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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement"), dated as of
March 28,
2005, is by and among HealthStream, Inc., a Tennessee
corporation ("Buyer"), Mel
B. Thompson (the "Seller") and Data Management & Research,
Inc., a Tennessee
corporation (the "Company"). Capitalized terms used in this
Agreement are
defined as set forth in Annex A attached hereto. Buyer, Seller
and the Company
are sometimes referred to individually as a "Party" and
collectively as the
"Parties."
WHEREAS, Seller owns 100 shares of common stock of the Company
(the
"Shares"), which Shares constitute all of the issued and
outstanding shares of
capital stock of the Company;
WHEREAS, Seller desires to sell, and Buyer desires to purchase,
all of the
Shares, for the consideration and on the terms set forth in this
Agreement; and
WHEREAS, the Company, in consideration of the anticipated
benefits to be
received by the Company in connection with the closing of the
transactions
contemplated hereby, and in order to induce Buyer to enter into
this Agreement,
has agreed to be a Party to this Agreement for certain purposes
as set forth
herein.
NOW, THEREFORE, in consideration of the mutual benefits to be
derived from
the Agreement, the representations, warranties, conditions and
promises
hereinafter contained, and other consideration, the receipt and
sufficiency of
which consideration are hereby acknowledged, each of the Parties
hereby agrees
as follows:
ARTICLE I
SALE AND TRANSFER OF SHARES; CLOSING
Section 1.1. Sale and Transfer of Shares. Subject to the terms
and
conditions of this Agreement, at the Closing, Seller shall sell
and transfer the
Shares to Buyer, and Buyer shall purchase the Shares from
Seller.
Section 1.2. Purchase Price. The purchase price (the "Purchase
Price") for
the Shares shall be $10,550,000, adjusted initially by the
Estimated Closing
Adjustment Amount and finally by the Closing Adjustment Amount.
In accordance
with Section 1.4(b), at the Closing, the Purchase Price, prior
to adjustment by
the Closing Adjustment Amount, shall be delivered as
follows:
(a) $8,950,000, adjusted by the Estimated Closing Adjustment
Amount,
if applicable, payable in cash by Buyer to Seller by wire
transfer of
immediately available funds (the "Cash Consideration");
(b) $100,000, payable in cash by Buyer to the Escrow Agent by
wire
transfer of immediately available funds to be held pursuant to
the Escrow
Agreement (the "Cash Escrow");
(c) the number of shares of HealthStream Stock having a value
equal to
$500,000, with the value of each share of HealthStream Stock to
be equal to the
Average Price (such HealthStream Stock delivered to Seller at
the Closing, the
"Closing Stock"); and
(d) the number of shares of HealthStream Stock having a value
equal to
$1,000,000, with the value of each share of HealthStream Stock
to be equal to
the Average Price (such HealthStream Stock delivered to the
Escrow Agent to be
held pursuant to the Escrow Agreement, the "Escrow Stock").
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The Closing Adjustment Amount shall be paid by Buyer or Seller,
as the case may
be, following the Closing in accordance with Section 1.6.
Section 1.3. Closing. The closing of the transactions
contemplated by this
Agreement (the "Closing") will take place at the offices of
Bass, Berry & Sims
PLC, 315 Deaderick Street, Suite 2700, Nashville, Tennessee
37238-3001 at 2:00
p.m. (local time) on the later of (i) the satisfaction or waiver
of all the
closing conditions set forth in Article V of this Agreement, or
(ii) March 28,
2005, or at such other time and place as Buyer and Seller may
agree in writing
(the date of the Closing, the "Closing Date"). Subject to the
provisions of
Article VI, failure to consummate the purchase and sale provided
for in this
Agreement on the date and time and at the place determined
pursuant to this
Section 1.3 will not result in the termination of this Agreement
and will not
relieve any Party of any obligations under this Agreement. In
such event, the
Closing will occur as soon as practicable, subject to Article
VI.
Section 1.4. Closing Obligations. In addition to any other
documents to be
delivered under other provisions of this Agreement, at the
Closing:
(a) Seller shall deliver, or cause to be delivered, to
Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), for transfer to
Buyer;
(ii) releases in substantially the form attached hereto as
Exhibit A, executed by Seller and the Company Key Employees
(the
"Releases");
(iii) a consulting agreement in substantially the form
attached
hereto as Exhibit B, executed by Seller (the "Consulting
Agreement");
(iv) employment agreements in substantially the form
attached
hereto as Exhibit C, executed by the Company Management
Employees (the
"Employment Agreements");
(v) a noncompetition, nondisclosure and nonsolicitation
agreement
in substantially the form attached hereto as Exhibit D, executed
by Seller
(the "Noncompetition Agreement");
(vi) an escrow agreement relating to the Cash Escrow in
substantially the form attached hereto as Exhibit E, executed by
Seller and
the Escrow Agent (the "Cash Escrow Agreement"); and
(vii) an escrow agreement relating to the Escrow Stock in
substantially the form attached hereto as Exhibit F, executed by
Seller and
the Escrow Agent (the "Stock Escrow Agreement").
(b) Buyer shall deliver, or caused to be delivered, to Seller or
the
Escrow Agent, as applicable:
(i) the Cash Consideration to Seller by wire transfer of
immediately available funds to an account specified in writing
by Seller;
(ii) the stock certificates for the Closing Stock to Seller;
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(iii) the Cash Escrow Agreement, executed by Buyer and the
Escrow
Agent, together with the delivery to the Escrow Agent of the
Cash Escrow by
wire transfer to an account specified by the Escrow Agent;
(iv) the Stock Escrow Agreement, executed by Buyer and the
Escrow
Agent, together with the delivery to the Escrow Agent of the
stock
certificates for the Escrow Stock;
(v) the Consulting Agreement, executed by Buyer;
(vi) the Employment Agreements, executed by Buyer; and
(vii) the Noncompetition Agreement, executed by Buyer.
