on
invoices or other demonstrable payment
obligations of the Seller and that are
listed on Schedule 2.3(d) hereto.
2.4 Final
Closing Statement. Within ten business days after the Closing
Date, the Seller shall deliver to the Buyer
a written statement (the "Final
Closing Statement") that shall set forth
the Seller Prepaid Services Liability
as of the Closing Date.
2.5
Changes to the Purchase Price.
(a) Not
more than 45 days after the Closing Date, the Buyer may notify
the
Seller in writing (a "Dispute Notice") that
the Buyer disputes the amount of the
Seller Prepaid Services Liability set forth
on the Final Closing Statement. In
the event that the Buyer and the Seller
shall fail to agree on the final amount
of the Seller Prepaid Services Liability
within 15 days after the Seller shall
have been given the Dispute Notice, then
the national office of McGladrey &
Pullen, LLP (or such other national
accounting firm as may be agreed to by the
parties) (the "Independent Auditor") shall
determine such amount. The decision
of the Independent Auditor with respect to
the final determination of the amount
of the Seller Prepaid
4
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Services Liability shall be final and
binding on all parties hereto. The costs
and expenses of the Independent Auditor
shall be borne equally by the Buyer
Group and Seller.
(b) In the
event that the amount of the Seller Prepaid Services Liability
set forth on the Final Closing Statement
(as finally determined in accordance
with Section 2.5(a)) exceeds the amount of
the Seller Prepaid Services Liability
set forth on the Estimated Closing
Statement, the Seller shall promptly
following such determination pay to the
Buyer by certified check or wire
transfer of immediately available funds an
amount equal to 35% of the amount by
which the Seller Prepaid Services Liability
set forth on the Final Closing
Statement (as finally determined in
accordance with Section 2.5(a)) exceeds the
amount of the Seller Prepaid Services
Liability set forth on the Estimated
Closing Statement.
(c) In the
event that the amount of the Seller Prepaid Services Liability
set forth on the Estimated Closing
Statement exceeds the amount of the Seller
Prepaid Services Liability set forth on the
Final Closing Statement (as finally
determined in accordance with Section
2.5(a)), the Buyer shall promptly
following such determination pay to the
Seller by certified check or wire
transfer of immediately available funds an
amount equal to 35% of the amount by
which the Seller Prepaid Services Liability
set forth on the Estimated Closing
Statement exceeds the amount of the Seller
Prepaid Services Liability set forth
on the Final Closing Statement (as finally
determined in accordance with Section
2.5(a)).
2.6 Access
to Records. From and after the Closing, the Buyer agrees to
permit the Seller, the Seller's accountants
and their respective
representatives, during normal business
hours, to have reasonable access to, and
to examine and make copies of, all books
and records of the Seller transferred
to the Buyer pursuant to this agreement,
which documents and access are
necessary to prepare and review the Final
Closing Statement to be delivered by
the Seller in accordance with Section 2.4.
The Seller similarly agrees to permit
the Buyer, the Buyer's accountants and
their respective representatives, during
normal business hours, to have reasonable
access to any books and records of the
Seller which do not constitute Acquired
Assets, in order to enable them to
review the Final Closing Statement or for
other bona fide reasons.
2.7
Prorations. The following prorations relating to the Acquired
Assets
are being made as of the Closing Date, with
the Seller liable to the extent such
items relate to any time period up to and
including the Closing and the Buyer
liable to the extent such items relate to
periods subsequent to the Closing.
Except as otherwise specifically provided
herein, the net amount of all such
prorations will be settled and paid within
ten business days after the Closing
Date.
(a)
Personal property taxes, real estate taxes and assessments, and
other
taxes, if any, on or with respect to the
Acquired Assets; provided that special
assessments for work actually commenced or
levied prior to the Closing Date
shall be paid by the Seller;
(b) Rents,
additional rents, taxes and other items payable by the Seller
under any lease, license, permit, contract
or other agreement or arrangement to
be assigned to or assumed by the Buyer,
including, without limitation, all
"percentage rent" or similar provision
under and pursuant to the Leases;
5
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(c) The
amount of rents, taxes and charges for sewer, water, fuel,
telephone, electricity and other utilities;
provided that if practicable, meter
readings shall be taken at the Closing Date
and the respective obligations of
the parties determined in accordance with
such readings;
(d)
prepaid premiums on the insurance policies included in the
Acquired
Assets; and
(e) All
other items normally adjusted in connection with similar
transactions to
the extent such items do not constitute
Assumed Liabilities.
