Exhibit 2.1
STOCK PURCHASE AGREEMENT
BY AND
AMONG
INVESTOOLS
INC.,
PROPHET FINANCIAL SYSTEMS,
INC.
AND
ITS SHAREHOLDERS
January 26,
2005
STOCK
PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of
January 26, 2005 (the “ Agreement ”), is by
and among INVESTOOLS INC., a Delaware corporation (the “
Purchaser ”), PROPHET FINANCIAL SYSTEMS, INC., a
California corporation (the “ Company ”), each
of Timothy Knight and Andreas Bechtolsheim (together, the “
Primary Shareholders ”) and each of the individuals or
entities listed on Exhibit A hereto (collectively, the
“ Other Shareholders, ” and together with the
Primary Shareholders, the “ Shareholders
”). Each of the Purchaser, the Company and the
Shareholders is a “ Party ” and, collectively,
they are the “ Parties .”
W I T
N E S S E T H:
WHEREAS, the Shareholders own in the aggregate
100% of the issued and outstanding shares of common stock, $0.01
par value per share, of the Company (the “ Common
Stock ”);
WHEREAS, the Purchaser desires to purchase from
the Shareholders, and the Shareholders desire to sell to the
Purchaser, all of the Common Stock, which constitutes all of the
issued and outstanding capital stock of the Company, upon the terms
and conditions set forth herein (the “ Stock Sale
”);
WHEREAS, the Company is in the business of
administering an Internet website devoted to providing financial
analytical tools and investment research; and
WHEREAS, each of the Parties is making certain
representations, warranties, covenants and indemnities as expressly
set forth herein as an inducement to the other Parties to enter
into this Agreement.
NOW, THEREFORE, in consideration of the
premises and the representations, warranties, covenants and
agreements stated herein, the receipt and sufficiency of which are
hereby acknowledged, the Parties, intending to be legally bound,
covenant and agree as follows:
Section 1.1.
Defined Terms .
As used in this Agreement, certain words and terms shall have the
meanings ascribed to them in the Glossary attached hereto as
Exhibit B . Other initially capitalized terms have the
meanings ascribed to them elsewhere in this Agreement.
Section 1.2.
Accounting Terms
. All accounting terms not specifically defined herein shall
be construed in accordance with generally accepted accounting
principles applied on a consistent basis (“ GAAP
”).
Section 2.1.
Closing . The
Stock Sale as provided for in this Agreement (the “
Closing ”) shall take place at the offices of
Purchaser’s counsel, Locke Liddell & Sapp LLP, at 3400 JP
Morgan Chase Tower, 600 Travis, Houston, Texas 77002, or at such
other place as the
Purchaser and the
Shareholder Representative shall agree in writing. The date
on which the Closing occurs is the “ Closing Date
.”
Section 3.1.
Common Stock .
Upon the terms and conditions of this Agreement, the Shareholders
will sell, transfer and deliver to the Purchaser, and the Purchaser
will purchase from the Shareholders, the Common Stock on the
Closing Date.
Section 3.2.
Purchase Price
. Upon the terms and conditions of this Agreement, and as
full consideration for the Common Stock and the representations,
warranties, covenants and agreements provided by the Shareholders
herein, the Purchaser will pay to the Shareholders the aggregate
sum of $8,000,000, subject to adjustment as set forth in
Section 3.3 (the “ Purchase Price
”). Subject to any adjustment as set forth in
Section 3. 3 and to the escrow provisions of
Section 3.5 , the Purchase Price shall be payable in
cash (by check and/or wire transfer) at Closing (the “
Cash Consideration ”). The Shareholder
Representative has provided to the Purchaser, at or prior to
Closing, true, accurate and complete schedules setting forth (i)
the ownership, beneficially and of record, of all issued and
outstanding Common Stock (the “ Ownership Schedule
”), and (ii) a true, accurate and complete
schedule setting forth the aggregate amount to be paid to each
Shareholder opposite such Shareholder’s name (the “
Consideration Schedule ”).
Section 3.3.
Purchase Price
Adjustment .
(a)
Attached hereto as Exhibit C is a worksheet, prepared on
behalf of the Shareholders by the Shareholder Representative,
setting forth a reasonable estimate of the Indebtedness and Net
Working Capital of the Company as of the Closing Date as well as a
computation of the estimated Adjustment Amount (the “
Estimated Adjustment Amount ”). If the Estimated
Adjustment Amount is a positive number, the Purchase Price payable
at Closing shall be decreased in an amount equal to the Estimated
Adjustment Amount, with a reduction (allocated on a Pro-Rata Basis)
in the Cash Consideration otherwise payable to each Shareholder at
Closing. If the Estimated Adjustment Amount is a negative
number ( i.e. , if
the Company’s Net Working Capital in excess of $200,000
exceeds the Company’s Indebtedness as of Closing), the
Purchase Price payable at Closing shall be increased in an amount
equal to the Estimated Adjustment Amount, with an increase
(allocated on a Pro-Rata Basis) in the Cash Consideration otherwise
payable to each Shareholder at Closing.
