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EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
HEALTH FITNESS CORPORATION,
HEALTHCALC.NET, INC.,
PETER A. EGAN,
JOHN F. ELLIS
AND
THE INDIVIDUALS LISTED ON EXHIBIT A
DATED AS OF DECEMBER 23, 2005
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TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS.....................................................................................2
1.1.
Defined
Terms...................................................................................2
ARTICLE 2
PURCHASE AND SALE OF
SHARES.....................................................................2
2.1.
Shares
Purchased................................................................................2
2.2.
Option Shares to be Acquired by
Shareholders....................................................2
ARTICLE 3
PURCHASE
PRICE..................................................................................2
3.1.
Purchase
Price..................................................................................2
3.2.
Buyer Common Stock
Determination................................................................3
3.3.
Escrow..........................................................................................3
3.4.
Contingent
Consideration........................................................................4
ARTICLE 4
CLOSING.........................................................................................6
4.1.
Closing.........................................................................................6
4.2.
Deliveries by
Buyer.............................................................................6
4.3.
Deliveries by
Shareholders......................................................................6
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL
SHAREHOLDERS....................................7
5.1.
Incorporation and
Power.........................................................................7
5.2.
Execution; Delivery; Valid and Binding
Agreements...............................................7
5.3.
No
Breach.......................................................................................8
5.4.
Governmental Authorities;
Consents..............................................................8
5.5.
Capitalization..................................................................................8
5.6.
Subsidiaries....................................................................................8
5.7.
Ownership of Capital
Stock......................................................................9
5.8.
Financial
Statements............................................................................9
5.9.
Liabilities.....................................................................................9
5.10. No
Material Adverse
Changes.....................................................................9
5.11.
Absence of Certain
Developments................................................................10
5.12.
Title to
Properties............................................................................12
5.13.
Accounts
Receivable............................................................................13
5.14.
Customers......................................................................................13
5.15. Tax
Matters....................................................................................13
5.16.
Contracts and
Commitments......................................................................14
5.17.
Intellectual Property
Rights...................................................................17
5.18.
Litigation.....................................................................................17
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5.19.
Employees......................................................................................17
5.20.
Employee Benefit
Plans.........................................................................18
5.21.
Insurance......................................................................................20
5.22.
Affiliate
Transactions.........................................................................20
5.23.
Officers and Directors; Bank
Accounts..........................................................20
5.24.
Compliance with Laws;
Permits..................................................................20
5.25.
Environmental
Matters..........................................................................21
5.26.
Brokerage......................................................................................22
5.27. E2
Consulting..................................................................................22
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE OPTION
SHAREHOLDERS......................................22
6.1.
Execution; Delivery; Valid and Binding
Agreements..............................................22
6.2.
No
Breach......................................................................................23
6.3.
Governmental Authorities;
Consents.............................................................23
6.4.
Ownership of Capital
Stock.....................................................................23
6.5.
Brokerage......................................................................................23
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF
BUYER........................................................23
7.1.
Incorporation and Corporate
Power..............................................................23
7.2.
Execution, Delivery; Valid and Binding
Agreement...............................................23
7.3.
No
Breach......................................................................................24
7.4.
Governmental Authorities;
Consents.............................................................24
7.5.
Capitalization.................................................................................24
7.6.
Issuance of Buyer Common
Stock.................................................................24
7.7.
SEC
Reports....................................................................................24
7.8.
No
Litigation..................................................................................25
7.9.
Availability of
Funds..........................................................................25
7.10.
Brokerage......................................................................................25
ARTICLE 8
COVENANTS......................................................................................25
8.1.
Conduct of the
Business........................................................................25
8.2.
Tax Returns after the
Closing..................................................................28
8.3.
Assistance and
Cooperation.....................................................................29
8.4.
Access to Books and
Records....................................................................29
8.5.
Conditions.....................................................................................30
8.6.
No
Negotiations................................................................................30
8.7.
UCC
Searches...................................................................................30
8.8.
Consents and
Approvals.........................................................................30
8.9.
Waivers........................................................................................30
8.10.