Section 1.5. Estimated Closing Adjustment Amount.
(a) The "Estimated Closing Adjustment Amount" (which may be a
positive
or negative number) will be an amount equal to (i) the Working
Capital of the
Company as reflected on the Estimated Closing Balance Sheet (as
prepared and
delivered pursuant to Section 1.5(b) below), minus (ii) $0. If
the Estimated
Closing Adjustment Amount is negative, such amount will be
subtracted from the
cash portion of the Purchase Price payable by Buyer to Seller
pursuant to
Section 1.4(b)(i). If the Estimated Closing Adjustment Amount is
positive, such
amount will be added to the cash portion of the Purchase Price
payable by Buyer
to Seller pursuant to Section 1.4(b)(i).
(b) No earlier than five (5) Business Days and no later than one
(1)
Business Day prior to the Closing Date, Seller shall cause an
estimated balance
sheet of the Company as of the Closing Date (the "Estimated
Closing Balance
Sheet") to be prepared and delivered to Buyer, which will be
accompanied by an
estimated calculation of the Working Capital of the Company as
of the Closing
Date.
Section 1.6. Closing Adjustment Amount.
(a) The "Closing Adjustment Amount" will be an amount (which
shall be
a positive number) equal to the difference between (i) the
Working Capital of
the Company as reflected on the Closing Balance Sheet and (ii)
the Working
Capital of the Company as reflected on the Estimated Closing
Balance Sheet. If
the Working Capital of the Company as reflected on the Closing
Balance Sheet is
greater than the Working Capital of the Company as reflected on
the Estimated
Closing Balance Sheet, then the Closing Adjustment Amount will
be paid by wire
transfer of immediately available funds by Buyer to Seller to
the account
specified by Seller. If the Working Capital of the Company as
reflected on the
Estimated Closing Balance Sheet is greater than the Working
Capital of the
Company as reflected on the Closing Balance Sheet, then the
Closing Adjustment
Amount will be paid to Buyer to an account specified by Buyer
from and to the
extent of the Cash Escrow held by the Escrow Agent under the
Cash Escrow
Agreement, and any remaining amount payable to Buyer by wire
transfer of
immediately available funds by Seller to Buyer to an account
specified by Buyer.
Within three (3) Business Days after the calculation of the
Closing Adjustment
Amount becomes binding and conclusive on the Parties pursuant to
Sections 1.6(c)
and 1.6(d), Seller or Buyer, as the case may be, will make the
payment provided
for in this Section 1.6(a) and/or Buyer and Seller will deliver
joint written
instructions to the Escrow Agent under the Cash Escrow Agreement
directing that
the appropriate amount be paid to Buyer from the Cash Escrow
with any remaining
amount of the Cash Escrow, if any, being distributed to Seller.
If the payment
provided for in this Section 1.6(a) is not made within 10
Business Days after
such Closing Adjustment Amount becoming binding and conclusive
on a Party,
interest at the rate of 5% per annum shall accrue and be payable
on the Closing
Adjustment Amount.
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(b) Buyer shall prepare a balance sheet of the Company as of
the
Closing Date (the "Closing Balance Sheet"), which will include a
calculation of
the Working Capital of the Company as of the Closing Date. Buyer
shall deliver
the Closing Balance Sheet to Seller within forty-five (45) days
following the
Closing Date (the date of such delivery, the "Delivery
Date").
(c) If within fifteen (15) days following the Delivery Date,
Seller
has not given Buyer written notice of his objection to the
Closing Balance Sheet
calculation (which notice must contain (i) a statement of
Seller's calculation
of the Company's Working Capital as of the Closing Date and (ii)
the basis of
Seller's objection), then the Working Capital amount reflected
in the Closing
Balance Sheet will be binding and conclusive on the Parties and
will be used in
computing the Closing Adjustment Amount.
(d) If Seller duly gives Buyer such notice of objection within
fifteen
(15) days following the Delivery Date, and if Seller and Buyer
fail to resolve
the issues outstanding with respect to the Closing Balance Sheet
and the
calculation of the Working Capital reflected in the Closing
Balance Sheet within
fifteen (15) days of Buyer's receipt of the objection notice
from Seller, Seller
and Buyer shall submit the issues remaining in dispute to
Lattimore Black Morgan
& Cain, PC (the "Independent Accountants") for resolution.
If issues are
submitted to the Independent Accountants for resolution, (i)
Seller and Buyer
shall furnish or cause to be furnished to the Independent
Accountants such work
papers and other documents and information relating to the
disputed issues as
the Independent Accountants may request and are available to
that Party or its
agents and shall be afforded the opportunity to present to the
Independent
Accountants any material relating to the disputed issues and to
discuss the
issues with the Independent Accountants; (ii) the determination
by the
Independent Accountants, as set forth in a notice to be
delivered to Seller and
Buyer within thirty (30) days of the submission to the
Independent Accountants
of the issues remaining in dispute, will be final, binding and
conclusive on
Seller and Buyer; and (iii) Seller and Buyer shall pay equal
percentages of the
fees and costs of the Independent Accountants in connection with
such
determination, unless one Party's calculation of the Working
Capital of the
Company as of the Closing Date differs from the calculation of
the Working
Capital of the Company as of the Closing Date by the Independent
Accountants by
more than 33.33% in which case such Party shall then pay
one-hundred percent
(100%) of the Independent Accountant's fees and costs in
connection with such
determination. In the event that both Parties' calculation of
the Closing
Adjustment Amount differs from the determination of the
Independent Accountant
by more than 33.33%, then the Party whose calculation differs
from the
determination of the Independent Accountants by the greatest
amount shall pay
one-hundred percent (100%) of the Independent Accountant's fees
and costs.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY
Seller and the Company, jointly and severally, represent and
warrant to
Buyer as follows:
Section 2.1. Organization and Good Standing.