(b)
Within 90 days after the Closing, the Purchaser shall prepare a
computation of the actual Adjustment Amount as of the Closing Date
(the “ Actual Adjustment Amount ”). If
within 15 days following delivery of such computation the
Shareholder Representative does not object in writing thereto, then
the Actual Adjustment Amount shall be the final, binding and
conclusive computation of the Actual Adjustment Amount. If
the Shareholder Representative objects in writing to the
computation, then the Purchaser and the Shareholder Representative
shall negotiate in good faith and attempt to resolve the
disagreement. Should such negotiations not result in an
agreement within 20 days, then the matter shall be
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submitted to an
independent accounting firm of national reputation mutually
acceptable to both the Purchaser and the Shareholder Representative
(the “ Neutral Auditor ”). If the Purchaser and
the Shareholder Representative are unable to agree on the Neutral
Auditor, then they shall request the American Arbitration
Association to appoint the Neutral Auditor. All fees and
expenses relating to appointment of the Neutral Auditor and the
work, if any, to be performed by the Neutral Auditor will be borne
equally by the Purchaser and the Primary Shareholders (unless the
Primary Shareholders’ share of such fees and expenses is less
than $25,000, in which case such amount shall be distributed to the
Neutral Auditor, upon the agreement and instruction of Purchaser
and the Shareholder Representative, from the Escrow Funds,
allocated on a Primary Pro-Rata Basis). The Neutral Auditor
will deliver to the Purchaser and the Shareholder Representative a
written determination (such determination to include a worksheet
setting forth all material calculations used in arriving at such
determination and to be based solely on the provisions of this
Agreement and information provided to the Neutral Auditor by the
Purchaser and the Shareholder Representative, or their respective
representatives) of the disputed items within 30 days of receipt of
the disputed items, which determination will be final, binding and
conclusive on the Parties.
(c)
Promptly following agreement on or delivery of a final written
determination setting forth the Actual Adjustment Amount (as
contemplated in Section 3.3(b) ), the Purchaser and the
Shareholders shall account to each other as provided for in this
Section 3.3(c) . If the Estimated Adjustment
Amount less the Actual Adjustment Amount is a positive number, the
Shareholders shall have a right to receive a cash payment equal to
such excess, allocated on a Pro-Rata Basis, as an increase in the
Purchase Price. If the Estimated Adjustment Amount less the
Actual Adjustment Amount is a negative number, Purchaser shall be
entitled to receive a payment from the Primary Shareholders equal
to such deficit, allocated on a Primary Pro-Rata Basis (unless such
deficit is less than $50,000, in which case such amount shall be
distributed to Purchaser the Escrow Funds, allocated on a Primary
Pro-Rata Basis). Any such excess or deficit payment shall be
due and payable within three business days after the Actual
Adjustment Amount is determined pursuant to this
Section 3.3 .
Section 3.4.
Options .
The Company
has provided to the Purchaser a true, accurate and complete list of
all issued and outstanding options (each, an “ Option
” and, collectively, the “ Options ”) to
purchase shares of Common Stock (the “ Option Schedule
”). Prior to the Closing, each of the Options shall
either be terminated or fully exercised in accordance with its
terms and the terms of any incentive or option plan pursuant to
which such Option was granted.
Section 3.5.
Escrow Funds .
The Primary Shareholders hereby agree that the sum of $1,200,000
(the “ Escrow Funds ”) otherwise payable to the
Primary Shareholders for the Common Stock on the Closing Date shall
be deposited with an escrow agent reasonably acceptable to both the
Purchaser and the Primary Shareholders (the “ Escrow
Agent ”), to be held and ultimately disbursed in
accordance with an escrow agreement in a form mutually acceptable
to Purchaser and the Primary Shareholders (the “ Escrow
Agreement ”).
(a)
At or prior to the Closing, the Shareholders shall deliver the
following to
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the
Purchaser:
(i)
stock certificates representing the Common Stock, duly endorsed for
transfer to the Purchaser or accompanied by duly executed
assignment documents, which shall transfer to the Purchaser good
and valid title to the Common Stock, free and clear of all
Encumbrances;
(ii)
evidence of consents, if any, as shall be required to enable
Purchaser to continue to enjoy the benefit of any Governmental
Authorization, lease, license, permit, contract, or other agreement
or instrument to or of the Company, or of which the Company is a
party or a beneficiary;
(iii)
pay-off letters for all Indebtedness of the Company for money
borrowed and evidence that such Indebtedness has been repaid and
fully satisfied as of the Closing Date;
(iv)
evidence of the exercise or termination of the Options, as
described in Section 3.4 ;
(v)
the Escrow Agreement, executed by the Shareholder
Representative;
(vi)
an Executive Employment Agreement, in a form mutually acceptable to
Purchaser and Timothy Knight (the “ Employment
Agreement ”), executed by Timothy Knight;
(vii)
Release of Claims Agreements, in a form acceptable to Purchaser,
executed by each of the Shareholders and officers and directors of
the Company releasing the Company from any and all prior claims of
such officers, directors and Shareholders in their capacity as
such;
(viii)
all corporate, accounting, business and tax records of the
Company;
(ix)
certificates, dated within 15 days of the Closing Date, from the
Secretary of State of the State of California and of comparable
authority in other jurisdictions in which the Company or its
Subsidiaries are incorporated or qualified to do business,
establishing that each is a validly existing corporation in good
standing to transact business;
(x)
a copy of the Articles of Incorporation of the Company, certified
by the Secretary of State of the State of California within ten
days of the Closing Date;
(xi)
a copy of the Bylaws of the Company in effect as of the Closing,
certified by an appropriate officer;
(xii)
written resignations of each of the directors and officers of
the
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Company, in a form acceptable to the
Purchaser;
(xiii)
the Shareholder Disclosure Letter;
(xiv)
an agreement regarding certain additional matters, in a form
mutually acceptable to Purchaser and the Primary Shareholders (the
“ Additional Agreement ”), executed by the
Primary Shareholders; and
(xv)
such other documents as may be required by this Agreement or
reasonably requested by the Purchaser.