If the
actual expense of any of the above items for the billing period
within which the Closing Date falls is not
known within ten business days after
the Closing Date, the proration shall be
made based on the expense incurred in
the previous billing period, for expenses
billed less often than quarterly, and
on the average expense incurred in the
preceding three billing periods, for
expenses billed quarterly or more often.
The Seller agrees to furnish the Buyer
with such documents and other records as
shall be reasonably requested in order
to confirm all proration calculations.
2.8
Allocation of Purchase Price. The Purchase Price shall be
allocated
among the Acquired Assets in accordance
with their relative fair market value as
reasonably determined by the Buyer and
approved by the Seller, such approval not
to be unreasonably withheld, and the
parties shall be bound by such allocation
for all purposes, including determining any
Tax, and the parties shall prepare
and file all of their respective Tax
Returns in a manner consistent with such
allocations. The parties agree to execute
an IRS Form 8594 asset acquisition
statement setting forth the agreed upon
allocation of the Purchase Price among
the Acquired Assets. In the event that any
allocation is questioned, audited or
disputed by any Taxing Authority, the party
receiving notice shall promptly
notify and consult with the other party
concerning the strategy for the
resolution thereof, and shall keep the
other party apprised of the status or
such question, audit or dispute and the
resolution thereof.
3.
Closing. The closing of the transactions contemplated by this
agreement
(the "Closing") is taking place at the
offices of Jenkens & Gilchrist Parker
Chapin LLP, counsel to the Buyer and the
Parent on April 23, 2004.
4.
Representations and Warranties of the Shareholders and the Seller.
The
Shareholders and the Seller, jointly and
severally, represent and warrant to the
Buyer as follows:
4.1
Organization. The Seller is a corporation duly incorporated,
validly
existing and in good standing under the
laws of the state of Delaware and has
all requisite corporate power and authority
to: (a) conduct its business as it
is being conducted; (b) perform its
obligations under this agreement and each
other document to be executed and delivered
pursuant to this agreement
(collectively, with this agreement, the
"Transaction Documents"); and (c)
consummate the transactions contemplated by
each Transaction Document to which
it is a party. The Seller is qualified or
licensed to do business in each
jurisdiction listed on Schedule 4.1, which
are the only jurisdictions where the
nature of its business or assets requires
such qualification or licensing
(except where the failure to be so
qualified or licensed would not result
6
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in a material adverse effect on the
business, financial condition, properties,
prospects, assets and liabilities of the
Seller taken as a whole (a "Seller
Material Adverse Effect")). The
Shareholders have heretofore delivered to the
Buyer true and correct copies of the
certificate of incorporation and bylaws of
the Seller, as presently in effect.
4.2
Capitalization; No Subsidiaries. Schedule 4.2 sets forth the names
of
all of the beneficial and record owners of
the shares of common stock of the
Seller and the number of shares held by
each such owner. The shares of common
stock of the Seller owned of record and
beneficially by the Shareholders are
owned free and clear of all Liens. Except
as set forth on Schedule 4.2, no
person has any options or other right to
acquire any capital stock of the
Seller. The Seller does not own any equity
interest in any entity.
4.3
Authorization; Validity of Agreement.
(a) The
Seller has duly authorized this agreement and each of the other
Transaction Documents to which it is a
party.
(b) This
agreement and each other Transaction Document to which the
Seller
is a party has been duly executed and
delivered by the Seller.
(c) The
execution and delivery of this agreement and the performance of
the Seller's obligations hereunder have
been duly authorized by all necessary
corporate action by the Board of Directors
and shareholders of the Seller, and
no other corporate proceedings on the part
of the Seller or its shareholders are
necessary to authorize such execution,
delivery and performance. This agreement
and each other Transaction Document to
which the Seller or any Shareholder is a
party is a valid and binding obligation of
the Seller and Shareholders,
respectively, enforceable against each in
accordance with their respective
terms, except as enforceability may be
limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws
relating to or affecting creditors
rights generally or by general equitable
principles (regardless of whether such
enforceability is considered in a
proceeding in equity or at law).