(a) Schedule 2.1(a) contains a complete and accurate list of
the
Company's jurisdiction of incorporation and any other
jurisdictions in which it
is qualified to do business as a foreign corporation. The
Company is a
corporation duly organized, validly existing and in good
standing under the laws
of its jurisdiction of incorporation, with full corporate power
and authority to
conduct its business as it is now being conducted, to own or use
its properties
and assets and to perform all of its obligations under the
Applicable Contracts.
The Company is duly qualified to do business as a foreign
corporation and is in
good standing under the laws of each state or other jurisdiction
in which either
the
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ownership or use of the properties owned or used by it, or the
nature of the
activities conducted by it, requires such qualification.
(b) True and complete copies of the Charter and Bylaws of the
Company,
as currently in effect, have been delivered to Buyer.
(c) The Company does not, directly or indirectly, own, and has
not
agreed to purchase or otherwise acquire, the capital stock or
other equity
interests of, or any interest convertible into or exchangeable
or exercisable
for capital stock or other equity interests of, any Person.
Section 2.2. Authority; No Conflict.
(a) This Agreement constitutes the valid and binding obligation
of
each of Seller Parties, enforceable against each of Seller
Parties in accordance
with its terms. Upon the execution and delivery by Seller or the
Company,
respectively, of each document or instrument to be executed or
delivered by
Seller and the Company at Closing pursuant to Section 1.4(a) or
any other
provision of this Agreement (collectively, the "Seller Closing
Documents"), each
of the Seller Closing Documents will constitute the valid and
binding obligation
of Seller and the Company, as applicable, enforceable against
Seller and the
Company, as applicable, in accordance with its terms. The
Company has all
requisite corporate power and authority and Seller has all
requisite power,
authority and capacity, to execute and deliver this Agreement
and the Seller
Closing Documents and to consummate the transactions
contemplated hereby and
thereby. The execution and delivery of this Agreement by the
Company and the
consummation of the transactions contemplated hereby have been
duly and validly
authorized and approved by the Company, and no other corporate
action on the
part of the Company is necessary to authorize the execution and
delivery of this
Agreement by the Company or the consummation of the transactions
contemplated
hereby.
(b) Except as set forth in Schedule 2.2(b), neither the
execution and
delivery of this Agreement by Seller Parties nor the
consummation of the
transactions contemplated hereby will, directly or indirectly
(with or without
notice or lapse of time):
(i) conflict with or violate the Charter or Bylaws of the
Company;
(ii) conflict with or violate, or give any Governmental
Authority
or other Person the right to challenge any of the transactions
contemplated
hereby or exercise any remedy or obtain any relief under, any
Legal
Requirement or any Order to which any Seller Party, or any of
the assets
owned or used by the Company, may be subject;
(iii) cause the Company to become subject to, or to become
liable
for, the payment of any Tax;
(iv) breach any provision of any Applicable Contract, or give
any
Person the right to declare a default under, exercise any remedy
under,
accelerate the maturity or performance of or payment under, or
cancel,
terminate or modify, any Applicable Contract; or
(v) result in the imposition or creation of any Lien upon or
with
respect to any of the assets owned or used by the Company.
(c) Except as set forth in Schedule 2.2(c), no Selling Party is
or
will be required to give any notice to or obtain any consent or
approval from
(i) any Governmental Authority, (ii) any party
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to any Applicable Contract, or (iii) any other Person, in
connection with the
execution and delivery of this Agreement or the consummation of
the transactions
contemplated hereby.
Section 2.3. Capitalization. The authorized equity securities of
the
Company consist of 1,000 shares of common stock, of which 100
shares are issued
and outstanding and are defined herein as the "Shares." Seller
is and will be on
the Closing Date the record and beneficial owner of the Shares,
free and clear
of any Liens. All of the Shares have been duly authorized and
validly issued and
are fully paid and non-assessable. The Shares have not been
issued in violation
of, and, except as set forth in Schedule 2.3, the capital stock
of the Company
is not subject to, any preemptive or subscription rights or
rights of first
refusal. None of the Shares were issued in violation of the
Securities Act or
any other Legal Requirement. There are no options, warrants,
calls,
subscriptions, convertible securities, or other rights,
agreements or
commitments that obligate the Company to issue, transfer or sell
any shares of
capital stock of the Company. Except as set forth in Schedule
2.3, there are no
outstanding or authorized stock appreciation, phantom stock,
profit
participation, or similar rights with respect to the Company.
There is no
obligation, contingent or otherwise, of the Company to
repurchase, redeem or
otherwise acquire any Shares. There are no voting trusts,
proxies or other
agreements to which any Seller is a party with respect to the
voting or transfer
of any Shares.
Section 2.4. Financial Statements.
