Exhibit 10(i)
STOCK PURCHASE
AGREEMENT
This Stock Purchase Agreement (“
Agreement ”) is made as of January 23, 2006, by
and among Scott M. Wood, Steven A. Wood, individually and as
Trustees on behalf of the Trusts listed as shareholders on Schedule
2.1 (“Sellers”), IAC Holding Corp.
(“Buyer”) and Independence Holding Company
(“IHC”).
RECITALS
WHEREAS, Sellers own 100% of the outstanding capital stock of
Insurers Administrative Corporation, an Arizona corporation
(“ Company”), and Interlock Corporation, an Arizona
corporation (“Interlock”; collectively with the
Company, the “Acquired Companies”); and
WHEREAS, Buyer wishes to purchase, and the Sellers wish to
sell, all of the outstanding capital stock of the Acquired
Companies, on the terms and subject to the conditions contained in
this Agreement.
NOW, THEREFORE,
in consideration of the mutual covenants
contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
AGREEMENTS
1.
DEFINITIONS
For purposes of this Agreement, the
following terms have the meanings specified or referred to in this
Section 1 (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
“ 2004 Financial
Statements ”––as defined in Section
3.4.
“ Accounts
Receivable ”—as defined in Section
3.7.
“ Acquired Companies
”––as defined in the Recitals of this
Agreement.
“Acquired Company
Benefit Plans” —as set forth in Section 3.11.
“ Affiliate
”—as to any Person, any other Person that directly or
indirectly controls, is controlled by, or is under common control
with such first Person. For the purposes of this Agreement, a
Person shall be deemed to control another Person if such Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management, policies and/or decision making of
such other Person, whether through the ownership of voting
securities, by contract or otherwise.
“ Agreement
”—as defined in the first paragraph hereof.
“ Applicable
Contract ”––any Contract (a) under
which any Acquired Company has or may acquire any rights, (b) under
which any Acquired Company has or may become subject to any
obligation or liability, or (c) by which any Acquired Company or
any of the assets owned or used by it is or may become
bound.
“ Benefit Plan
”—any plan, program, policy, practice, Contract,
agreement or other arrangement providing for compensation, loans,
severance, termination pay, pension benefits, retirement benefits,
deferred compensation, salary continuation, performance awards,
stock or stock-related awards, fringe benefits, health, dental,
vision, life, disability, sabbatical, or accidental death and
dismemberment benefits, or other employee benefits or remuneration
of any kind, whether written or unwritten or otherwise, funded or
unfunded.
“ Best Efforts
”––the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances.
“ Breach
”––a “Breach” of a representation,
warranty, covenant, obligation, or other provision of this
Agreement or any instrument delivered pursuant to this Agreement
will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other
provision, or (b) any claim (by any Person) or other occurrence or
circumstance that is or was inconsistent with such representation,
warranty, covenant, obligation, or other provision, and the term
“Breach” means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
“ Business Day
”—any day that is not Saturday, Sunday or a day on
which banks are required or permitted to be closed in the state of
New York.
“ Buyer
”––as defined in the first paragraph of this
Agreement.
“ Closing
”—as defined in Section 2.3.
“ Closing Date
”––the date and time as of which the Closing
actually takes place.
“ Code
”—the Internal Revenue Code of 1986, as amended, or any
successor law, and, where appropriate, U.S. Treasury regulations
issued thereunder.
“ Company
”––as defined in the Recitals of this
Agreement.
“ Competing Business
”—as defined in Section 3.21.
“ Consent
”––any approval, consent, ratification, waiver,
or other authorization (including any Governmental
Authorization).
“ Contemplated
Transactions ”––all of the
transactions contemplated by this Agreement, including:
(a)
the sale of the Shares by Sellers to
Buyer;
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(b)
the execution, delivery, and performance
of the Releases and the Escrow Agreement;
(c)
the performance by Buyer and Sellers of
their respective covenants and obligations under this Agreement;
and
(d)
Buyer’s acquisition and ownership
of the Shares and exercise of control over the Acquired
Companies.
“ Contract
”––any agreement, contract, obligation, promise,
or undertaking (whether written or oral and whether express or
implied) that is legally binding.
“ Damages
”––as defined in Section 9.2.
“ Encumbrance
”––any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge,
security interest, right of first refusal, or restriction of any
kind, including any restriction on use, voting, transfer, receipt
of income, or exercise of any other attribute of
ownership.