4.4 No
Violations; Consents and Approvals.
(a) The
performance by the Seller of its obligations under this
agreement
and the other Transaction Documents to
which it is a party does not and will
not: (i) violate any provision of the
certificate of incorporation or bylaws of
the Seller; (ii) result in a breach or
default (or give rise to any right of
termination, amendment, cancellation or
acceleration) under any of the terms of
any Assumed Contract to which the Seller is
a party or by which any of the
Acquired Assets are bound or otherwise
subject; or (iii) violate any order,
statute, rule or regulation applicable to
the Seller or any Acquired Asset.
(b) Except
as set forth on Schedule 4.4, no filing with, notification to,
or authorization of, any governmental
entity or regulatory authority (each, a
"Governmental Entity") is required in
connection with the performance by the
Seller of its obligations under this
agreement or any other Transaction Document
to which the Seller is a party or the
consummation of the transactions
contemplated hereby and thereby.
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<PAGE>
(c) Except
as set forth on Schedule 4.4, no filing with, notice to or
consent of (collectively, "Consents") any
individual or entity (each, a
"Person") is required to be made or
obtained by the Seller in connection with
the performance by the Seller of this
agreement or any other Transaction
Document to which the Seller is a party or
the consummation of the transactions
contemplated hereby and thereby.
4.5
Financial Statements.
(a) (i)
The audited balance sheet of the Seller as at December 31, 2001
and the related statement of operations,
cash flows and stockholders' equity of
the Seller for the one-year period ended
December 31, 2001, together with the
notes and schedules thereto and accompanied
by the report of Grant Thornton LLP
thereon, a copy of each of which has been
delivered to the Buyer, fairly present
in all material respects the financial
condition of Seller as of the date of
such balance sheet and the results of its
operations and cash flows for the
periods covered by such statement of
operation and have been prepared in
accordance with generally accepted
accounting principles as in effect as of the
date such financial statements were
prepared, consistently applied ("GAAP"). The
unaudited balance sheets of the Seller at
December 31, 2002 and 2003 (said
December 31, 2003 balance being referred to
herein as the "Balance Sheet" and
December 31, 2003 being referred to herein
as the "Balance Sheet Date") and the
related statements of operations, cash
flows and stockholders' equity of the
Seller for the one-year periods ended on
the respective dates of such balance
sheets, a copy of each of which has been
delivered to the Buyer, fairly present
in all material respects the financial
condition of Seller as of the date of
each such balance sheet and the results of
its operations and cash flows for the
periods covered by such statements of
operation, and have been prepared on a
basis consistent with prior years.
(ii) The books of account and other records of the Seller and
its
subsidiaries, all of which have been made available to the Buyer,
are
complete
and correct and have been maintained in accordance with sound
business
practices.