(a) Attached as Schedule 2.4(a) are copies of (i) the
unaudited
balance sheets of the Company as of December 31 in each of 2002,
2003 and 2004,
and the related unaudited income statements for the years then
ended, (ii) an
unaudited balance sheet of the Company as of December 31, 2004
(the "2004
Balance Sheet"), and (iii) an unaudited balance sheet of the
Company as of
February 28, 2005 and the related unaudited income statement for
the two months
then ended (the financial statements referred to in clauses (i),
(ii) and (iii)
above, including the notes thereto, if any, the "Financial
Statements"), each of
which are true and correct in all material respects. The
Financial Statements
fairly present in all material respects (and the financial
statements to be
delivered pursuant to Section 4.7 will fairly present in all
material respects)
the financial condition and results of operations of the Company
as at the
respective dates of and for the periods referred to in such
Financial
Statements. The 2004 Balance Sheet has been prepared in
accordance with GAAP.
The Financial Statements have been prepared from the books and
records of the
Company (which books and records are accurate and complete in
all material
respects) and reflect the consistent application of accounting
principles
throughout the periods involved, except as disclosed in the
notes to the
Financial Statements.
(b) Attached as Schedule 2.4(b) is a copy of a management
representation letter, dated as of March 9, 2005, provided to
Ernst & Young LLP
(the "Management Representation Letter"). The Management
Representation Letter
is true and correct in all material respects.
Section 2.5. Real Property.
(a) The Company does not own any real property.
(b) Schedule 2.5(b) lists (i) all real property with respect to
which
the Company holds a leasehold interest or subleasehold interest,
or otherwise
has a license or other right to use (the "Leased Real
Property"), and (ii) each
agreement, contract or other arrangement under which the Company
leases or
otherwise has the right to use any such Leased Real Property
(listing, with
respect to each such agreement, the date of the agreement and
any amendments
thereto, any assignments thereof, the names of the parties to
the agreement, the
address of the Leased Real Property, the rentable square footage
and annual rent
thereunder, the expiration date, and the existence of any
renewal terms). The
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Company enjoys peaceful and undisturbed possession of the Leased
Real Property.
The Company has not entered into any subleases, arrangements,
licenses or other
agreements relating to the use or occupancy of all or any
portion of the Leased
Real Property by any Person other than the Company.
(c) The Leased Real Property, and the use of the Leased Real
Property
by the Company for the purposes for which it is currently being
used, conforms
to all applicable fire, safety, zoning and building laws and
ordinances, laws
relating to the disabled, and other applicable Legal
Requirements. To the
Knowledge of Seller Parties, there are no pending or threatened
eminent domain,
condemnation, zoning, or other Proceedings affecting the Leased
Real Property
that would result in the taking of all or any part of the Leased
Real Property
or that would prevent or hinder the continued use of the Leased
Real Property as
currently used in the conduct of the Company Business. All
Leased Real Property
has adequate rights of access to dedicated public ways and is
served by water,
electric, sewer and other necessary facilities and services.
Section 2.6. Personal Property.
(a) Except for the personal property of Seller set forth on
Schedule
2.6(a) that will be distributed to Seller prior to the Closing
(the "Seller
Personal Property"), the Company has good and valid title to, or
a valid and
enforceable right to use under a contract listed in Schedule
2.15(a), all
property and assets (whether tangible or intangible) used or
held for use by the
Company in connection with its business, including all such
assets reflected in
the 2004 Balance Sheet or acquired since December 31, 2004 (the
"2004 Balance
Sheet Date"), free and clear of all Liens other than (i) any
Lien for Taxes not
yet due and payable, (ii) any landlord's, carriers',
warehousemen's, mechanics',
materialmen's or similar Liens arising or incurred in the
ordinary course of
business with respect to obligations that are not yet due or
delinquent, and
(iii) any Liens identified on Schedule 2.6(a) (the "Permitted
Liens").
(b) Each item of machinery, equipment, furniture, and other
tangible
personal property used or held for use by the Company in
connection with its
business is in good repair and good operating condition,
ordinary wear and tear
excepted, and is suitable for the purposes for which it is
presently used. All
such tangible personal property is in the possession of the
Company.
Section 2.7. Taxes.
(a) The Company has timely filed all Tax Returns required to be
filed
by it in accordance with applicable Legal Requirements, other
than any Tax
Returns in respect of which the Company has been the beneficiary
of any
extension of time within which to file any such Tax Returns as
disclosed on
Schedule 2.7(a). All such Tax Returns are true and complete.
Except as set forth
in Schedule 2.7(a), no such Tax Return has been audited or
examined by any
taxing authority, court or other Governmental Authority, and, to
the Knowledge
of Seller Parties, no such audit or examination is threatened.
True and complete
copies of such Tax Returns for the past three years and any
examination reports
and statements of deficiencies relating thereto assessed against
or agreed to by
the Company have been delivered to Buyer.
(b) All Taxes due and owing by the Company (whether or not shown
on
any Tax Return) have been paid. All Taxes that the Company is or
was required by
applicable Legal Requirements to withhold or collect have been
withheld or
collected, and, to the extent required, have been properly paid
on a timely
basis to the appropriate Governmental Authority or other Person.
The (i) unpaid
Taxes of the Company (computed consistent with the Company's
historical
accounting principles and practices provided that such
principles and practices
are consistent with applicable Tax law) do not
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exceed the reserve for Taxes (rather than any reserve for
deferred Taxes
established to reflect timing differences between book and tax
income) set forth
on the face of the 2004 Balance Sheet (rather than in any notes
thereto), and
(ii) reserve set forth on the 2004 Balance Sheet represents a
reasonable
estimate of the Taxes due with respect to the periods ended
December 31, 2004.
(c) There is no dispute or claim concerning (i) any Liability of
the
Company for additional Taxes, or (ii) any obligation of the
Company to file Tax
Returns or pay Taxes in any jurisdiction in which it does not
file Tax Returns
or pay Taxes, either (x) claimed or raised by any Governmental
Authority in any
notice or other communication provided to the Company, or (y) as
to which any
Seller Party has Knowledge. No assessment or other Proceeding by
any taxing
authority, court or other Governmental Authority is pending, or
to the Knowledge
of the Company, threatened, with respect to the Taxes or Tax
Returns of the
Company. There are no Liens for Taxes (other than Taxes not yet
due and payable)
upon any assets of the Company.