(b)
At or prior to the Closing, the Purchaser shall deliver the
following:
(i)
to each Shareholder, the Cash Consideration payable to such
Shareholder as set forth on the Consideration Schedule;
(ii)
to the Escrow Agent, the Escrow Funds in accordance with
Section 3.5 ;
(iii)
to the Primary Shareholders, the Escrow Agreement executed by the
Purchaser;
(iv)
to Timothy Knight, the Employment Agreement executed by the Company
and/or the Purchaser;
(v)
to the Shareholder Representative, the Purchaser Disclosure
Letter;
(vi)
to the Primary Shareholders, the Additional Agreement executed by
the Purchaser; and
(vii)
to the Shareholder Representative, such other documents as may be
required by this Agreement or reasonably requested by the
Shareholder Representative.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Subject to the exceptions set forth in the
disclosure letter of the Purchaser delivered to the Shareholder
Representative concurrently with the Parties’ execution of
this Agreement (the “ Purchaser Disclosure Lette
r”), the Purchaser represents and warrants to the
Shareholders as follows, except as set forth in the Purchaser SEC
Reports:
Section 4.1.
Organization and
Qualification . The Purchaser is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power
and authority to own, lease and operate its assets and properties
and to carry on its business as it is now being conducted.
The Purchaser is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which
the properties owned, leased, or operated by it or the nature of
the business conducted by it makes
5
such qualification
necessary, except where the failure to be so qualified and in good
standing would not have, or could not reasonably be anticipated to
have, individually or in the aggregate, a Material Adverse
Effect.
Section 4.2.
Authority; Non-Contravention;
Approvals .
(a)
The Purchaser has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. No approval of the shareholders of the
Purchaser is required, pursuant to any Legal Requirement, other
regulatory requirement or otherwise, in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Purchaser, and, assuming the due
authorization, execution and delivery hereof by the Company and the
Shareholders, constitutes a valid and legally binding agreement of
the Purchaser enforceable against it in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors’ rights
generally and (ii) general equitable principles.
(b)
The execution and delivery of this Agreement by and the
consummation by the Purchaser of the transactions contemplated
hereby do not and will not violate or result in a breach of any
provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest,
charge or encumbrance, upon any of the properties or assets of the
Purchaser or any of its Subsidiaries under any of the terms,
conditions or provisions of (i) the respective charters or bylaws
of the Purchaser or any of its Subsidiaries, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or Governmental Authority
applicable to the Purchaser or any of its Subsidiaries or any of
their respective properties or assets (assuming compliance with the
matters referred to in Section 4.2(c) ) or (iii) any
note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which the Purchaser or any of its
Subsidiaries is now a party or by which the Purchaser or any of its
Subsidiaries or any of their respective properties or assets may be
bound or affected, except, in the case of clauses (ii) and (iii),
for matters as would not have, or could not reasonably be
anticipated to (x) have, individually or in the aggregate, a
Material Adverse Effect, or (y) materially impair the ability of
the Purchaser to consummate the transactions contemplated by this
Agreement.
(c)
No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by
the Purchaser or the consummation by the Purchaser of the
transactions contemplated hereby, other than such declarations,
filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would
not, have, or could not reasonably be anticipated to have,
individually or in the aggregate, a Material Adverse Effect or
materially impair the ability of the Purchaser to consummate the
transactions contemplated by this Agreement.
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Section 4.3.
Brokers and Finders
. The Purchaser has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders’ fees
or agents’ commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
Section 4.4.
Litigation.
Other than that which is disclosed in the Purchaser SEC Reports,
there is no litigation, action, suit, proceeding or governmental
investigation pending or, to the Knowledge of the Purchaser,
threatened against the Purchaser or affecting any of the
Purchaser’s properties or assets, which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay
the consummation of the transactions contemplated by this
Agreement.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each of the Shareholders hereby, severally and
not jointly, represents and warrants to Purchaser as
follows:
Section 5.1.