Noncompetition
Covenant........................................................................30
8.11.
Conduct of Buyer's
Business....................................................................33
8.12. Tax
Audits.....................................................................................33
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8.13.
Section 338(h)(10)
Election....................................................................33
8.14.
Allocation of Purchase
Price...................................................................33
ARTICLE 9
CONDITIONS TO
CLOSING..........................................................................33
9.1.
Conditions to Buyer's
Obligations..............................................................34
9.2.
Conditions to the Shareholders'
Obligations....................................................35
ARTICLE 10
TERMINATION...................................................................................36
10.1.
Termination....................................................................................36
10.2.
Effect of
Termination..........................................................................37
ARTICLE 11
INDEMNIFICATION;
SURVIVAL......................................................................37
11.1.
Reliance and Survival of Representations and
Warranties........................................37
11.2.
Indemnification by the Principal
Shareholders..................................................37
11.3.
Indemnification by the Option
Shareholders.....................................................38
11.4.
Indemnification by
Buyer.......................................................................38
11.5.
Method of Asserting
Claims.....................................................................39
11.6.
Limitations on
Indemnification.................................................................40
ARTICLE 12
MISCELLANEOUS..................................................................................41
12.1.
Press Releases and
Announcements...............................................................41
12.2.
Expenses.......................................................................................42
12.3.
Further
Assurances.............................................................................42
12.4.
Amendment and
Waiver...........................................................................42
12.5.
Notices........................................................................................42
12.6.
Assignment.....................................................................................43
12.7.
Severability...................................................................................43
12.8.
Complete
Agreement.............................................................................44
12.9
Counterparts...................................................................................44
12.10. Company
Counsel................................................................................44
12.11. Governing
Law..................................................................................44
12.12. Dispute
Resolution.............................................................................44
12.13. Legal
Force and
Effect.........................................................................45
12.14. Designees
and
Spouses..........................................................................45
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STOCK PURCHASE AGREEMENT
DATE: December 23, 2005
PARTIES:
Health Fitness
Corporation,
a Minnesota
corporation
("Buyer")
HealthCalc.Net,
Inc.,
a Texas Corporation
(the "Company")
Peter A. Egan and John
F. Ellis
(the "Principal Shareholders")
Those individuals
listed on Exhibit A hereto
and executing this
Agreement as shareholders
of the Company
(the "Option Shareholders")
RECITALS:
A. The Principal Shareholders and the Option Shareholders
(collectively, the "Shareholders") own, or
at Closing will own, beneficially and
of record, all of the issued and
outstanding shares of common stock of the
Company (the "Shares").
B. The Shareholders desire to sell to Buyer, and Buyer desires
to
purchase from the Shareholders, the Shares
on the terms and conditions set forth
in this Agreement.
C. The Shareholders, Buyer and the Company intend that the
transaction
be taxed for federal income tax purposes as
a purchase of the assets of the
Company and to elect such treatment under
Section 338(h)(10) of the Internal
Revenue Code of 1986, as amended (the
"Code").
D. As an inducement to each other to consummate the
transactions
contemplated herein, Buyer and the
Shareholders are willing to make certain
respective representations, warranties and
indemnities in this Agreement for the
benefit of the other party or parties.
NOW, THEREFORE, in consideration of the foregoing, the material
covenants and agreements set forth herein,
and other good and valuable
consideration, the receipt and sufficiency
of which are hereby acknowledged, the
parties hereto agree as follows:
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AGREEMENTS:
ARTICLE I
DEFINITIONS
1.1. Defined
Terms. The following terms as used in capitalized form in this
Agreement shall have the meanings set forth
in the sections referred to below:
"Accountants"
means any independent accountants of nationally recognized
standing selected by Buyer to perform the
audit activities hereunder.
"Historical
Accounting Policies" means any analytical approach, methodology
or policy consistently used by the
management of the Company to develop and
determine any management estimate or input
to prepare the historical financial
statements of Seller prior to the Closing
Date.
"Knowledge of
the Principal Shareholders" (or similar references to the
Principal Shareholders' Knowledge) means
the actual knowledge of either of the
Principal Shareholders after reasonable
inquiry.