“ Environmental Law
”—any applicable foreign, federal, state, or local
statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy or
rule of common law now in effect, or any judicial or administrative
interpretation thereof, including any judicial or administrative
order, consent decree or judgment in each case, to the extent
binding, relating to the environment, public health and safety, or
hazardous materials, including but not limited to the Comprehensive
Environmental Response Compensation and Liability Act, 42 USC
§6901 et seq.; the Resource Conservation and Recovery Act, 42
USC §6901 et seq.; the Federal Water Pollution Control Act, 33
USC §1251 et seq.; the Toxic Substances Control Act, 15 USC
§2601 et seq.; the Clean Air Act, 42 USC §7401 et seq.;
the Safe Drinking Water Act, 42 USC §3803 et seq.; the Oil
Pollution Act of 1990, 33 USC §2701 et seq.; the Emergency
Planning and the Community Right-to-Know Act of 1986, 42 USC
§1101 et seq.; the Hazardous Material Transportation Act, 49
USC §1801 et seq.; and the Occupational Safety and Health Act,
29 USC §651 et seq. (to the extent it regulates occupational
exposure to hazardous materials); any state or local counterparts
or equivalents, in each case as amended from time to
time.
“ ERISA
”––the Employee Retirement Income Security Act of
1974 or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.
“ ERISA Affiliate
”— with respect to any Seller, any trade or business
(whether or not incorporated) which, together with the Company, is
treated as a single employer within the meaning of Sections 414(b),
(c), (m) or (o) of the Code.
“Escrow
Agent” ”––as defined in Section 2.3
(c)
“Escrow
Agreement” ––as defined in Section 2.3
(c)
“ Escrow Fund
”—as defined in Section 2.3(c).
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“ GAAP
”––generally accepted United States accounting
principles.
“ Governmental
Authorization ”––any approval,
consent, license, permit, waiver, or other authorization issued,
granted, given, or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal
Requirement.
“ Governmental
Body ”––any:
(a)
nation, state, county, city, town,
village, district, or other jurisdiction of any nature;
(b)
federal, state, local, municipal,
foreign, or other government;
(c)
governmental or quasi-governmental
authority of any nature (including any governmental agency, branch,
department, official, or entity and any court or other
tribunal);
(d)
multi-national organization or body;
or
(e)
body exercising or entitled to exercise,
any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
“ IHC Shares
” ––as defined in Section 2.1.
“ Indemnified
Persons ”––as defined in Section
9.2.
“ Indemnifying
Persons ”––as defined in Section
9.2.
“ Intellectual
Property ”–– (i) inventions, whether
or not patentable, whether or not reduced to practice or whether or
not yet made the subject of a pending patent application or
applications, (ii) ideas and conceptions of potentially patentable
subject matter, including, without limitation, any patent
disclosures, whether or not reduced to practice and whether or not
yet made the subject of a pending patent application or
applications, (iii) patents, (iv) trademarks, (v) copyrights,
(vi) software, (vii) trade secrets and confidential, technical or
business information (including ideas, formulas, compositions,
inventions, and conceptions of inventions whether patentable or
unpatentable and whether or not reduced to practice), (viii)
technology (including know-how and show-how), manufacturing and
production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing
plans and customer and supplier lists and information, (ix) copies
and tangible embodiments of all the foregoing, in whatever form or
medium, (x) all rights to obtain and rights to apply for patents,
and to register trademarks and copyrights, (xi) all rights of the
Acquired Companies to sue and recover and retain damages and costs
and attorneys’ fees for present and past infringement of any
of the Intellectual Property rights hereinabove set out and (xii)
all rights to use or possess the Intellectual Property of any other
Person.
“ Interim Period Financial
Statements ”––as defined in Section
3.4.
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“ IRS
”––the United States Internal Revenue Service or
any successor agency, and, to the extent relevant, the United
States Department of the Treasury.
“Knowledge
”: an individual will be
deemed to have “Knowledge” of a particular fact or
other matter if:
(a) such individual is actually aware of
such fact or other matter; or
(b) a prudent individual could be
expected to discover or otherwise become aware of such fact or
other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or
other matter.
A Person (other than an individual) will
be deemed to have “Knowledge” of a particular fact or
other matter if any individual who is serving, or who has at any
time served, as a director, officer, partner, executor, or trustee
of such Person (or in any similar capacity) has, or at any time
had, Knowledge of such fact or other matter.
“ Legal Proceeding
”—any ongoing or threatened action, suit, litigation,
arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing,
inquiry, audit, examination or investigation commenced, brought,
conducted or heard by or before, or otherwise involving, any court
or other Governmental Body or any arbitrator or arbitration
panel.
“ Legal
Requirement ”––any federal, state,
local, municipal, foreign, international, multinational, or other
administrative order, constitution, law, ordinance, principle of
common law, regulation, statute, or treaty.