4.6 No
Material Adverse Change. Since the Balance Sheet Date, and
except
as set forth on Schedule 4.6 or as
contemplated by this agreement:
(a) no
event, condition or circumstance has occurred that would, or
would
be reasonably likely to, have a Seller
Material Adverse Effect;
(b) the
business of the Seller has been conducted in the ordinary
course
and consistent with past practice;
(c) there
has not been:
(i) to the Seller's knowledge, any material adverse change in
the
relationships of the Seller with its licensees, customers,
suppliers,
payors,
reimbursers, and/or persons or organizations that refer
business
to it;
(ii) any material damage, destruction or casualty loss (whether
or
not
covered by insurance) suffered by the Seller;
8
<PAGE>
(iii) any transaction material to the business or the assets of
the
Seller,
except in the ordinary course of business;
(iv) any employment agreement or deferred compensation
agreement
entered
into between the Seller and any of its employees providing for
payments
in excess of $25,000;
(v) any increase, not in the ordinary course of business, in
the
compensation payable or to become payable by the Seller or the
adoption of
any new
(or amendment to or alteration of any existing) Employee
Benefit
Plan or
bonus, incentive, compensation, pension, stock, matching gift,
profit
sharing, retirement, death benefit or other fringe benefit
plan;
(vi) any increase in the aggregate indebtedness for borrowed
money
or any
increase in purchase commitments or other liabilities or
obligations (whether absolute, accrued, contingent or otherwise)
incurred
by the
Seller, except for liabilities, commitments and obligations
incurred
in the ordinary course of business consistent with past
practice;
(vii) any Lien created on any of the assets of the Seller,
other
than
Permitted Liens;
(viii) any material labor dispute involving the employees of
the
Seller;
(ix) any sale, assignment, transfer or other disposition or
license
of any
material tangible or intangible assets of the Seller, other
than
the sale
of inventory in the ordinary course of business consistent with
past
practice;
(x) any amendment, termination or waiver by the Seller of any
right
of
substantial value belonging to it;
(xi) any capital expenditure or commitment by the Seller not
fully
paid for
except in the ordinary course of business consistent with past
practice
and not exceeding $50,000 in the aggregate; or
(xii) any agreement by the Seller to do any of the foregoing;
and
(d) the
Seller has not:
(i) made any change in any method of accounting or accounting
practice,
principle or policy; incurred any indebtedness, obligation or
liability
or paid, satisfied or discharged any indebtedness, obligation
or
liability
prior to the due date or maturity thereof, except current
indebtedness, obligations and liabilities in the ordinary course
of
business
consistent with past practice; or
(ii) made any change or modification in any manner of its: (A)
billing
and collection policies, procedures and practices with respect
9
<PAGE>
to
accounts receivable or unbilled charges; (B) policies, procedures
and
practices
with respect to the provision of discounts, rebates or
allowances; or (C) payment policies, procedures and practices with
respect
to
accounts payable.
4.7 No
Undisclosed Liabilities. Except as set forth on Schedule 4.7,
to
the Seller's knowledge, the Seller has no
liabilities (whether accrued or
unaccrued, absolute or contingent,
liquidated or unliquidated, due or to become
due or otherwise) other than those that are
set forth or reserved against in the
Balance Sheet or that were incurred since
the dates of the Balance Sheet in the
ordinary course of business, none of which,
individually or in the aggregate
would have a Seller Material Adverse
Effect.
4.8 Legal
Proceedings; Compliance with Law; Licenses.
(a) Except
as set forth on Schedule 4.8, there is no claim or other
proceeding or investigation ("Proceeding")
pending or, to the Seller's
knowledge, threatened that involves or
affects the Seller or the Acquired Assets
by or before any Governmental Entity or any
other Person.
(b) The
Seller is in compliance with all applicable statutes, orders,
laws, permits and other rules and
regulations of all Governmental Entities
(collectively, "Laws"), including but not
limited to Laws relating to Taxes;
occupational safety and health; sanitary
and hygiene; hiring, wages, hours, and
programs, and the manufacture, sale and
promotion of products and services
offered and/or sold by it, except where
non-compliance would not have a Seller
Material Adverse Effect. Since July 18,
1998, (i) the Seller has not received
any written notice from any Governmental
Entity of any violation of any Law
relating to its business or personnel and
(ii) there has been no product
liability claim relating to the sale of
products by Seller or any communication
from any regulatory authority with respect
to the sale or promotion thereof
which relates to a violation or potential
violation of any Laws.
(c) The
Seller has every license, permit, certification, qualification
or
franchise required by any Governmental
Entity (each, a "License") for the Seller
to conduct its business as currently
conducted, except where the failure to have
such Licenses would not result in a Seller
Material Adverse Effect. All of such
Licenses of the Seller are listed on
Schedule 4.8, are in full force and effect,
and the Seller has not received notice of
any proposed cancellation or
suspension of any such License nor, to the
Seller's knowledge, is any
cancellation or suspension of any License
threatened.
4.9
Employee Benefit Plans; ERISA.