"Material
Adverse Effect on the Company" means any result, occurrence,
change, event, effect or circumstance that
individually or in the aggregate is
or is reasonably likely to be materially
adverse to the assets, liabilities,
financial condition, results of operations
or business of the Company, taken as
a whole.
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1. Shares
Purchased. Upon the terms and subject to the conditions set
forth in this Agreement, and in reliance on
the representations and warranties
contained herein being correct on the
Closing Date, Buyer shall purchase from
each of the Shareholders, and each of the
Shareholders shall sell to Buyer, all
of the Shares of the Shareholders for the
consideration described in this
Agreement.
2.2. Option
Shares to be Acquired by Shareholders. The Option Shareholders
hold options granted by the Company to
purchase shares of common stock of the
Company (the "Option Shares") in the
amounts set forth opposite their names on
Exhibit A, which options are intended to be
exercised prior to or on the Closing
Date. The Option Shares are included in the
definition of Shares.
ARTICLE III
PURCHASE PRICE
3.1. Purchase
Price. Buyer shall pay and deliver to the respective
Shareholders, in the manner and at the
times described herein, the consideration
described in this ARTICLE III (the
"Purchase Price").
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(a) Cash at Closing. At the Closing, Buyer shall pay to the
Shareholders
cash in the aggregate amount of $4,000,000, which may be
increased or
decreased at Closing based on the adjustments set forth in
Section 8.1C of
the Disclosure Schedule.
(b) Shares of Buyer Common Stock at Closing. At the Closing,
Buyer
shall issue and
deliver to the Shareholders, or to the Escrow Agent as
defined in
Section 3.3, shares of Buyer's common stock ("Buyer Common
Stock") in an
aggregate number of shares as described in Section 3.2 below.
(c) Contingent Payment. Upon completion of the financial audit
and
issuance of the
auditor's report for the year ended December 31, 2006 with
respect to the
Buyer's operations for that period (the "2006 Audit"), an
additional
payment shall be made to the Shareholders on the conditions and
as a result of
calculations described on Exhibit B attached hereto and
pursuant to
Section 3.4 (the "Contingent Payment"). The Contingent Payment,
if required
pursuant to Exhibit B and Section 3.4, shall be made in cash,
Buyer Common
Stock or a combination thereof, at Buyer's sole discretion,
provided that
for purposes of determining the number of shares of Buyer
Common Stock, if
any, to be issued to the Shareholders as part of the
Contingent
Payment, the per share value of Buyer Common Stock shall be
equal to the
average of the closing sale price of Buyer Common Stock on the
21 trading days
immediately preceding the date of payment of the Contingent
Payment as
quoted on the OTC Bulletin Board, or such other national public
market or
exchange on which the Buyer Common Stock is then registered and
sold. The
maximum amount of the Contingent Payment shall be $2,000,000.
3.2. Buyer
Common Stock Determination. The number of shares of Buyer
Common
Stock to be paid at Closing (the "Closing
Shares") pursuant to Section 3.1(b)
shall be the result of dividing $2,000,000
by the average of the closing sale
price of Buyer Common Stock on the 21
trading days immediately preceding the
Closing Date.
3.3. Escrow. At
the Closing Date, 80% of the shares of Buyer Common Stock
constituting the Closing Shares (the
"Escrow Shares") issued to the Shareholders
pursuant to Section 3.1(b) shall be
delivered to Wells Fargo Bank, N.A. as
escrow agent (the "Escrow Agent") under an
18-month Escrow Agreement in the form
attached hereto as Exhibit C (the "Escrow
Agreement"). The Escrow Shares shall
be issued and outstanding shares of Buyer
Common Stock standing in the names of
the respective Shareholders, and
accompanied by duly executed stock powers
endorsing ownership to Buyer. The Escrow
Shares shall be held as security for
the Shareholders' indemnification
obligations described herein, and the Escrow
Agreement shall terminate upon termination
or satisfaction of such
indemnification obligations as described in
the Escrow Agreement. The
Shareholders will have voting rights with
respect to the Escrow Shares and will
be able to exercise all other incidents of
ownership of the Escrow Shares, so
long as the Escrow Shares are held in
escrow. Any and all cash dividends,
dividends payable in securities or other
distributions of any kind made in
respect of the Escrow Shares shall be
delivered to the Shareholders in
accordance with the Escrow Agreement. At
all times during which the Escrow
Shares are held in escrow, the per share
value of the Escrow Shares for all
purposes under this Agreement shall be the
average of the closing sale price of
Buyer Common Stock on the 21 trading days
immediately preceding the date of
final determination of the right of Buyer
to receive distribution of Escrow
Shares from the Escrow Agent, as such
closing sale price
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is quoted on the OTC Bulletin Board, or
such other national public market or
exchange on which the Buyer Common Stock is
then registered and sold.