“Material Adverse
Effect” or
“Material Adverse Change”
––any effect or change that would be materially adverse
to the business of the Acquired Companies, taken as a whole, or to
the ability of any Party to consummate timely the Contemplated
Transactions; provided that none of the following shall be deemed
to constitute, and none of the following shall be taken into
account in determining whether there has been, a Material Adverse
Effect or Material Adverse Change: (a) any adverse change, event,
development, or effect arising from or relating to (1) general
business or economic conditions, including such conditions related
to the business of the Acquired Companies, (2) national or
international political or social conditions, including the
engagement by the United States in hostilities, whether or not
pursuant to the declaration of a national emergency or war, of the
occurrence of any military or terrorist attack upon the United
States, or any of its territories, possessions, or diplomatic
consular offices or upon any military installation, equipment or
personnel of the United States, (3) financial, banking, or
securities markets (including any disruption thereof and any
decline in the price of any security or any market index), (4)
changes in the United States generally accepted accounting
principles, (5) changes in laws, rules, regulations, orders, or
other binding directives issued by any Governmental Body, or (6)
the taking of any action contemplated by this Agreement and other
agreements contemplated hereby, (b) any existing event, occurrence,
or circumstance with respect to which Buyer has Knowledge as of the
date hereof, and (c) any adverse change in or effect on the
business of the Acquired Companies that is cured by
Sellers
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before the earlier of the Closing Date or
the date on which this Agreement is terminated pursuant to Section
7 hereof.
“ Order
”––any award, decision, injunction, judgment,
order, ruling, subpoena, or verdict entered, issued, made, or
rendered by any court, administrative agency, or other Governmental
Body or by any arbitration panel.
“ Ordinary Course of
Business ”––an action taken by a Person
will be deemed to have been taken in the “Ordinary Course of
Business” only if such action is consistent with the past
practices of such Person and is taken in the ordinary course of the
normal day-to-day operations of such Person.
“ Organizational
Documents ”––(a) the articles or
certificate of incorporation and the bylaws of a corporation; (b)
any charter or similar document adopted or filed in connection with
the creation, formation, or organization of a Person; and (c) any
amendment to any of the foregoing.
“ Person
”––any individual, corporation (including any
non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association,
organization, labor union, or other entity or Governmental
Body.
“ Purchase Price
”—as defined in Section 2.1.
“ Related
Person ”––with respect to a particular
individual:
(a)
each other member of such
individual’s Family;
(b)
any Person that is directly or indirectly
controlled by such individual or one or more members of such
individual’s Family;
(c)
any Person in which such individual or
members of such individual’s Family hold (individually or in
the aggregate) a Material Interest; and
(d)
any Person with respect to which such
individual or one or more members of such individual’s Family
serves as a director, officer, partner, executor, or trustee (or in
a similar capacity).
With respect to a specified Person other
than an individual:
(a)
any Person that directly or indirectly
controls, is directly or indirectly controlled by, or is directly
or indirectly under common control with such specified
Person;
(b)
any Person that holds a Material Interest
in such specified Person;
(c)
each Person that serves as a director,
officer, partner, executor, or trustee of such specified Person (or
in a similar capacity);
(d)
any Person in which such specified Person
holds a Material Interest;
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(e)
any Person with respect to which such
specified Person serves as a general partner or a trustee (or in a
similar capacity); and
(f)
any Related Person of any individual
described in clause (b) or (c).
For purposes of this definition, (a) the
“Family” of an individual includes (i) the individual,
(ii) the individual’s spouse and former spouses, (iii) any
other natural person who is related to the individual or the
individual’s spouse within the second degree, and (iv) any
other natural person who resides with such individual, and (b)
“Material Interest” means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of voting securities or other voting interests
representing at least ten percent (10%) of the outstanding voting
power of a Person or equity securities or other equity interests
representing at least ten percent (10%) of the outstanding equity
securities or equity interests in a Person.
“ Releas es
”––as defined in Section 2.2(a)(ii).
“ Representative
”––with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel,
accountants, and financial advisors.
“ Salary Continuation
Agreements ” — those certain agreements entered
into before December 31, 2005 between the Company and such members
of senior management as listed in Schedule SCA, providing
for salary continuation beyond active full-time
employment.
“ Section 3.15
Documents ”—as defined in Section
3.15.
“ Securities
Act ”–– the Securities Act of
1933, and regulations and rules issued pursuant to that
Act.
“ Sellers
”––as defined in the first paragraph of this
Agreement.
“ Sellers’ Closing
Documents ”—as defined in Section
3.2(a).
“ Shares
”––as defined in Section 2.1.
“ Shareholders’
Representative ”—Mr. Scott M. Wood.
“ Tax
”—any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use
tax, property tax, business tax, withholding tax or payroll tax),
levy, assessment, tariff, duty (including any customs duty),
deficiency or fee, and any related charge or amount (including any
fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body payable pursuant to
any tax sharing agreement, contract or other arrangement, or
imposed or that arise or are payable as a result of successor or
transferee liability or otherwise.
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“ Tax Reserve
”—the amounts respectively reserved for the payment of
taxes on the books of the Acquired Companies, on a consolidated
basis with respect to the Company’s subsidiaries, on the
Closing Date.