(d) There are no outstanding agreements, waivers or
arrangements
extending the statutory period of limitations applicable to any
claim for or the
period for the collection or assessment of Taxes due by the
Company for any
taxable period.
(e) The Company does not have any liability for Taxes of any
Person
other than the Company (i) under Treasury Regulations Section
1.1502-6 (or any
similar provision of applicable law); or (ii) as a transferee or
successor by
contract or otherwise. The Company has not been a member of an
"affiliated
group" within the meaning of Section 1504(a) of the Code. The
Company is not a
party to any Tax allocation agreement, Tax sharing agreement,
Tax indemnity
agreement or similar agreement.
(f) None of the assets of the Company is "tax-exempt use
property"
within the meaning of Section 168(h) of the Code.
(g) The Company has not made any payments, is not obligated to
make
any payments, and is not a party to any agreement that under
certain
circumstances could obligate it to make payments, that (i) will
not be
deductible under Section 280G of the Code (including any
payments required to be
made in connection with the consummation of the transactions
contemplated
hereby), or (ii) to any employee that would not be deductible
under Section 162
of the Code.
(h) No closing agreement pursuant to Section 7121 of the Code or
any
similar provision of applicable law has been entered into with
respect to the
Company or any of its assets.
(i) 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 until the consummation
of the Closing.
(j) There are no joint ventures, partnerships or other
arrangements or
contracts to which the Company is a party that could be treated
as a partnership
for federal income tax purposes.
(k) The Company has no potential liability for any Tax under
Section
1374 of the Code. The Company has not, in the past ten years,
(i) acquired
assets from another corporation in a transaction in which the
Company's 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 party) in
the hands of the
transferor or (ii) acquired the stock of any corporation which
is a qualified
subchapter S subsidiary.
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Section 2.8. Employees.
(a) Schedule 2.8(a) sets forth a complete and accurate list of
(i)
each employee of the Company, including each employee on leave
of absence or
layoff status, and (ii) each director of the Company, giving,
with respect to
each such individual, name, job title, current annual salary
with the Company,
any bonuses paid by the Company in addition to such annual
salary during the
twelve (12) months preceding the date of this Agreement,
vacation and sick leave
that is accrued but unused, and services credited for purposes
of vesting and
eligibility to participate under any Employee Benefit Plan (in
each case, to the
extent applicable).
(b) There is no collective bargaining agreement in effect
between the
Company and any labor unions or organizations in respect of its
employees. The
Company has not experienced any organized slowdown, work
interruption strike or
work stoppage by its employees, and, to the Knowledge of Seller
Parties, there
is no strike, labor dispute or union organization activities
pending or
threatened affecting the Company.
(c) The Company is, and since January 1, 2002 (the "Compliance
Date"),
has been, in compliance with all Legal Requirements regarding
employment and
employment practices, terms and conditions of employment, wages
and hours,
benefits, equal employment opportunity, anti-discrimination,
immigration,
occupational health and safety, unfair labor practices and
collective
bargaining, except where such noncompliance would not have a
Material Adverse
Effect.
(d) Except as set forth in Schedule 2.8(d), the Company is not a
party
to any employment, non-competition, severance or other contract
or agreement
with any employee or director of the Company. To the Knowledge
of Seller
Parties, no employee or director of the Company is bound by any
contract or
agreement that purports to limit the ability of such director or
employee to
engage in or continue or perform any conduct, activity, duties
or practice
relating to the business of the Company, or that requires the
employee to
transfer, assign, or disclose information concerning his work to
anyone other
than the Company.
Section 2.9. Employee Benefits.
(a) Schedule 2.9(a) lists all employment, consulting,
executive
compensation, bonus, deferred compensation, incentive
compensation, stock
purchase, stock option or other equity-based, retention, change
in control,
severance or termination pay, hospitalization or other medical,
life, disability
or other insurance, supplemental unemployment benefits,
profit-sharing, pension
or retirement plans, programs, agreements or arrangements, and
each other fringe
or other employee benefit plan, program, agreement or
arrangement (including any
"employee benefit plan", within the meaning of Section 3(3) of
ERISA),
sponsored, maintained or contributed to or required to be
contributed to by the
Company or by any ERISA Affiliate for the benefit of any
employee or former
employee of the Company, or any beneficiaries thereof, or with
respect to which
the Company may have any Liability (the "Employee Benefit
Plans").
(b) Each Employee Benefit Plan is and has been maintained
and
administered in compliance with its terms and with the
applicable requirements
of ERISA, the Code and any other applicable Legal Requirements,
except where
such noncompliance would not have a Material Adverse Effect. The
Company has
timely paid all contributions, premiums and expenses payable to
or in respect of
each Employee Benefit Plan under the terms thereof and in
accordance with
applicable Legal Requirements. Neither the Company, nor, to the
Knowledge of
Seller Parties, any other Person, has engaged in any transaction
with respect to
any Employee Benefit Plan that would be reasonably likely to
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subject the Company or Buyer to any Tax or penalty (civil or
otherwise) imposed
by ERISA, the Code or other applicable Legal Requirements with
respect to any
Employee Benefit Plan.