(a)
Schedule 4.9(a) contains a complete and accurate list of all
Employee
Benefit Plans. For purposes of this
agreement, "Employee Benefit Plan" means any
"employee pension benefit plan" (as defined
in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA")), any "employee
welfare benefit plan" (as defined in
Section 3(1) of ERISA), and any other
written or oral plan, agreement or
arrangement involving direct or indirect
compensation (other than payroll) or any
other employee benefit of any kind,
including without limitation insurance
coverage, severance benefits, disability
benefits, deferred compensation, bonuses,
stock options, stock purchase, phantom
stock, stock appreciation or other forms of
incentive compensation or
post-retirement compensation, whether
formal or
10
<PAGE>
informal, funded or unfunded, and whether
or not legally binding, which the
Seller on or before the Closing, has
sponsored, maintained or contributed to or
been required to contribute to or has had
any obligation, for the benefit of any
present or former Shareholders, employees,
retirees, directors or independent
contractors (or their beneficiaries,
dependents or spouses) of the Seller, and
for which a liability of the Seller of any
nature, contingent or otherwise
currently exists, or for which there is a
reasonable expectation of such
obligation or liability. Except as
disclosed on Schedule 4.9(a), complete and
accurate copies of the following documents
for each Employee Benefit Plan have
been delivered to the Buyer by Seller: (A)
any Employee Benefit Plans which have
been reduced to writing and any related
amendments, (B) written summaries of any
unwritten Employee Benefit Plan, (C) any
related trust agreement, insurance
contract annuity contract or other funding
agreement (including all amendments
thereto) and any summary plan description
required under ERISA, including any
modification communicated to or required to
be communicated to any participant,
(D) any annual report filed or required to
be filed on Internal Revenue Service
("IRS") Forms 5500, 5500-C or 5500-R and
all related schedules for the last
three years immediately before the year of
the Closing, (E) the most recent
determination letter with respect to any
Employee Benefit Plan, if any, and the
full and complete application thereof
submitted to the IRS, any actuarial report
and any financial statements prepared or
issued with respect to any Employee
Benefit Plan, (F) any collective bargaining
agreement pursuant to which
contributions have been made or obligations
incurred (including both pension and
welfare benefits) by the Seller, and any
collective bargaining agreement
pursuant to which contributions are being
made or obligations are owed by the
Seller, (G) any contract in effect relating
to any Employee Benefit Plan,
including contracts or agreements with any
third party administrator, actuary,
investment manager, consultant, or other
independent contractor and any
insurance agreements, including stop-loss
agreements, (H) any notification and
election forms used to notify any former or
active employee of the Seller (or
their beneficiaries, dependents or spouses)
of his or her continuation coverage
rights under any group health plan,
including without limitation his or her
rights under ERISA ss.601 et seq. and
Section 4980B of the Code, and (I) any
communication to any participant relating
to any Employee Benefit Plan in
connection with any amendment, termination,
establishment, increase or decrease
in benefits, acceleration or deceleration
of payments, vesting schedules or
other events which would result in any
liability to the Seller.
(b) Except
as disclosed on Schedule 4.9(b), each Employee Benefit Plan has
been administered in all material respects
in accordance with its terms and in
compliance with all applicable Laws,
statutes, orders, rules and regulations,
including, without limitation, ERISA and
the Code, and the Seller has met its
obligations under applicable provisions of
ERISA and the Code and the
regulations thereunder, and other
applicable Laws with respect to such Employee
Benefit Plan and has made all required
contributions thereto.
(c) Except
as disclosed on Schedule 4.9(c), benefits under each Employee
Benefit Plan which is an employee welfare
benefit plan are fully insured by an
insurance company unrelated to Seller.
(d) Except
as disclosed on Schedule 4.9(d), all the Employee Benefit Plans
that are intended to be qualified under
Section 401(a) of the Code have received
determination letters from the IRS to the
effect that such Employee Benefit
Plans are qualified and the plans and the
trusts related thereto are exempt from
federal income Taxes under Sections 401(a)
and
11
<PAGE>
501(a), respectively, of the Code. Such IRS
determination letters cover all
amendments to the Code effected by the Tax
Reform Act of 1986 and subsequent
legislation. No such determination letter
has been revoked and revocation has
not been threatened and nothing has
occurred which would cause the loss of such
qualification. No such Employee Benefit
Plan has been amended since the date of
its most recent determination letter in any
respect, and no act or omission has
occurred, that would adversely affect its
qualification.