“ Tax Returns
”—any return (including any information return),
report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed
with or submitted to, any Governmental Body in connection with the
determination, assessment, collection, or payment of any Tax or in
connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any
Tax.
“ Threatened
”––a claim, Proceeding, dispute, action, or other
matter will be deemed to have been “Threatened” if any
demand or statement has been made (orally or in writing) or any
notice has been given (orally or in writing), or if any other event
has occurred or any other circumstances exist, that would lead a
prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken,
or otherwise pursued in the future.
2.
SALE AND TRANSFER OF SHARES;
CLOSING
2.1
SHARES
Subject to the terms and conditions of
this Agreement, including, without limitation, the terms of the
Escrow Agreement provided for Section 2.3(c), and in reliance upon
the representations, warranties and agreements contained herein,
the Sellers will sell and transfer to Buyer at the Closing and
Buyer will purchase from the Sellers at the Closing, all of the
voting and nonvoting shares of the common stock, of the Acquired
Companies as is indicated on Schedule 2.1 to this Agreement
(“Shares”), for $29.4 million, consisting of $21.36
million cash and $8.04 million in the common stock of IHC, par
value $1.00 per share, (“ IHC Shares ”),
valued at $18.00 per share for purpose of this Section
(“Purchase Price”), to be allocated and distributed as
set forth on Schedule 2.1.
(a)
IHC Shares Price
Protection
At any time from the first anniversary of
the Closing Date to the second anniversary of
the Closing Date, each of Stephen A. Wood
and Scott M. Wood will have the right to require IHC or its
designee to purchase for cash at $17.00 per share as follows: (i)
up to 111,111 IHC Shares from Scott M. Wood or from one or more
trusts controlled by Scott M. Wood that hold IHC Shares, and (ii)
up to 83,332 IHC Shares from Stephen A. Wood or from one or more
trusts controlled by Stephen A. Wood that hold IHC Shares.
None of the IHC Shares subject to the price protection
described in this Section 2.1 (a) shall be placed in the escrow
described in Section 2.3 (c).
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2.2
CLOSING
The purchase and sale (the “
Closing ”) provided for in this Agreement will
take place remotely via the exchange of documents and signatures at
the Company’s offices at 9am local time, on January 31, 2006,
or at such other time and place as the parties may agree.
Subject to the provisions of Section 7, 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 2.2
will not result in the termination of this Agreement and will not
relieve any party of any obligation under this
Agreement.
2.3
CLOSING OBLIGATIONS
At the Closing:
(a)
Sellers will deliver to Buyer:
(i)
Stock Certificates
: certificates representing the Shares,
free and clear of all Encumbrances duly endorsed (or accompanied by
duly executed stock powers) for transfer to Buyer;
(ii)
Sellers Release
: releases in the form of Exhibit
2.3(a)(ii) executed by Sellers (collectively, “
Releases ”); and
(iii)
Closing Certificate
: a certificate executed by Sellers in
the form of Exhibit 2.3(a)(iii) representing and warranting
to Buyer that each of Sellers’ representations and warranties
in this Agreement was accurate in all respects as of the date of
this Agreement and is accurate in all respects as of the Closing
Date as if made on the Closing Date and that Sellers have performed
and complied with all of the terms, covenants, provisions and
conditions to be performed and complied with by Sellers at or
before the Closing.
(iv)
Legal Opinion : Counsel to the Sellers shall have delivered
to the Buyer a legal opinion addressing such customary and
appropriate matters as Counsel to the Sellers and the Buyer may
agree, but in any event including, without limitation, affirmative
opinions as to: (i) the authority of the Sellers to enter into this
Agreement and to consummate the transactions contemplated hereby;
(ii) the binding nature of this Agreement with respect to the
Sellers; and (iii) that the title of the Sellers to the Shares is
unencumbered, to the Knowledge of Counsel to the Sellers.
(b)
Buyer will deliver to each Seller the
amount of cash consideration set forth next to such Seller’s
name on Schedule 2.1 hereto by wire transfer in accordance
with written transfer instructions delivered to Buyer by each such
Seller prior to Closing.
Further, at the Closing, IHC shall
transfer to each Seller such number of IHC Shares as set forth next
to such Seller’s name on Schedule 2.1 hereto, free and
clear of any liens, options, charges, restrictions, claims or
encumbrances of any nature, provided , however , that
the
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certificates representing such shares
shall bear customary legends limiting their resale in the absence
of an effective registration under the Securities Act.
(c)
There shall be placed in escrow with J.P.