(c) With respect to each Employee Benefit Plan, the Company
has
delivered to Buyer complete copies of each of the following
documents; (i) a
copy of each Employee Benefit Plan (including any amendments
thereto); (ii) a
copy of the three most recent Form 5500 and annual report, if
any, required
under ERISA or the Code; (iii) a copy of the most recent Summary
Plan
Description, if any, required under ERISA; (iv) if the Employee
Benefit Plan is
funded through a trust or any third party funding vehicle, a
copy of the trust
or other funding agreement (including any amendments thereto);
and (v) if the
Employee Benefit Plan is intended to be qualified under Section
401(a) of the
Code, the most recent determination letter received from the
Internal Revenue
Service.
(d) No Employee Benefit Plan is a "multiemployer plan," as such
term
is defined in Section 3(37) of ERISA or a plan that is subject
to Title IV of
ERISA.
(e) None of the Employee Benefit Plans that are "welfare
benefit
plans," within the meaning of Section 3(1) of ERISA, provide for
continuing
benefits or coverage after termination or retirement from
employment, except for
COBRA rights under a "group health plan" as defined in Section
4980B(g) of the
Code and Section 607 of ERISA.
(f) Each Employee Benefit Plan that is intended to be qualified
under
Section 401(a) of the Code has received a determination from the
Internal
Revenue Service that it is so qualified and, to the Knowledge of
Seller Parties,
there are no facts or circumstances that would be reasonably
likely to adversely
affect the qualified status of any such Employee Benefit
Plan.
(g) Except as set forth in Schedule 2.9(g), the consummation of
the
transactions contemplated hereby will not (i) result in an
increase in or
accelerate the vesting of any of the benefits available under
any Employee
Benefit Plan, or (ii) except for the Change in Control Payments,
otherwise
entitle any current or former director or employee of the
Company to any
severance pay, bonus payments or other payment from the
Company.
(h) There are no pending or, to the Knowledge of Seller
Parties,
threatened, Proceedings that have been asserted relating to any
Employee Benefit
Plan by any employee or beneficiary covered under any Employee
Benefit Plan or
otherwise involving any Employee Benefit Plan (other than
routine claims for
benefits). No examination or audit of any Employee Benefit Plan
by any
Governmental Authority is currently in progress or, to the
Knowledge of Seller
Parties, threatened. The Company is not a party to any agreement
or
understanding with the Pension Benefit Guaranty Corporation, the
Internal
Revenue Service or the Department of Labor.
Section 2.10. Compliance with Legal Requirements. Except as set
forth on
Schedule 2.10, the Company is, and at all times since the
Compliance Date, has
been, in compliance with all Legal Requirements, including any
Legal
Requirements related to escheat laws, that are or were
applicable to the
operation of its business or the ownership or use of any of its
assets, except
where such noncompliance would not have a Material Adverse
Effect. The Company
has not received, at any time since the Compliance Date, any
notice or other
communication from any Governmental Authority or other Person
regarding any
actual, alleged or potential violation of or failure to comply
with any Legal
Requirement.
Section 2.11. Governmental Authorizations. Schedule 2.11
contains a true
and complete list of each Governmental Authorization that is
held by the
Company. Each such Governmental Authorization
10
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is valid and in full force and effect. Except as set forth in
Schedule 2.11, the
Company is, and at all times since the Compliance Date, has
been, in compliance
with each such Governmental Authorization. Except as set forth
in Schedule 2.11,
the Company has not received, at any time since the Compliance
Date, any notice
or other communication from any Governmental Authority or other
Person regarding
(a) any actual, alleged or potential violation of or failure to
comply with any
term or requirement of any such Governmental Authorization, or
(b) any actual,
proposed, or potential revocation, suspension, cancellation or
termination of,
or modification to, any such Governmental Authorization. The
Governmental
Authorizations listed in Schedule 2.11 collectively constitute
all of the
Governmental Authorizations necessary to permit the Company to
lawfully conduct
and operate its business in the manner it is currently
conducted.
Section 2.12. Legal Proceedings; Orders.
(a) Except as set forth in Schedule 2.12(a), there are no
pending
Proceedings or claims, whether oral or in writing (i) by or
against the Company
or that otherwise relate to or may affect the business of, or
any of the assets
owned or used by, the Company, or (ii) that challenge, or that
may have the
effect of preventing, delaying, making illegal or otherwise
interfering with,
any of the transactions contemplated hereby. To the Knowledge of
Seller Parties,
except as set forth in Schedule 2.12(a), no such Proceeding or
claim, whether
oral or in writing, has been threatened, and no event has
occurred or
circumstance exists that may give rise to or serve as a basis
for the
commencement of any such Proceeding or claim. Except as set
forth in Schedule
2.12(a), there have not been any orders, judgments or decrees
rendered against,
or any settlements effected by, the Company in connection with
any Proceedings
or claims, whether oral or in writing, brought by or against the
Company or that
otherwise relate to or may affect the business of, or any of the
assets owned or
used by, the Company.
(b) There are no Orders outstanding (i) against the Company or
that
otherwise relate to or may affect the business of, or any of the
assets owned or
used by, the Company; or (ii) that challenge, or that may have
the effect of
preventing, delaying, making illegal or otherwise interfering
with, any of the
transactions contemplated hereby. To the Knowledge of Seller
Parties, no such
Order has been threatened, and no event has occurred or
circumstance exists that
may give rise to or serve as a basis for the commencement of any
such Order.
Section 2.13. Environmental Matters.
(a) The Company is and has been in compliance with all
Environmental
Laws, and does not have any Liability under any Environmental
Laws with respect
to the Leased Real Property or any other properties and assets
(whether real,
personal, or mixed) in which the Company (or any predecessor)
has or had an
interest, except where such noncompliance or Liability would not
have a Material
Adverse Effect.