Ownership .
Such Shareholder owns, beneficially and of record, the number of
shares of Common Stock set forth on the duly executed stock power
being delivered by such Stockholder to the Purchaser concurrently
with the execution and delivery of this Agreement, free and clear
of any adverse claim of any other Person, including without
limitation, any Encumbrances. There are no outstanding
subscriptions, options, calls, agreements, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding
security, debenture, instrument or other agreement, obligating such
Shareholder to deliver or sell, or cause to be delivered or sold,
shares of the capital stock of the Company or obligating such
Shareholder to grant, extend or enter into any agreement or
commitment described above. There are no shareholder or
stockholder agreements, voting trusts, proxies or other agreements
or understandings to which such Shareholder is a party or is bound
with respect to the voting of any shares of capital stock of the
Company.
Section 5.2.
Organization and
Qualification . If an entity, such Shareholder is
a corporation, partnership or limited liability company duly
organized, validly existing and in good standing under the laws of
the state of its organization, and has the requisite power and
authority to own, lease and operate its assets and properties and
to carry on its business as it is now being conducted. If an
entity, such Shareholder is duly qualified to do business as a
foreign entity and is in good standing in each jurisdiction in
which the properties owned, leased, or operated by it or the nature
of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing
would not have, or could not reasonably be anticipated to have,
individually or in the aggregate, a Material Adverse Effect on such
Shareholder.
Section 5.3.
Authority; Non-Contravention;
Approvals .
(a)
Such Shareholder has full power and authority to execute and
deliver this
7
Agreement and to sell,
transfer and deliver the shares of Common Stock of the Company to
be sold by such Shareholder. If such Shareholder is an
entity, this Agreement has been approved by the board of directors,
general partner(s) or manager(s)/member(s), as applicable, of such
Shareholder, and no other proceedings on the part of such
Shareholder are necessary to authorize the execution and delivery
of this Agreement or the consummation by such Shareholder of the
transactions contemplated hereby. This Agreement has been
duly executed and delivered by such Shareholder and, assuming the
due authorization, execution and delivery hereof by the Purchaser,
constitutes a valid and legally binding agreement of such
Shareholder, enforceable against such Shareholder in accordance
with its terms, except that such enforcement may be subject to
(a) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of
creditors’ rights generally and (b) general equitable
principles.
(b)
The execution and delivery of this Agreement by such Shareholder
and the consummation by such Shareholder of the transactions
contemplated hereby do not and will not violate or result in a
breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration (i) under any material agreement or instrument to
which such Shareholder is bound or (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any Governmental Authority applicable to
such Shareholder.
(c)
No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by
such Shareholder or the consummation by such Shareholder of the
transactions contemplated hereby.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
OF THE PRIMARY SHAREHOLDERS
Subject to the
exceptions set forth in the disclosure letter of the Primary
Shareholders delivered to Purchaser concurrently with the
Parties’ execution of this Agreement (the “
Shareholder Disclosure Letter ”), each of the Primary
Shareholders hereby, severally and not jointly, represents and
warrants to Purchaser as follows:
Section 6.1.
Organization and
Qualification . The Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of California and has the requisite corporate power and
authority to own, lease and operate its assets and properties and
to carry on its business as it is now being conducted. The
Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which the
properties owned, leased, or operated by it or the nature of the
business conducted by it makes such qualification necessary, except
where the failure to be so qualified and in good standing would not
have, or could not reasonably be anticipated to have, individually
or in the aggregate, a Material Adverse Effect on the
Company. True, accurate and complete copies of the
Company’s Articles of Incorporation and Bylaws, in each case
as in effect on the date hereof
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including all
amendments thereto, have heretofore been delivered to
Purchaser.
Section 6.2.
Capitalization;
Ownership .
(a)
The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock. As of the Closing there will be
477,089 shares of Common Stock issued and outstanding and no other
shares of capital stock of the Company issued and
outstanding. All of such issued and outstanding shares of
Common Stock are validly issued, fully paid, nonassessable and free
of preemptive rights, and are owned beneficially and of record as
set forth on the Ownership Schedule. No Subsidiary of the
Company holds any shares of the capital stock of the Company.
All dividends and other distributions declared with respect to the
issued and outstanding shares of the capital stock or other equity
interests of the Company have been paid or distributed.
(b)
There are no outstanding (i) subscriptions, options, calls,
agreements, contracts, commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion
or exchange under any outstanding security, debenture, instrument
or other agreement, obligating the Company or, to the Knowledge of
the Officers, any Shareholder to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of the capital
stock of the Company or obligating the Company or, to the Knowledge
of the Officers, any Shareholder to grant, extend or enter into any
agreement or commitment described above or (ii) obligations of
the Company or, to the Knowledge of the Officers, any Shareholder
to repurchase, redeem or otherwise acquire any securities referred
to in clause (i) above. There are no shareholder or
stockholder agreements, voting trusts, proxies or other agreements
or understandings to which the Company or, to the Knowledge of the
Officers, any Shareholder is a party or is bound with respect to
the voting of any shares of capital stock of the Company.