(e) Each
Employee Benefit Plan sponsored by the Seller which is intended
to be qualified under the Code has, since
January 1, 2001, received an opinion
letter from the IRS concerning the
qualified status of such Employee Benefit
Plan, and, except as described on Schedule
4.9(e), no event has occurred which
would have a material adverse effect on the
qualified status of any such
Employee Benefit Plan.
(f) The
Seller has never sponsored, maintained, contributed to or was
or
is required to contribute to, or has any
obligation whatsoever relating to, or
reasonably expects to incur an obligation
relating to, an Employee Benefit Plan
subject to Section 412 of the Code or Title
IV of ERISA. At no time has the
Seller sponsored, maintained, contributed
to or was or is required to contribute
to, or has any obligation whatsoever
relating to, or reasonably expects to incur
an obligation relating to, any
"multiemployer plan" (as defined in Section
4001(a)(3) of ERISA).
(g) No
Employee Benefit 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, a "welfare benefit
fund" within the meaning of Section
419 of the Code, a "qualified asset
account" within the meaning of Section 419A
of the Code or a "multiple employer welfare
arrangement" within the meaning of
Section 3(40) of ERISA. No Employee Benefit
Plan which is an employee welfare
benefit plan is a multiemployer plan.
(h) The
Seller has not violated the health care continuation
requirements
of the Consolidated Omnibus Reconciliation
Act of 1985, as amended ("COBRA"), or
any amendment to COBRA, or any similar
provisions of state Law applicable to its
employees. The Seller has in all instances
in the last thirty-six (36) months
reserved the right to provide an
administrative fee of two percent (2%) or fifty
percent (50%), as applicable under
COBRA.
(i) Except
as described on Schedule 4.9(i), no action or omission of the
Seller or any Shareholder, director,
officer, employee, or agent thereof, and no
plan documentation or agreement, summary
plan description or other written
communication distributed generally to
employees, in any way restricts, impairs
or prohibits (whether legally binding or
not) the Seller from amending, merging,
terminating or otherwise discontinuing any
Employee Benefit Plan in accordance
with the express terms of any such plan and
applicable Law at or after Closing.
No agreement, arrangement, commitment,
understanding or plan documentation or
other written communication distributed
generally to employees exists to create
any additional Employee Benefit Plan.
(j) None
of the assets of any Employee Benefit Plan is or has been
invested in any property constituting
employer real property or any employer
security within the meaning of Section
407(d) of ERISA.
12
<PAGE>
(k)
Schedule 4.9(k) provides a complete list of each: (i) written
agreement with any present or former
Shareholder, employee, retiree, director or
independent contractor (or their
beneficiaries, dependents or spouses) of the
Seller (A) the benefits of which are
contingent, or the terms of which are
materially altered, upon the occurrence of
a transaction involving the Seller of
the nature of any of the transactions
contemplated by this Agreement, (B)
providing any term of employment or
compensation guarantee or (C) providing
severance benefits or other benefits after
the termination of such person; and
(ii) agreement, plan or arrangement,
including without limitation any stock
option plan, stock appreciation right plan,
restricted stock plan, stock
purchase plan, severance benefit plan, or
any Employee Benefit Plan, any of the
benefits of which will be increased, or the
vesting of the benefits or time of
payment of which will be accelerated, by
the occurrence of any of the
transactions contemplated by this Agreement
or the value of any of the benefits
of which will be calculated on the basis of
any of the transactions contemplated
by this Agreement.
(l) Except
as disclosed in Schedule 4.9(l), no Employee Benefit Plan
provides that any of the benefits under any
such Employee Benefit Plan will be
increased, nor will the vesting of the
benefits under such Employee Benefit
Plans be accelerated, by the occurrence of
any of the transactions contemplated
by this agreement nor will the value of any
of the benefits under the Employee
Benefits Plans described in the directly
preceding sentence of this section be
calculated on the basis of any of the
transactions contemplated by this
Agreement and no payments under any such
Employee Benefit Plans or other
agreement will be parachute payments under
Section 280G of the Code that are
non-deductible to the Seller or Buyer or be
subject to Taxes under Section 4999
of the Code.