(b) There are no Hazardous Materials present on or in the
environment
at the Leased Real Property. There has been no emission,
disposal, discharge or
other release or, to the Knowledge of Seller Parties, threat of
release, of any
Hazardous Materials at or from the Leased Real Property or,
during the period of
the Company's ownership or lease thereof, at, on, under or from
any property
formerly owned or leased by the Company.
(c) The Company has not received any citation, notice or
other
communication from any Governmental Authority regarding any
alleged, actual or
potential violation of any Environmental Law, or any alleged,
actual or
potential obligation to undertake or bear the cost any
Liabilities under any
Environmental Law.
11
<PAGE>
Section 2.14. Insurance. Schedule 2.14 contains a true and
complete list of
(a) all policies of property, fire and casualty, products
liability, workers'
compensation and other forms of insurance under which any of the
assets or
properties of the Company are covered or otherwise relating to
the business of
the Company, and (b) all life insurance policies covering the
life of any
employee of the Company for which the Company or any employee of
the Company has
paid any premiums. Such policies are in full force and effect,
and the Company
or such employee have paid all premiums due, and have otherwise
performed all of
its obligations under, all such policies of insurance. Neither
the Company nor
any employee of the Company has received any notice of (a)
cancellation or
intent to cancel, or (b) an increase or intent to increase
premiums, with
respect to such insurance policies, and is not aware of any
basis for any such
action. True and complete copies of such insurance policies have
been made
delivered to Buyer.
Section 2.15. Contracts.
(a) Schedule 2.15(a) lists each contract, agreement or other
commitment to which the Company is a party or by which the
Company is otherwise
bound, excluding the agreements disclosed in Schedule 2.5(b),
Schedule 2.8(d)
and Schedule 2.16(c) (such contracts, agreements and
obligations, together with
the agreements disclosed in Schedule 2.5(b), Schedule 2.8(d) and
Schedule
2.16(c), the "Applicable Contracts"):
(b) Except as set forth in Schedule 2.15(b):
(i) Each Applicable Contract is valid and binding and in
full
force and effect.
(ii) The Company and, to the Knowledge of Seller Parties,
each
other party to any Applicable Contract is, and at all times
since January
1, 2003, has been, in compliance with all applicable terms and
requirements
of each Applicable Contract, except where such noncompliance
would not have
a Material Adverse Effect.
(iii) Since January 1, 2003, the Company has not given to,
or
received from, any other party to any Applicable Contract, any
notice or
other communication regarding any actual or alleged breach of or
default
under any Applicable Contract by the Company or any other party
to such
Applicable Contract.
(c) True and complete copies of each of the Applicable Contracts
have
been delivered to Buyer.
Section 2.16. Intellectual Property.
(a) The term "Intellectual Property Assets" means all
intellectual
property owned, licensed (as licensor or licensee) or used by
the Company,
including:
(i) the Company's name, all fictional business names, trade
names, trade dress, registered and unregistered trademarks,
registered and
unregistered service marks, and applications for any of the
foregoing
(collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable or unpatentable worldwide
(collectively,
"Patents");
12
<PAGE>
(iii) all registered and unregistered copyrights in both
published works and unpublished works, and copyright
applications
(collectively, "Copyrights");
(iv) all rights in Internet web sites and Internet domain
names
(collectively, "Internet Rights");
(v) all computer software (excluding off-the-shelf software
components licensed to the Company pursuant to non-negotiable
standard
form, mass-market or "shrink wrap" licenses involving payments
of less than
$3,000 on an annual basis) (the "Software");
(vi) all confidential or proprietary know-how, information,
customer lists, technical information, data, process technology,
plans,
drawings, and blue prints pertaining to the business of the
Company and
maintained by the Company as trade secrets (collectively, "Trade
Secrets");
and
(vii) all general know-how, business information, customer
and
supplier lists, technical information, data processing
technology, plans,
drawings and blue prints pertaining to the business of the
Company but
which are not Trade Secrets (collectively, "Business
Knowledge").
(b) Schedule 2.16(b) contains a true and complete list of
the
Intellectual Property Assets (other than the Trade Secrets) in
each case
listing, as applicable, (i) the title of the application or
registration, (ii)
the name of the applicant/registrant and current owner, (ii) the
jurisdiction
where the application/registration is located, (iv) the
application or
registration number, (v) filing date, and (vi) whether each such
Intellectual
Property Asset is owned or licensed.
(c) Schedule 2.16(c) contains a true and complete list of
agreements
and contracts under which the Company licenses any Intellectual
Property Assets
(as a licensor or licensee). The Intellectual Property Assets
constitute all of
the intellectual property necessary to the conduct of the
Company business as
currently conducted. The Company has good and valid title to, or
a valid and
enforceable right to use under an agreement listed in Schedule
2.16(c), each of
the Intellectual Property Assets, free and clear of all Liens.
The Company has
the right to use without payment to a third party each of the
Intellectual
Property Assets, other than any payment required under any
agreement listed in
Schedule 2.16(c). Neither this Agreement nor the transactions
contemplated by
this Agreement, including the assignment to Buyer by operation
of law or
otherwise of any contracts or agreements to which the Company is
a party, will
result in (i) Buyer granting to any Person any right to or with
respect to any
Intellectual Property Assets; or (ii) Buyer being bound by, or
subject to, any
non-compete or other restriction on the operation or scope of
its business.