Section 6.3.
Subsidiaries .
The Company does not have any Subsidiaries or any organizational
predecessors, nor does the Company hold any equity interest in or
control (directly or indirectly, through the ownership of
securities, by contract, by proxy, alone or in combination with
others, or otherwise) any corporation, limited liability company,
partnership, business organization or other Person.
Section 6.4.
Authority; Non-Contravention;
Approvals .
(a)
The Company has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been approved by the
board of directors of the Company, and no other corporate
proceedings on the part of the Company or the Shareholders are
necessary to authorize the execution and delivery of this Agreement
or the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed and delivered
by the Company, and, assuming the due authorization, execution and
delivery hereof by the Purchaser, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company
in accordance with its terms, except that such enforcement may be
subject to (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to
enforcement of creditors’ rights generally and
(b) general equitable principles.
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(b)
The execution and delivery of this Agreement by the Company and the
Shareholders and the consummation by the Company and the
Shareholders of the transactions contemplated hereby do not and
will not violate or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result
in the creation of any lien, security interest, charge or
Encumbrance upon any of the properties or assets of the Company
under any of the terms, conditions or provisions of (i) the charter
or bylaws of the Company, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or
license of any Governmental Authority applicable to the Company or
any Shareholder, or any of their respective properties or assets,
or (iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the
Company is now a party or by which the Company or any of its
properties or assets may be bound or affected.
(c)
No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by
the Company and the Shareholders or the consummation by the Company
and the Shareholders of the transactions contemplated hereby.
Section 6.5.
Financial Statements
. The
unaudited balance sheet, cash flow statement and income statement
of the Company attached to the Shareholder Disclosure Letter
(collectively, the “ Company Financial Statements
”) are true, correct and complete, and fairly present the
financial position of the Company as of December 31, 2003 and
December 31, 2004, and the results of its operations and cash
flows for the periods then ended, on an accrual basis of accounting
and on a basis consistent with the books and records of the Company
and prior periods, subject to normal year-end adjustments and any
other adjustments described therein.
Section 6.6.
Absence of Undisclosed
Liabilities . The Company has not incurred any
liabilities or obligations (whether absolute, accrued, contingent
or otherwise) of any nature, except liabilities, obligations or
contingencies (i) which are accrued on or reserved against the
Company Financial Statements or reflected in the notes thereto, or
(ii) which were incurred after December 31, 2004, were
incurred in the ordinary course of business and consistent with
past practices and are immaterial.
Section 6.7.
Absence of Certain Changes or
Events . Since January 1, 2004, except as set
forth in the Salary Increase Schedule, (i) the Company has not,
directly or indirectly, purchased, redeemed or otherwise acquired
any of its securities; (ii) the Company has not granted any general
increase in the compensation of its officers, directors or
employees (including any increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment) and has not paid any
bonuses to any officers, directors or employees other than in the
ordinary course of business and consistent with past practices;
(iii) the Company has not adopted, entered into or amended any
bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, health care, employment or other
employee benefit plan, agreement, trust fund or arrangement for the
benefit or welfare of any employee or retiree, except as required
to comply with changes in applicable law; (iv) the Company has not
made any
10
amendment to its
Articles of Incorporation or Bylaws or changed the character of its
business in any material manner; (v) the business of the Company
has been conducted in the ordinary course of business consistent
with past practices; (vi) there has not been any event, occurrence,
development or state of circumstances or facts which has had, or
could reasonably be anticipated to have, individually or in the
aggregate, a Material Adverse Effect on the Company; (vii) the
Company has not authorized a stock split; and (viii) the Company
has not permitted or allowed any of its material assets to be
subject to any Encumbrance, except for Permitted
Encumbrances.
Section 6.8.
Litigation
. There are no
claims, suits, actions, Environmental Claims, inspections,
investigations or proceedings pending or, to the Knowledge of the
Officers, threatened against, relating to or affecting the Company
before any Governmental Authority, or any mediator or arbitrator,
and, to the Knowledge of the Officers, there is no reasonable basis
for same. The Company is not subject to any Order of any
Governmental Authority specifically applicable to the Company, or
any mediator or arbitrator.
Section 6.9.
Billed but Uncollected
Invoices . All billed but uncollected invoices of
the Company represent bona fide sales actually made in the ordinary
course of business and are collectible within 90 days after the
applicable billing date, without set off or counterclaim. To
the Knowledge of the Officers, none of the parties owing funds to
the Company is involved in a bankruptcy or insolvency proceeding or
is generally unable to pay its debts as they become due. The
Company has good and valid title to the claims represented by the
billed but uncollected invoices free and clear of all
Encumbrances. No goods or services, the sale or provision of
which gave rise to any billed but uncollected invoices, have been
returned or rejected by any account debtor or lost or damaged prior
to the receipt thereby.
Section 6.10.
No Violation of Law; Compliance
with Agreements .