3.4. Contingent
Consideration.
(a) Due Date. The Contingent Payment shall be due and payable by
Buyer
to the
Shareholders no later than 30 days after the completion of the
2006
Audit (the "Due
Date"), provided, however, that (i) all or any portion of
the Contingent
Payment that is not subject to a Contingent Payment Dispute
(the
"Uncontested Amount") shall be due and payable at any time
after
completion of
the 2006 Audit within two business days after Buyer shall
have received
written authorization from the Principal Shareholders to make
delivery of the
Uncontested Amount to the Shareholders and (ii) the Due
Date shall
automatically and without further action by any of the parties
hereto be
extended with respect to all or any portion of the Contingent
Payment that is
subject to a Contingent Payment Dispute (the "Disputed
Amount") only
until the final resolution of a Contingent Payment Dispute
pursuant to
Section 3.4(e). Any Uncontested Amount that is not paid by
Buyer within two
business days after Buyer shall have received written
authorization
from the Principal Shareholders to make delivery of the
Uncontested
Amount to the Shareholders shall bear interest accrued thereon
from the date of
delivery by the Principal Shareholders of such
authorization
until the date of payment of the Uncontested Amount at a rate
equal to the
"prime rate," as published in the "Money Rates" table of The
Wall Street
Journal (Southwest Edition) (the "Prime Rate"), in effect as of
the date of
payment of the Uncontested Amount.
(b) Preparation and Audit of Financial Statements. Prior to March
15,
2007, (i) Buyer
shall cause to be prepared (at Buyer's sole cost and
expense), in
accordance with GAAP and on a basis consistent with the
Buyer's regular
accounting practices, the balance sheet and related
statements of
operations with respect to the Buyer's operations for the
fiscal year
ended December 31, 2006 (the "2006 Financials") and (ii) Buyer
(at Buyer's sole
cost and expense) shall cause the Accountants to prepare
the 2006 Audit.
Buyer shall deliver the 2006 Financials to the Principal
Shareholders at
the same time and shall make the Accountants available to
discuss with the
Principal Shareholders the audit of the 2006 Financials.
(c) Payment. The Contingent Payment payable by Buyer to the
Shareholders
hereunder shall be the amount determined pursuant to Exhibit
B. Buyer shall
distribute the Contingent Payment to the Shareholders in
accordance with
the Shareholders' proportionate ownership of the Shares as
of the Closing
Date.
(d) Contingent Payment Notices. Not later than 25 days prior to
the
Due Date, Buyer
shall deliver to the Principal Shareholders a written
notice (a
"Contingent Payment Notice") setting forth the amount of the
Contingent
Payment to be paid and reasonably specific details as to the
manner in which
the calculation of the amount due was made. The Contingent
Payment Notice
shall be accompanied by the 2006 Financials. Buyer shall
provide the
Principal Shareholders and their representatives with
reasonable
access to all books and records of Buyer and to the work papers
of Accountants
reasonably requested by the Principal Shareholders and their
representatives
in order to verify the determination of the amount of such
Contingent
Payment and the compliance by Buyer with this Section 3.4 and
Exhibit B. If
the Principal Shareholders disagree with the calculation
provided by
Buyer in the Contingent Payment Notice
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(a "Contingent
Payment Dispute"), the Principal Shareholders shall notify
Buyer of the
Contingent Payment Dispute in writing (the "Dispute Notice"),
specifying the
nature and amount of the Contingent Payment Dispute, within
24 days of
receipt by the Principal Shareholders of the Contingent Payment
Notice (the
"Response Period"). If the Principal Shareholders fail to
deliver to Buyer
a Dispute Notice within the Response Period, the
calculation by
Buyer shall be final and binding.