(d) To the Knowledge of Seller Parties, none of the
Intellectual
Property Assets is infringed by any patent, proprietary right,
trade name,
trademark, trade dress, service mark, copyright, domain name or
other
intellectual property or proprietary right of any other Person
or, to the
Knowledge of Seller Parties, has been challenged or threatened
in any way. None
of the Intellectual Property Assets infringes or interferes with
or is alleged
to infringe or interfere with any patent, trade name, trademark,
trade dress,
service mark, copyright, domain name or other intellectual
property right of any
other Person, or misappropriates any trade secret or proprietary
rights of any
other Person.
(e) There are no pending or, to the Knowledge of Seller
Parties,
threatened, Proceedings asserting that any of the Intellectual
Property Assets
is infringed by the intellectual property
13
<PAGE>
rights of any other Person or that any of the Intellectual
Property Assets
infringes or interferes with any intellectual property or
proprietary rights of
any other Person, or otherwise relating to the Intellectual
Property Assets.
(f) All Patents, Marks and Copyrights that have been registered,
and
all Internet Rights, are in compliance with all formal Legal
Requirements
(including the payment of any required maintenance fees), and
are valid and
enforceable.
(g) The Company has taken all commercially reasonable
precautions to
protect the secrecy, confidentiality and value of all Trade
Secrets. The Trade
Secrets are not part of the public knowledge or literature, and,
to the
Knowledge of Seller Parties, the Trade Secrets have not been
used, divulged, or
appropriated either for the benefit of any Person (other than
the Company) or to
the detriment of the Company. To the Knowledge of Seller
Parties, the Business
Knowledge has not been appropriated either for the benefit of
any Person (other
than the Company) or to the detriment of the Company.
(h) To the extent that any work, invention or material relating
to the
business of the Company has been developed or created by any
employee or third
party for the Company, the Company has entered into a written
agreement with
such employee or third party with respect thereto and thereby
has obtained
ownership of, and is the exclusive owner of, all intellectual
property in such
work, including all Marks, Copyrights, Patents, Trademarks and
Trade Secrets,
material or invention by operation of law or by valid
assignment. The Company
has not licensed any computer software source code included in
the Intellectual
Property Assets to any Person in source code format.
(i) Except as set forth in Schedule 2.16(i), all proprietary
software
of the Company conforms in all material respects to the
specifications and
documentation therefor and is otherwise in compliance with
applicable law. No
open source, public source or freeware software, code or other
technology, or
any modification or derivative thereof, including, without
limitation, any
version of any software licensed pursuant to any GNU general
public license or
limited general public license, was or is, used in, incorporated
into,
integrated or bundled with, or used in the development or
compilation (other
than generally available commercial compilers) of, any
Intellectual Property
Assets.
(j) To the Knowledge of Seller Parties, the Company is not
barred from
seeking patents on material potentially patentable inventions by
"on-sale" or
similar bars to patentability or by failure to apply for a
patent on such
inventions within the time required.
Section 2.17. Accounts Receivable. Attached as Schedule 2.17 are
the
accounts receivable of the Company as of March 22, 2005, and
such accounts
receivable and each account receivable that will be on the
accounting records of
the Company as of the Closing Date represent or will represent
valid obligations
arising from sales actually made or services actually performed
by the Company
in the ordinary course of business. Except to the extent paid
prior to the
Closing Date, such accounts receivable are or will be as of the
Closing Date
current and collectible net of the respective reserves shown on
Schedule 2.17 or
on the accounts records of the Company as of the Closing Date,
as the case may
be (which reserves are adequate and calculated consistent with
past practice
and, in the case of the reserve as of the Closing Date, will not
represent a
greater percentage of the accounts receivable reflected as of
the Closing Date
than the reserve reflected in Schedule 2.17 represented of the
accounts
receivable reflected therein and will not represent a material
adverse change in
the composition of such accounts receivable in terms of aging).
Subject to such
reserves, each of such accounts receivable either has been or
will be collected
in full, without any set-off, within ninety (90) days after the
day on which it
first becomes due and payable. There is no contest, claim,
defense or right of
set off, other than returns in the ordinary course of business,
with any account
debtor of an account receivable relating to the amount or
validity of such
account receivable.
14
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Section 2.18. Sufficiency of Assets. The assets of the Company
constitute
all of the assets, other than the Seller Personal Property,
tangible and
intangible, of any nature whatsoever, used in or necessary to
operate the
business of the Company in the manner presently conducted by the
Company.
Section 2.19. No Undisclosed Liabilities. Except as set forth in
Schedule
2.19, the Company has no Liabilities except for Liabilities
reflected or
reserved against in the 2004 Balance Sheet and current
Liabilities incurred in
the ordinary course of business of the Company since the 2004
Balance Sheet
Date.
Section 2.20. Material Adverse Change. Since the 2004 Balance
Sheet Date,
there has not been any material adverse change in the business,
operations,
assets, results of operations or financial condition of the
Company, and, to the
Knowledge of Seller Parties, no event has occurred or
circumstance exists that
may reasonably be expected to result in such a material adverse
change.
Section 2.21. Absence of Certain Changes and Events. Except as
set forth in
Schedule 2.21, since the 2004 Balance Sheet Date, (i) the
Company has conducted
its business in the ordinary course of business, and (ii) the
Company has not
taken any action that, if taken during the period from the date
of this
Agreement through the Closing Date, would require the prior
consent of Buyer
pursuant to the provisions of Section 4.2(b).
Section 2.22. Material Customers. Schedule 2.22 sets forth a
true and
complete list of (a) each of the top fifteen (15) customers of
the Company (by
volume in dollars of sales to such customers), for the
twelve-month period ended
December 31, 2004 (the "Material Customers"), and the amount of
revenues
accounted for by the Material Customers during such period.
Since December 31,
2004, there has been no material adverse change in the business
relationship of
the Company with any Material Customer. The Company has not
received any notice,
a
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