Morgan Trust Company, N.A. (“ Escrow Agent
”) 83,332 IHC Shares (the “ Escrow Fund
”), with each of Scott M. Wood and Stephen A. Wood
contributing half of such escrowed shares from their respective
portion of Purchase Price, provided that should the trading price
at the New York Stock Exchange of IHC common stock fall below $18
per share, Sellers will not be obligated to provide further funding
to the escrow. Such escrowed shares shall be delivered by
Buyer to the Escrow Agent at the Closing and shall be held and
delivered by the Escrow Agent in accordance with the terms and
provisions of a Escrow Agreement in a form to be mutually agreed
upon (“ Escrow Agreement ”), which Escrow
Agreement, Buyer, Sellers, Shareholders’ Representative, and
Escrow Agent shall execute and deliver at the Closing.
3.
REPRESENTATIONS AND WARRANTIES OF
SELLERS
Except as set forth on the Disclosure
Schedule, which shall qualify the representations and warranties
set forth in this Section 3, and which shall be organized in Parts
corresponding to the numbering in this Section 3, the Sellers,
jointly and severally, hereby represents and warrants to, and for
the benefit of, Buyer, as follows:
3.1
ORGANIZATION AND GOOD
STANDING
(a)
Part 3.1 of the Disclosure Schedule contains a complete and
accurate list for each Acquired Company of its name, its
jurisdiction of incorporation, other jurisdictions in which it is
authorized to do business, and its capitalization (including the
identity of each stockholder and the number of shares held by
each). Each Acquired 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 the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts.
Each Acquired 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 ownership or use of
the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification.
(b)
Buyer has received copies of the
Organizational Documents of each Acquired Company, as currently in
effect.
3.2
AUTHORITY; NO CONFLICT
(a)
This Agreement constitutes the legal,
valid, and binding obligation of Sellers , enforceable against
Sellers in accordance with its terms. Upon the
execution and delivery by Sellers of the Escrow Agreement and the
Releases (collectively, the “ Sellers’ Closing
Documents ”), the Sellers’ Closing Documents
will constitute the legal, valid, and binding obligations of
Sellers, enforceable against Sellers in accordance with their
respective terms. Sellers have the absolute and unrestricted
right, power, authority, and capacity to execute
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and deliver this Agreement and the
Sellers’ Closing Documents and to perform their obligations
under this Agreement and the Sellers’ Closing
Documents.
(b)
Except as set forth in Part 3.2 of
the Disclosure Schedule, to the Knowledge of each Seller, neither
the execution and delivery of this Agreement nor the consummation
or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of
time):
(i)
contravene, conflict with, or result in a
violation of any provision of the Organizational Documents of the
Acquired Companies;
(ii)
contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the
right to challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which any Acquired Company or either
Seller, or any of the assets owned or used by any Acquired Company,
may be subject;
(iii)
contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that is held
by any Acquired Company or that otherwise relates to the business
of, or any of the assets owned or used by, any Acquired
Company;
(iv)
cause Buyer or any Acquired Company to
become subject to, or to become liable for the payment of, any
Tax;
(v)
cause any of the assets owned by any
Acquired Company to be reassessed or revalued by any taxing
authority or other Governmental Body;
(vi)
contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract; or
(vii)
result in the imposition or creation of
any Encumbrance upon or with respect to any of the assets owned or
used by any Acquired Company.
(c)
Except as set forth in Part 3.2 of
the Disclosure Schedule, to the Knowledge of each Seller, neither
any Seller nor any Acquired Company is, or will be, required to
give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated
Transactions.
3.3
CAPITALIZATION
(a)
The authorized capital stock of each
Acquired Company is as set forth on Part 3.3 of the
Disclosure Schedule. The outstanding capital stock of
each Acquired
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Company is as set forth on Part
3.3 of the Disclosure Schedule. All of the outstanding
shares of capital stock of each Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable.
Except as set forth on Part 3.3-(1) , none of the
Acquired Companies owns, or has any Contract to acquire, any equity
security or other security of any Person or any direct or indirect
equity or ownership interest in any other business. Except as
set forth on Part 3.3 of the Disclosure Schedule, there are
no authorized or outstanding securities of any Acquired Company.
No Acquired Company is party to any Contract relating to the
issuance, sale, or transfer of any equity security or other
security of any Acquired Company. No legend or other
reference to any purported Encumbrance appears upon any certificate
representing capital stock of any Acquired Company.
(b)
Each Seller is the record and beneficial
owner and holder of such shares of capital stock of the Acquired
Companies, and in such amounts, as set forth on Schedule 2.1
, free and clear of all Encumbrances or restrictions on transfer
(other than restrictions under the Securities Act and state
securities laws). None of the outstanding equity securities
or other securities of any Acquired Company was issued in violation
of the Securities Act or any other Legal Requirement. Except
as set forth on Part 3.3-(2) of the Disclosure Schedule, no
Seller is a party to any option, warrant, purchase right or other
Contract that would require such Seller to sell, transfer or
otherwise dispose of any of the Shares. No Seller is a party
to any voting trust, proxy, or other agreement or understanding
with respect to the voting of any of the Shares.