(e) Resolution of Accounting Disputes. If the Principal
Shareholders
timely deliver a
Dispute Notice to Buyer, the Principal Shareholders and
Buyer shall,
during the 14 days following Buyer's receipt of the Dispute
Notice, use the
Principal Shareholders' and Buyer's reasonable best efforts
to reach
agreement on the Disputed Amount. Any Disputed Amount resolved
in
writing between
the Principal Shareholders and Buyer within such 14-day
period shall be
final and binding upon all parties hereto with respect to
such items. Any
Disputed Amount so resolved shall be paid, or caused to be
paid, by Buyer
within five business days after written resolution of the
Disputed Amount.
If after such period, the Principal Shareholders and Buyer
have not
resolved all such differences, all such disputes shall be
settled
by arbitration
in Kansas City, Missouri, before three arbitrators pursuant
to the rules of
the American Arbitration Association. Each of Buyer, on the
one hand, and
the Principal Shareholders, on the other hand, shall select
one arbitrator
and the two arbitrators shall select a third. The
arbitrators
shall be authorized to resolve only the Disputed Amount
remaining in
dispute between Buyer and the Principal Shareholders within
the range of
differences between Buyer's position and the Principal
Shareholders'
position with respect thereto. Any award rendered by the
arbitrators
shall be conclusive and binding upon the parties hereto;
provided,
however, that any such award shall be accompanied by a written
opinion giving
the reasons for the award (the "Arbitrator Report"). If the
arbitrators
determine that the Shareholders are entitled to all or any
portion of the
Disputed Amount (the "Awarded Disputed Amount"), Buyer shall
pay, or cause to
be paid, to the Shareholders within five business days
after issuance
of the Arbitrator Report the Awarded Disputed Amount
together with
interest accrued thereon from the date of delivery by the
Principal
Shareholders of the Dispute Notice until the date of payment of
the Awarded
Disputed Amount at a rate equal to the Prime Rate, in effect as
of the date of
payment of the Awarded Disputed Amount. This provision for
arbitration
shall be specifically enforceable by the parties, and the
decision of the
arbitrators shall be final and binding, with no right of
appeal
therefrom. Each party shall pay its own expenses of arbitration
and
the expenses of
the arbitrators shall be equally shared.
(f) Waiver by the Option Shareholders. The Option Shareholders
hereby
agree and
acknowledge that (i) the Principal Shareholders shall be solely
responsible for
disputing any calculation or determination of the
Contingent
Payment to be paid to the Shareholders pursuant to this
Agreement, (ii)
the consent, agreement or authorization of the Option
Shareholders is
not required in connection with Buyer's delivery of the
Contingent
Payment or the resolution of any Contingent Payment Dispute and
(iii) any action
by the Principal Shareholders pursuant to this Section 3.4
shall bind all
of the Shareholders. Each of the Option Shareholders hereby
irrevocably
waives and releases claims he or she may have against the
Principal
Shareholders, Buyer or the Company arising out of or related to
the calculation
or determination of the Contingent Payment to be paid to
the Shareholders
pursuant to this Agreement.
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ARTICLE IV
CLOSING
4.1. Closing.
The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place
at the offices of Fredrikson & Byron,
P.A. located at 200 South Sixth Street,
Suite 4000, Minneapolis, Minnesota
55402-1425, commencing at 2:00 p.m. local
time on December 23, 2005 (the
"Closing Date"), or such other place or
such other date and time as Buyer and
the Shareholders may mutually determine.
The transactions contemplated by this
Agreement shall be effective as of 11:59:59
p.m. on the Closing Date.