(m) No act
or omission has occurred and no condition exists with respect
to any employee benefit plan (not including
Transferred Plans, as defined in
Section 7.7 of this agreement) of an ERISA
Affiliate that would subject Buyer to
any fine, penalty, Tax or liability of any
kind imposed under ERISA, the Code or
any other applicable Law and no such
liability is anticipated and no basis for
such liability exists. For purposes of this
Agreement, ERISA Affiliate means any
entity which is, or ever has been, a member
of (i) a controlled group of
corporations (as defined in Section 414(b)
of the Internal Revenue Code of 1986,
as amended ("Code")), (ii) a group of
trades or businesses under common control
(as defined in Section 414(c) of the Code),
or (iii) an affiliated service group
(as defined under Section 414(m) of the
Code or the regulations under Section
414(o) of the Code), any of which includes
or included the Seller.
(n) None
of the Employee Benefit Plans is currently, or has ever been,
under investigation, audit or review by the
DOL, the IRS, the PBGC or any other
federal or state agency, and no such
investigation, audit or review is pending
or anticipated. None of the Employee
Benefit Plans is liable, or ever has been
liable, for any federal, state, local or
foreign Taxes except as may be due in
the ordinary course of administration of
such Employee Benefit Plan, and no such
Tax is anticipated and no basis for such
Tax exists. There is no transaction nor
has there ever been any transaction in
connection with the Seller, any fiduciary
of an Employee Benefit Plan who is an
employee of the Seller, or, to the
knowledge of Seller, any fiduciary of an
Employee Benefit Plan who is not an
employee of Seller, which could subject
Seller to either a civil penalty
assessed pursuant to ERISA Section 502, a
Tax imposed by Section 4975 of the
13
<PAGE>
Code or liability for a breach of fiduciary
responsibility under ERISA, and, to
the knowledge of Seller, no basis for any
such liability exists.
(o) There
are no pending or threatened claims, actions, suits,
grievances,
audits, investigations, or other
proceedings, involving, directly or indirectly,
any Employee Benefit Plan, any fiduciary
thereof who is an employee of the
Seller or, to the knowledge of Seller, any
fiduciary thereof who is not an
employee of the Seller, or any rights or
benefits thereunder (except claims for
benefits payable in the normal operation of
the Employee Benefit Plan and
proceedings with respect to qualified
domestic relations orders), and, to the
knowledge of Seller, no basis for any such
proceeding exists.
(p)
Neither the Seller, nor any Employee Benefit Plan, nor any
fiduciary
of an Employee Benefit Plan who is an
employee of the Seller, nor, to the
knowledge of Seller, any fiduciary of an
Employee Benefit Plan who is not an
employee of the Seller, has engaged in any
transaction in violation of Section
406(a) or (b) of ERISA or any nonexempt
"prohibited transaction" (as defined in
Section 4975(c)(1) of the Code) which could
subject the Seller or Buyer to any
Taxes, penalties or other liabilities
resulting from such nonexempt prohibited
transaction.
(q) Except
as disclosed on Schedule 4.9(q), there are no unfunded
obligations which have subjected or could
subject the Seller to any liability or
obligation under any Employee Benefit Plan
providing benefits after termination
of employment of any Shareholder, employee,
former employee, retiree, director
or independent contractor (or their
beneficiaries, dependents or spouses) of the
Seller, including but not limited to, any
retiree health coverage and deferred
compensation, but excluding continuation of
health coverage required to be
continued under Section 4980B of the Code
("COBRA") or similar state law or
insurance conversion privileges under state
Law. No written or oral
representations have been made to any
Shareholder, employee, former employee,
retiree, director or independent contractor
(or their beneficiaries, dependents
or spouses) of the Seller promising or
guaranteeing any employer payment or
funding for the continuation of medical,
dental or disability coverage after
termination of employment or services
beyond that legally required.
(r) Full
payment has or will, prior to the Closing, been made of all
amounts which the Seller is directly or
indirectly required, under applicable
Law, the terms of any Employee Benefit Plan
or any agreement relating to any
Employee Benefit Plan to have paid as a
contribution, premium or other
remittance thereto or benefit thereunder if
such payment has a deadline on or
before the Closing Date. The Seller has
made adequate provisions for reserves or
accruals in accordance with GAAP to meet
contribution