3.4
FINANCIAL STATEMENTS
Buyer has received the audited
consolidated financial statements of the Company (balance sheets,
statements of income and accumulated deficit and statements of cash
flows, together with the notes thereto) for the fiscal year ended
December 31, 2004 (the “ 2004 Financial
Statements ”). The 2004 Financial Statements
are complete and correct in all material respects and have been
prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated and with each other, including,
without limitation, with respect to reserves. The 2004
Financial Statements fairly present in all material respects the
financial condition, operating results and cash flows of the
Company and its consolidated Subsidiaries as of December 31, 2004
and for the year then ended in accordance with GAAP. Buyer
has also received the unaudited consolidated financial statements
of the Company (balance sheet and statement of operations) for the
three (3) months ended September 30, 2005 (the “
Interim Period Financial Statements ”).
The Interim Period Financial Statements are complete and
correct in all material respects and have been prepared in
accordance with GAAP applied on a consistent basis throughout the
periods indicated and with each other, including, without
limitation, with respect to reserves. The Interim Period
Financial Statements fairly present in all material respects the
operating results of the Company and its consolidated subsidiaries
as of September 30, 2005 and for the three (3) months then ended in
accordance with GAAP, including, without limitation, with respect
to reserves. Notwithstanding anything in this Section 3.4 to
the contrary, Buyer is fully aware of the Company’s Salary
Continuation Agreements and that the Company’s Financial
Statements and the Interim Period Financial Statements do not
reflect any liability of the Company in respect to the Salary
Continuation Agreements.
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3.5
BOOKS AND RECORDS
The books of account, minute books and
stock record books of the Acquired Companies, all of which have
been made available to Buyer, are complete and correct. The
minute books of the Acquired Companies contain accurate and
complete records of all meetings held of, and corporate action
taken by, the stockholders, the Boards of Directors, and committees
of the Boards of Directors of the Acquired Companies, and no
meeting of any such stockholders, Boards of Directors, or committee
has been held for which minutes have not been prepared and included
in such minute books. At the Closing, all of such books and
records will be in the possession of the Acquired
Companies.
3.6
TITLE TO ASSETS;
(a)
Each Acquired Company owns, and has good,
valid and marketable title to, all assets purported to be owned by
it, including: (i) all of the Acquired Companies’ rights
under the Applicable Contracts and (ii) all other assets reflected
in the Acquired Companies’ books and records as being owned
by the respective Acquired Company, with the exception of leased
property recorded as assets on the Acquired Companies’ books
and records because of GAAP requirements related to capital leases.
Except as set forth on Part 3.6 of the Disclosure
Schedule, all of such assets are owned by the Acquired Companies
free and clear of any Encumbrances, except for any lien for current
taxes not yet due and payable.
(b)
The assets of the Acquired Companies
constitute all the assets, properties, rights and goodwill
necessary to carry on the business of the Acquired Companies as
conducted as of the date of this Agreement and as anticipated to be
conducted as of the Closing Date. Except for this Agreement,
no Acquired Company has any Contract, absolute or contingent (i) to
effect any acquisition transaction for control of any Acquired
Company or (ii) to sell or otherwise transfer any assets of any of
the Acquired Companies, except in the Ordinary Course of Business.
All material tangible assets which are owned, leased or used
by the Acquired Companies are in good operating condition and
repair, subject to normal wear and tear.
(c)
All leases and licenses to the assets
used by any Acquired Company are valid and enforceable in
accordance with their terms against the parties thereto.
3.7
ACCOUNTS RECEIVABLE
All accounts receivable of the Acquired
Companies that are reflected on the 2004 Financial Statements or
the Interim Period Financial Statements or on the accounting
records of the Acquired Companies as of the Closing Date
(collectively, the “ Accounts Receivable
”) represent or will represent valid obligations arising from
sales actually made or services actually performed in the Ordinary
Course of Business. Unless paid prior to the Closing Date,
the Accounts Receivable are or will be as of the Closing Date
current and collectible net of the respective reserves shown on the
2004 Financial Statements or the Interim Period Financial
Statements or on the accounting records of the Acquired Companies
as of the Closing Date (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 as of the Closing Date than the reserve
reflected in the Interim Period Financial
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Statements 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 the
Accounts Receivable either has been or will be collected in full,
without any set-off, within ninety days after the day on which it
first becomes due and payable. There is no contest, claim, or
right of set-off, other than returns in the Ordinary Course of
Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts
Receivable.
3.8
NO UNDISCLOSED
LIABILITIES
Except as set forth in Part 3.8 of
the Disclosure Schedule, to the Knowledge of each Seller, the
Acquired Companies have no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued,
contingent, or otherwise) except for liabilities or obligations
fully and adequately reflected and reserved against in the 2004
Financial Statements or the Interim Period Financial Statements and
current liabilities incurred in the Ordinary Course of Business
since the respective dates thereof.