4.2. Deliveries
by Buyer. At Closing, Buyer shall deliver the following to
the Shareholders:
(a) Payment of $4,000,000, which may be increased or decreased
at
Closing based on
the adjustments set forth in Section 8.1C of the
Disclosure
Schedule, by wire transfer of immediately available funds to
bank accounts
designated by the Shareholders, allocated among the
Shareholders in
proportion to their respective percentage ownership of the
Shares as set
forth on Section 4.2(a) of the Disclosure Schedule.
(b) Stock certificates representing the Closing Shares and the
Escrow
Shares, issued
in the names of the respective Shareholders in proportion to
their respective
percentage ownership of the Shares as set forth on Section
4.2B of the
Disclosure Schedule. Two stock certificates shall be delivered
for each
Shareholder: (i) one certificate to be delivered to each
Shareholder
representing such Shareholder's allocation of the portion of
the Closing
Shares required to be delivered to them at Closing and (ii) one
certificate to
be delivered to the Escrow Agent representing such
Shareholder's
allocation of the Escrow Shares required to be delivered to
the Escrow Agent
at Closing.
(c) Employment Agreements between Buyer and the Shareholders
identified in
Section 9.1(j)(iv) (the "Employment Agreements"), duly
executed by
Buyer.
(d) The Escrow Agreement, duly executed by Buyer.
(e) The Shareholders Agreement, by and among the Buyer and the
Principal
Shareholders (the "Shareholders Agreement"), duly executed by
Buyer.
(f) Any further or other documents required to be delivered to
the
Shareholders
pursuant to ARTICLE IX.
4.3. Deliveries
by Shareholders. At Closing, the Shareholders shall deliver
the following to Buyer:
(a) Stock certificates representing the Shares, duly endorsed to
Buyer
or accompanied
by duly executed stock powers.
(b) The Employment Agreements, duly executed by the
Shareholders
identified in
Section 9.1(j)(iv).
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(c) The Shareholder Agreement, duly executed by the
Shareholders.
(d) Any further or other documents required to be delivered to
Buyer
pursuant to ARTICLE IX.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS
As a material
inducement to Buyer to enter into this Agreement, with the
understanding that Buyer will be relying
thereon in consummating the
transactions contemplated by this
Agreement, and except as set forth in the
Disclosure Schedule delivered by the
Company to Buyer on the Closing Date (the
"Disclosure Schedule") (which Disclosure
Schedule sets forth the exceptions to
the representations and warranties
contained in this ARTICLE V under captions
referencing the Sections to which such
exceptions apply), each of the Principal
Shareholders jointly and severally hereby
makes the representations and
warranties set forth in this ARTICLE V.
5.1.
Incorporation and Power.
(a) The Company (i) is a corporation duly incorporated, validly
existing and in
good standing under the laws of the State of Texas; (ii)
has all
requisite power and authority to carry on and conduct its
business
as it is now
being conducted and to own or lease its properties and assets;
and (iii) is
duly qualified or licensed and in good standing in each
jurisdiction in
which failure to be so qualified and in good standing would
have a Material
Adverse Effect on the Company. The Company is not qualified
to do business
in any jurisdiction other than the State of Texas. The
Company is not
in default under or in violation of any provisions of its
Articles of
Incorporation or Bylaws.
(b) The copy of the Articles of Incorporation and Bylaws of the
Company that
have been previously delivered to Buyer are the complete, true
and correct
charter documents and bylaws of the Company in effect on the
date hereof. The
minutes of Board of Directors' and shareholder meetings
and the minute
books of the Company that have previously been delivered to
or reviewed by
Buyer are the true and correct records of Directors' and
shareholder meetings and
stock issuances through and including the date
hereof and
reflect all transactions appropriate to be contained in such
records, and to
the Knowledge of the Principal Shareholders, there are no
material
omissions therefrom.
5.2. Execution;
Delivery; Valid and Binding Agreements. Each of the
Principal Shareholders has the right, power
and capacity to execute, deliver and
perform this Agreement, the Employment
Agreements to which he is a party, and
each of the other agreements, documents and
instruments contemplated by this
Agreement to which he is a party
(collectively, the "Principal Shareholder
Documents") and to consummate the
transactions contemplated hereby and thereby.