(a)
The Company is not in violation of, and has not been given notice
or been charged with any violation of, any Legal Requirement
(including, without limitation, any applicable Environmental Law)
of any Governmental Authority. No investigation or review by
any Governmental Authority is pending or, to the Knowledge of the
Officers, threatened, nor has any Governmental Authority indicated
an intention to conduct the same. The Company has all permits
(including without limitation Environmental Permits), licenses,
franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals required or necessary to
conduct its business as presently conducted (collectively, the
“ Company Permits ”). The Company is not
in violation of the terms of any Company Permit.
(b)
The Company is not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event
has occurred which, with lapse of time or action by a third party,
could result in a default under, (i) the charter, bylaws or similar
organizational instruments of the Company or (ii) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which the
Company is a party or by which it is bound or to which any of its
properties or assets is subject.
Section 6.11.
Insurance . The
Shareholder Disclosure Letter sets forth a list of all
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insurance policies
owned by the Company or by which the Company or any of its
properties or assets is covered against present losses, all of
which have been for the periods covered, and are currently, in full
force and effect. The scope and amount of such listed
insurance policies are customary and reasonable for the businesses
in which the Company has been engaged during the last three years
and provide adequate insurance coverage for the assets and the
operations of the Company for all risks normally insured against by
a Person carrying on the same business or businesses as the
Company. No insurance has been refused with respect to any
operations, properties or assets of the Company nor has coverage of
any insurance been limited by any insurance carrier that has
carried, or received any application for, any such insurance during
the last three years. No insurance carrier has denied any
claims made against any of the policies listed in the Shareholder
Disclosure Letter. Further, all such policies are sufficient
for compliance with all Legal Requirements and Contracts to which
the Company is a party, and will continue in full force and effect
following the consummation of the transactions contemplated
hereby.
(a)
(i) The Company has (x) duly filed (or there has been filed on
its behalf) with the appropriate taxing authorities all Tax Returns
required to be filed by it on or prior to the date hereof, and (y)
duly paid in full or made adequate provision therefor on its
financial statements (or there has been paid or adequate provision
has been made on its behalf) for the payment of all Taxes for all
periods ending through the date hereof (whether or not shown on any
Tax Return); (ii) all such Tax Returns filed by or on behalf of the
Company are true, correct and complete in all material respects and
have been prepared in substantial compliance with all applicable
laws and regulations; (iii) the Company is not the beneficiary
of any extension of time within which to file any Tax Return; (iv)
no claim has ever been made in writing by any authority in a
jurisdiction where the Company does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction; (v) there
is no liability for Taxes for any period beginning after
December 31, 2004 other than Taxes arising in the ordinary
course of business; (vi) there are no liens for Taxes upon any
property or assets of the Company, except for liens for Taxes not
yet due and payable; (vii) the Company has not made any change
in accounting methods since December 31, 1999, except for the
change to accounting on an accrual basis, in compliance with GAAP,
pursuant to the terms hereof; (viii) the Company has not
received a ruling from any taxing authority or signed an agreement
with any taxing authority; (ix) the Company has complied in
all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to
Sections 1441 and 1442 of the Code, as amended or similar
provisions under any foreign laws) and has, within the time and the
manner prescribed by law, withheld and paid over to the appropriate
taxing authority all Taxes required to be so withheld and paid over
under all applicable laws in connection with any amounts paid or
owing to any employee, independent contractor, creditor,
shareholder or other third party; (x) no federal, state, local
or foreign audits or other administrative proceedings or court
proceedings are presently pending with regard to any Taxes or Tax
Returns of the Company, and, as of the date of this Agreement, the
Company has not received a written notice of any pending audits or
proceedings; (xi) no shareholder or director or officer (or
employee responsible for Tax matters) of the Company expects any
authority to assess any additional Taxes relating to the Company
for any period for which Tax
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Returns have been
filed; (xii) the federal income Tax Returns of the Company
have been examined by the Internal Revenue Service (“
IRS ”) (which examination has been completed) or the
statute of limitations for the assessment of federal income Taxes
of the Company has expired, for all periods through and including
December 31, 2000, and no deficiencies were asserted as a
result of such examinations which have not been resolved and fully
paid; (xiii) no adjustments or deficiencies relating to Tax
Returns of the Company have been proposed, asserted or assessed by
any taxing authority, except for such adjustments or deficiencies
which have been fully paid or finally settled; (xiv) the Company
has delivered to Purchaser true, correct and complete copies of all
federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company since
January 1, 2001; (xv) the Company has been a validly electing
S corporation within the meaning of Sections 1361 and 1362 of the
Code at all times during its existence, and the Company will be an
S corporation up to and including the Closing; (xvi) neither the
Company nor any qualified subchapter S subsidiary of the Company
have, in the past ten years, (A) acquired assets from another
corporation in a transaction which the Company Tax basis for the
acquired assets was determined, in whole or in part, by reference
to the Tax basis of the acquired assets (or any other property) in
the hands of the transferor or (B) acquired the stock of any
corporation which is a qualified subchapter S subsidiary; and
(xvii) the Company shall not be liable for any Tax under Code
Section 1374 in connection with the deemed sale of the Company
assets (including assets of any qualified subchapter S subsidiary)
caused by the Section 338(h)(10) Election (as defined in
Section 7.5(g) ).