3.9
TAXES
(a)
Each Acquired Company has filed or caused
to be filed (on a timely basis) all Tax Returns that are or were
required to be filed with respect to it, either separately or as a
member of a group of corporations, pursuant to applicable Legal
Requirements. Sellers have delivered or made available to
Buyer copies of all such Tax Returns relating to income, payroll,
use, and sales taxes since 2002. Except as set forth on
Part 3.9 of the Disclosure Schedule, each Acquired Company
has paid all Taxes that have or may have become due pursuant to
such Tax Returns or otherwise, or pursuant to any assessment
received by any Seller or any of the Acquired Companies, except for
such Taxes, if any, as are being contested in good faith and as to
which adequate reserves have been provided in the 2004 Financial
Statements and the Interim Period Financial Statements.
(b)
Part 3.9 of the Disclosure Schedule contains a complete and
accurate list of all audits of all Tax Returns, including a
reasonably detailed description of the nature and outcome of each
audit. Copies of any audit report issued within the last
three years relating to Taxes due from or with respect to any
Acquired Company have been made available to the Buyer.
Except as set forth in Part 3.9 (b) of the Disclosure
Schedule, there are no audits or investigations by any taxing
authority that have been or currently are in progress and no notice
of intent to conduct any audit or investigation has been received.
All deficiencies proposed as a result of any audits or
investigations have been paid, reserved against, settled, or are
being contested in good faith by appropriate proceedings.
Part 3.9 (b) of the Disclosure Schedule describes all
adjustments to the Tax Returns filed by any of the Acquired
Companies or any group of corporations including any of the
Acquired Companies for all taxable years since January 1, 2000, and
the resulting deficiencies proposed by the applicable tax
authority. Except as described in Part 3.9 of the Disclosure
Schedule, none of the Acquired Companies (or any consolidated,
affiliated, combined or similar group of which an Acquired Company
is a member) and no Seller has given or been requested to give
waivers or extensions (or is or would be subject to a waiver or
extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of any of the Acquired
Companies or for which any of the Acquired
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Companies may be liable and no power of
attorney with respect to any Tax matter is currently in
force.
(c)
The charges, accruals, and reserves with
respect to Taxes on the respective books of each Acquired Company
are adequate (determined in accordance with GAAP) and are at least
equal to such Acquired Company’s liability for Taxes.
There exists no proposed or unpaid tax assessment against any
of the Acquired Companies, except as disclosed in the 2004
Financial Statements or in Part 3.9 of the Disclosure
Schedule. All Taxes that any of the Acquired Companies is or
was required by any Legal Requirement to withhold or collect have
been duly and timely withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other
Person.
(d)
All Tax Returns filed by (or that include
on a consolidated basis) any of the Acquired Companies are true,
correct and complete. There is no tax sharing agreement that
will require any payment by any of the Acquired Companies after the
date of this Agreement.
(e)
No Acquired Company has filed a consent
under Code §341(f) concerning collapsible corporations.
There is no agreement, contract, arrangement or plan
that has resulted or would result, separately or in the aggregate,
in the payment of (i) any "excess parachute payment" within the
meaning of Code §280G (or any corresponding provision of
state, local or foreign Tax law) and (ii) any amount that will not
be fully deductible as a result of Code 162(m) (or any
corresponding provision of state, local or foreign Tax law).
No Acquired Company has been a United States real property
holding corporation within the meaning of Code §897(c)(2)
during the applicable period specified in Code
§897(c)(1)(A)(ii).
(f)
Except as set forth on Part 3.9 of
the Disclosure Schedule, no Acquired Company has liability for the
Taxes of any person under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise.
(g)
No Acquired Company has agreed to,
applied for, or is required to make any adjustments pursuant to
Code Section 481(a) or similar provision of state, local or foreign
law by reason of a change in accounting method, nor has any
knowledge that the IRS has proposed any such adjustment. No
Acquired Company has entered into a closing agreement pursuant to
Code Section 7121 or similar provision of state, local or foreign
law. No Acquired Company has constituted a
“distributing corporation” or a “controlled
corporation” for purposes of Code Section 355.
3.10
NO MATERIAL ADVERSE
CHANGE
To the Knowledge of each Seller, since
the date of the 2004 Financial Statements, there has not been any
Material Adverse Change in the business, operations, properties,
prospects, assets, or condition of any Acquired Company, and no
event has occurred or circumstance exists that may result in such a
Material Adverse Change.
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3.11
EMPLOYEE BENEFIT PLANS AND
ARRANGEMENTS.
(a)
All Benefit Plans of the Acquired
Companies are listed on Part 3.11 of the Disclosure Schedule
(the “ Acquired Company Benefit Plans ”)
and copies of all material documentation relating to the Acquired
Company Benefit Plans have been delivered or made available to the
Buyer (including copies of written Benefit Plans, written
descriptions of oral Benefit Plans, summary plans descriptions,
trust agreements, the three most recent annual returns and IRS
determination letters).