The Principal Shareholder Documents have
been duly and validly executed and
delivered by each of the Principal
Shareholders and constitute the legal, valid
and binding obligation of each of the
Principal Shareholders enforceable in
accordance with their terms, except as such
enforcement may be limited by
bankruptcy, insolvency, reorganization,
arrangement, moratorium or similar laws
relating to or limiting creditors' rights
generally or by
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equitable principles relating to
enforceability. Neither of the Principal
Shareholders is acting in a fiduciary or
representative capacity other than
pursuant to Section 3.4.
5.3. No Breach.
Except as set forth on Section 5.3 of the Disclosure
Schedule, the execution, delivery and
performance of the Principal Shareholder
Documents by each of the Principal
Shareholders and the consummation by each of
the Principal Shareholders of the
transactions contemplated hereby and thereby
do not and will not conflict with, or
result in any breach of, any of the
provisions of, constitute a default under,
result in a violation of, result in
the creation of a right of termination or
acceleration of any lien, security
interest, charge or encumbrance upon any of
the assets of the Company or either
of the Principal Shareholders or require
any authorization, consent, approval,
exemption or other action by, or notice to,
any court or other governmental body
under, the provisions of the Articles of
Incorporation or Bylaws of the Company
or any indenture, mortgage, lease, loan
agreement or other agreement or
instrument by which the Company or any
Principal Shareholder is bound or
affected, or any law, statute, rule or
regulation or order, judgment or decree
to which the Company or any Principal
Shareholder is subject.
5.4.
Governmental Authorities; Consents. Neither of the Principal
Shareholders is required to submit any
notice, report or other filing with any
governmental authority in connection with
the execution or delivery of this
Agreement or the consummation of the
transactions contemplated hereby. No
consent, approval or authorization of any
governmental authority or any other
party or person is required to be obtained
by either of the Principal
Shareholders in connection with the
execution, delivery and performance of this
Agreement or the transactions contemplated
hereby by the Principal Shareholders.
5.5.
Capitalization. The authorized capital stock of the Company
consists
of 1,000,000 shares of common stock, par
value $0.001 per share, of which
450,000 are issued and outstanding as of
the date hereof. The Shares have been
duly authorized, and are validly issued,
fully paid and nonassessable. The
Company has no other equity securities or
securities containing any equity
features authorized, issued or outstanding.
Other than the options described in
the following sentence, there are no
agreements or other rights or arrangements
existing which provide for the sale or
issuance of capital stock by the Company,
and there are no rights, subscriptions,
warrants, options, conversion rights or
agreements of any kind outstanding to
purchase or otherwise acquire from the
Company any shares of capital stock or
other securities of the Company of any
kind. As of the date hereof, there are
outstanding options to acquire 100,700
shares of common stock of the Company (the
"Option Shares"), and at Closing all
such outstanding options will be exercised.
The resulting Option Shares issued
pursuant thereto will total 100,700 shares.
At Closing, there will be 550,700
shares of the Company's common stock issued
and outstanding, which shall
constitute all of the issued and
outstanding shares of the Company's capital
stock. At Closing, all then outstanding
securities of the Company will not have
been issued in violation of or subject to
any preemptive rights or other rights
to subscribe for or purchase
securities.
5.6.
Subsidiaries. The Company owns no, nor at any time during the
past
five years has owned, any stock,
partnership interest, joint venture interest,
limited liability company interest or any
other security or ownership interest
issued by any other corporation,
organization, limited liability company,
partnership or other entity.
- 8 -
<PAGE>
5.7. Ownership
of Capital Stock. The Principal Shareholders together own,
or at Closing will own, beneficially and of
record, all right, title and
interest in and to 450,000 shares of common
stock of the Company, free and clear
of any Restrictions.
5.8. Financial
Statements. The Company has delivered to Buyer, or its
authorized representatives, copies of (i)
its unaudited balance sheet as of
November 30, 2005 (the "Latest Balance
Sheet") and unaudited profit and loss
report for the most recent period ended
November 30, 2005 (the "Latest Financial
Statements"), and (ii) its audited balance
sheets, as of December 31, 2004 and
2003, and its audited statements of income,
stockholders' equity and cash flows
for the year ended December 31, 2004 (the
"Annual Financial Statements" and,
collectively with the Latest Financial
Statements, the "Financial Statements").