(b)
There are no outstanding requests, agreements, consents or waivers
to extend the statute of limitations applicable to the assessment
of any Taxes or deficiencies against the Company, and no power of
attorney granted by the Company with respect to any Taxes is
currently in force. The Company has disclosed on its federal
income Tax Returns all positions taken therein that could give rise
to a substantial understatement of federal income Tax within the
meaning of Section 6662 of the Code. The Company is not
a party to any agreement providing for the allocation or sharing of
Taxes. The Company has not been a United States real property
holding corporation within the meaning of Section 897(c)(2)
during the applicable period specified in
Section 897(c)(1)(A)(ii). The Company (i) has not
been a member of an affiliate group filing a consolidated federal
income Tax Return (other than a group the common parent of which
was the Company) and (ii) has no liability for Taxes of any Person
(other than the Company) under Section 1.1502-6 of the United
States Treasury Regulations (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract,
or otherwise.
(c)
The Company (or its successor) will not be required to include any
item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the
Closing Date as a result of any: (A) change in method of
accounting for a taxable period ending on or prior to the Closing
Date; (B) “closing agreement” as described in
Section 7121 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date; (C) installment sale or open transaction
disposition made on or prior to the Closing Date; or (D) prepaid
amount received on or prior to the Closing Date.
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(a)
The Primary Shareholders have listed each Employee Benefit Plan in
the Shareholder Disclosure Letter. For these purposes,
“
Employee Benefit Plan ” means
any “employee benefit plan” (within the meaning of
Section 3(3) of ERISA), stock option plan, severance
agreement, employment contract, stock purchase plan, bonus program,
incentive plan, cafeteria or flexible benefit plan, deferred
compensation arrangement, and all other similar employee benefit
plans, programs, arrangements, policies, or agreements, whether or
not subject to ERISA, that the Company sponsors, maintains, or
contributes to, or to which the Company has any liability
thereunder.
(b)
The Company has provided the Purchaser with correct and complete
copies of each Employee Benefit Plan, current summary plan
descriptions for each Employee Benefit Plan, all related trusts,
insurance, and other funding contracts which implement each such
Employee Benefit Plan, the prior three years Form 5500, and all
correspondence with any governmental authority respecting any such
Employee Benefit Plan.
(c)
Each Employee Benefit Plan (and each related trust, insurance
contract, or fund) complies in form and in operation in all
material respects with all applicable laws, rules and
regulations.
(d)
All premiums required to be paid, all benefits, expenses and other
amounts due and payable, and all contributions, transfers or
payments required to be made to or under the Employee Benefit Plans
will have been paid, made or accrued for all services on or prior
to the Closing Date.
(e)
No Employee Benefit Plan is or has ever been covered by Title IV of
ERISA or subject to Section 412 of the Code.
(f)
No Employee Benefit Plan is or has ever been a Multiemployer Plan
(as defined in ERISA Section 3(37)) nor has the Company nor
any member of its controlled group of corporations (as defined in
Code Section 1563) contributed to, or ever had an obligation
to contribute to, any such Multiemployer Plan.
(g)
The Company has never maintained nor contributed to any Employee
Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in
accordance with Code Section 4980B).
(h)
No event has occurred and no condition exists with respect to the
Employee Benefit Plans that could subject the Company, any Employee
Benefit Plan, or Purchaser to any liability under applicable
laws.
(i)
Neither the execution and delivery of this Agreement, nor the
consummation of the transactions hereunder, will:
(1)
result in any payment to be made by the Company, including without
limitation, severance, unemployment compensation, golden parachute
(as defined in Section 280G of the Code) or otherwise,
becoming due to any employee, director or
14
consultant of the Company, or
(2)
increase any benefits or accelerate vesting otherwise provided
under any Employee Benefit Plan.
(j)
No condition, agreement or plan provision limits the right of the
Company to amend, cut back or terminate any Employee Benefit Plan
that it sponsors in accordance with the terms of such Employee
Benefit Plan (except to the extent such limitation arises under the
Code or ERISA).
(k)
There are no pending actions that have been asserted or instituted
against the Employee Benefit Plans other than routine claims for
benefits and, to the Knowledge of the Officers, no such action has
been threatened.
Section 6.14.
Employee and Labor
Matters .
(a)
At or prior to Closing, the Company has separately provided
Purchaser with (i) a true and complete list, dated as of
January 1, 2005 (the “ Employee Schedule
”), of all employees of the Company listing the title or
position held, base salary or wage rate and any bonuses,
commissions, profit sharing, or other material compensation or
perquisites payable to, and all material employee benefits
received, by such employees and (ii) a true and complete
schedule (the “ Salary Increase Schedule ”)
describing all changes in the compensation of the Company’s
directors, officers and employees since January 1, 2004.