(b)
Each Acquired Company Benefit Plan, and
the administration thereof complies, and has at all times complied,
in all material respects with its terms and with the requirements
of all applicable Legal Requirements, including ERISA and the Code,
and each Acquired Company Benefit Plan intended to qualify under
section 401(a) of the Code has at all times since its adoption been
so qualified, and each trust which forms a part of any such plan
has at all times since its adoption been tax-exempt under section
501(a) of the Code.
(c)
No Acquired Company Benefit Plan is a
“defined benefit plan” within the meaning of section
414(j) of the Code.
(d)
No Acquired Company Benefit Plan is a
multiemployer plan within the meaning of section 3(37) of
ERISA.
(e)
No direct, contingent or secondary
liability has been incurred or is expected to be incurred by the
Company under Title IV of ERISA to any party with respect to any
Acquired Company Benefit Plan, or with respect to any other
Benefits Plan presently or heretofore maintained or contributed to
by any ERISA Affiliate.
(f)
Neither the Company nor any ERISA
Affiliate has incurred any material liability for any Tax imposed
under sections 4971 through 4980E of the Code or civil liability
under sections 502(j) or (l) of ERISA.
(g)
No benefit under any Acquired Company
Benefit Plan, including, without limitation, any severance or
parachute payment plan or agreement, will be established or become
accelerated, vested or payable by reason of any of the Contemplated
Transactions.
(h)
No Acquired Company Benefit Plan provides
health or death benefit coverage beyond the termination of an
employee’s employment, except as required by Part 6 of
Subtitle B of Title I of ERISA or section 4980B of the Code or any
state Legal Requirements requiring continuation of benefits
coverage following termination of employment.
(i)
No suit, actions or other litigation
(excluding claims for benefits incurred in the Ordinary Course of
Business consistent with past practice of plan activities) have
been brought or, threatened against or with respect to any Acquired
Company Benefit Plan that could, individually or in the aggregate,
have a Material Adverse Effect on any Acquired Company.
(j)
All contributions to Acquired Company
Benefit Plans that were required to be made under the Acquired
Company Benefit Plans have been made, and all benefits
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accrued under any Acquired Company
Benefit Plan which is underfunded have been paid, accrued or
otherwise reserved in accordance with GAAP except with respect to
the Salary Continuation Agreements which are not fully funded, and
the Company has performed all material obligations required to be
performed under all the Acquired Company Benefit Plans.
3.12
COMPLIANCE WITH LEGAL REQUIREMENTS;
GOVERNMENTAL AUTHORIZATIONS
(a)
Except as set forth in Part 3.12
of the Disclosure Schedule, to the Knowledge of each
Seller:
(i)
each Acquired Company is, and at all
times since the date of its incorporation has been, in full
compliance with each Legal Requirement that is or was applicable to
it or to the conduct or operation of its business or the ownership
or use of any of its assets;
(ii)
no event has occurred or circumstances
exists that (with or without notice or lapse of time) (A) may
constitute or result in a violation by any Acquired Company of, or
a failure on the part of any Acquired Company to comply with, any
Legal Requirement, or (B) may give rise to any obligation on the
part of any Acquired Company to undertake, or to bear all or any
portion of the costs of, any remedial action of any nature;
and
(iii)
no Acquired Company has received, at any
time since January 1, 2000, any notice or other communication
(whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential
violation of, or failure to comply with, any Legal Requirement, or
(B) any actual, alleged, possible, or potential obligation on the
part of any Acquired Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any
nature.
(b)
Part 3.12 (b) of the Disclosure Schedule contains a
complete and accurate list of each Governmental Authorization that
is held by any Acquired Company or that otherwise relates to the
business of, or to any of the assets owned or used by, any Acquired
Company. Each Governmental Authorization listed or required
to be listed in Part 3.12 (b) of the Disclosure
Schedule is valid and in full force and effect. Except as set
forth in Part 3.12 of the Disclosure Schedule, to the
Knowledge of each Seller:
(i)
each Acquired Company is, and at all
times since January 1, 2000 has been, in full compliance with all
of the terms and requirements of each Governmental Authorization
identified or required to be identified in Part 3.12
(b) of the Disclosure Schedule;
(ii)
no event has occurred or circumstance
exists that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or a
failure to comply with any term or requirement of any Governmental
Authorization listed or required to be listed in Part
3.12(b) of the Disclosure Schedule, or (B) result
directly or indirectly in the revocation,
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withdrawal, suspension, cancellation, or
termination of, or any modification to, any Governmental
Authorization listed or required to be listed in Part 3.12
(b) of the Disclosure Schedule;
(iii)
no Acquired Company has received, at any
time since January 1, 2000, any notice or other communication
(whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential
violation of or failure to comply with any term or requirement of
any Governmental Aut