The Company has provided Purchaser copies of all written agreements
between the Company and all current employees. The Company
has not entered into any agreement or agreements pursuant to which
the combined annual payroll of the Company, including projected pay
increases, overtime and fringe benefit costs, required to operate
its business (including all administrative and support personnel)
would be materially greater than as listed on the Employee
Schedule.
(b)
The Company has provided Purchaser copies of all health, dental,
life and disability insurance plans of the Company.
(c)
The Company is not a party to or bound by any written employment
agreements or commitments, other than on an at-will basis.
(d)
The Company is not a party to or bound by any collective bargaining
or similar agreement with any labor organization or work rules or
practices agreed to with any labor organization or employee
association applicable to employees of the Company. There is
presently no pending grievance or arbitration proceeding arising
out of any collective bargaining agreement or other grievance
procedure relating to the Company.
(e)
None of the employees of the Company is represented by any labor
organization and, to the Knowledge of the Officers, there have been
no union organizing activities among the employees of the Company
within the past five years, and there are no negotiations or
discussions currently pending or occurring between the Company and
any union or employee association regarding any collective
bargaining agreement or any other work rules or policies which
might otherwise affect the Company.
15
(f)
There is no labor strike, dispute, slowdown, stoppage or lockout
actually pending, or to the Knowledge of the Officers, threatened
against or affecting the Company and during the past five years
there has not been any such action.
(g)
There is no unfair labor practice charge or complaint against the
Company pending or, to the Knowledge of the Officers, threatened
before the National Labor Relations Board or any similar state,
local or foreign agency responsible for administering such charges
or complaints.
(h)
There are no material written personnel policies, rules or
procedures applicable to employees of the Company.
(i)
There are no proceedings pending or, to the Knowledge of the
Officers, threatened against the Company in any forum by or on
behalf of any present or former employee of the Company, any
applicant for employment, or classes of the foregoing, alleging
breach of any express or implied contract of employment, any law or
regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the
employment relationship.
(j)
No charge with respect to or relating to the Company is pending
before the Equal Employment Opportunity Commission or any other
local, state, or federal agency responsible for the prevention of
unlawful employment practices.
(k)
To the Knowledge of the Officers, no federal, state, local or
foreign agency responsible for the enforcement of labor or
employment laws is conducting or intends to conduct an
investigation with respect to or relating to the Company.
(l)
The Company is, and at all times has been, in material compliance
with all Legal Requirements applicable to the Company respecting
employment and employment practices, terms and conditions of
employment, wages, hours of work, overtime, leave time,
immigration, and occupational safety and health, and is not engaged
in any unfair labor practices as defined in the National Labor
Relations Act or other Legal Requirements applicable to the
Company.
(m)
In the last five years, (i) the Company has not effectuated a
“plant closing” (as defined in the Worker Adjustment
and Retaining Notification Act of 1988, the “ WARN Act
”) affecting any single site of employment or one or more
facilities or operating units within any single site of employment
of the Company, (ii) there has not occurred a “mass
layoff” (as defined in the WARN Act) affecting any single
site of employment of the Company, (iii) the Company has not
been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application
of any similar state, local or foreign law or regulation and (iv)
none of the Company’s employees has suffered an
“employment loss” (as defined in and covered by the
WARN Act) during the six-month period prior to the date
hereof.
(n)
To the Knowledge of the Officers, no executive employee of the
Company or any other employee reasonably considered to be important
to the Company has breached any
16
agreement to keep in
confidence information acquired by that employee in confidence or
in trust prior to that employee’s employment with the
Company, nor has any such employee, through his or her employment
by the Company, breached any non-competition, non-solicitation or
non-interference agreement.
(o)
The Company is not a party to any agreement with any employee or
other party that provides for compensation, severance pay,
benefits, or the vesting of options or shares as a result of the
transactions contemplated by this Agreement.
(p)
There is no claim for
workers’ compensation benefits, or claim arising out of any
injury suffered by an employee or contractor, pending or, to the
Knowledge of the Officers, threatened against or affecting the
Company and, since January 1, 2002, there has not been any
such claim.
Section 6.15.
Non-Competition
Agreements . The Company has provided Purchaser
true and complete copies of all confidentiality, non-solicitation
and/or non-competition agreements between the Company and any of
the Shareholders, between the Company and any employee of the
Company, or between Timothy Knight and a party other than the
Company. Neither the Company nor any Shareholder is a party
to any agreement which purports to restrict or prohibit any of them
from, directly or indirectly, engaging in any business currently
engaged in by the Company. None of the Company’s
shareholders, officers, directors, or key employees is a party to
any agreement which, by virtue of such Person’s relationship
with the Company, restricts the Company or any Subsidiary of the
Company from, directly or indirectly, engaging in any of the
businesses of the Company.
Section 6.16.
Environmental Matters
. Without in any manner limiting any other representations
and warranties set forth in this Agreement:
(a)
The Company and its Business Facilities are in compliance with, and
have at all times been in compliance with, all Environmental Laws
in connection with the conduct of the business of the Company and
the use, maintenance and operation of any of the Business
Facilities by the Company.
(b)
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