To the Knowledge of the Principal
Shareholders, the Financial Statements other
than the Latest Financial Statements,
including the notes thereto, are based
upon and in accordance with the information
contained in the books and records
of the Company and fairly present the
financial condition of the Company in all
material respects as of the dates thereof
and results of operations for the
periods referred to therein. The Latest
Financial Statements are based upon and
in accordance with the information
contained in the books and records of the
Company and fairly present the financial
condition of the Company in all
material respects as of the dates thereof
and results of operations for the
periods referred to therein. The books and
records of the Company have been
maintained in the ordinary course of
business and in all material respects are
accurate. The Annual Financial Statements
have been prepared in accordance with
GAAP. The Latest Financial Statements have
been prepared in accordance with
Historical Accounting Policies and reflect
all adjustments necessary to a fair
statement of the financial condition and
results of operations in all material
respects for the interim period presented
therein.
5.9.
Liabilities. Except as set forth in Section 5.9 of the
Disclosure
Schedule or as reflected in the Latest
Balance Sheet, the Company has no
liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise,
whether due or to become due, whether known
or unknown, and regardless of when
asserted), that either should be but are
not reflected on or reserved in the
Latest Balance Sheet in accordance with
GAAP or the Company's Historical
Accounting Policies, or that otherwise
exist to the Knowledge of the Principal
Shareholders, in each case arising out of
transactions or events heretofore
entered into, or any action or inaction, or
any state of facts existing, with
respect to, or based upon, transactions or
events heretofore occurring, other
than liabilities which have arisen after
the date of the Latest Balance Sheet
that do not exceed $20,000 in the aggregate
or that were incurred in the
ordinary course of business consistent with
past practices (none of which is a
material uninsured liability for breach of
contract, breach of warranty, tort,
infringement, claim or lawsuit). Except
with respect to payments for employment
services in the ordinary course of
business, the Company has no outstanding
liabilities to any Shareholders.
5.10. No Material
Adverse Changes. Other than as set forth on Section 5.10
of the Disclosure Schedule, since the date
of the Latest Balance Sheet, there
has been no material adverse change in the
assets, financial condition,
operating results, employee, customer or
supplier relations, business condition
or prospects of the Company. To the
Knowledge of the Principal Shareholders, no
event has occurred which, so far as can be
reasonably foreseen, might result in
any such material adverse change.
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<PAGE>
5.11. Absence of
Certain Developments. Other than the Company's issuance of
the Option Shares to the Option
Shareholders and the merger of E2 Consulting,
LLC, a Texas limited liability company ("E2
Consulting") with and into the
Company, since the date of the Latest
Balance Sheet, the business of the Company
has been operated in the ordinary course,
consistent with past practices. As
amplification and not limitation of the
foregoing, since the date of the Latest
Balance Sheet, other than as set forth on
Section 5.11 of the Disclosure
Schedule, the Company has not engaged in
any of the following acts which are not
reflected in the Latest Balance Sheet or
any appendices or notes thereto:
(a) borrowed any amount or incurred or become subject to any
liability
or obligation in
excess of $10,000 (whether absolute, accrued, contingent
or otherwise and
whether due or to become due), except (i) current
liabilities
incurred in the ordinary course of business consistent with
past practices,
and (ii) liabilities under contracts entered into in the
ordinary course
of business consistent with past practices;
(b) mortgaged, pledged or subjected to any lien, charge or any
other
encumbrance, any of
its assets, except (i) liens for current property taxes
not yet due and
payable, (ii) liens imposed by law and incurred in the
ordinary course
of business consistent with past practices for obligations
not yet due to
carriers, warehousemen, laborers, materialmen and the like,
(iii) liens in
respect of pledges or deposits under workers' compensation
laws, or (iv)
liens voluntarily created in the ordinary course of business
consistent with
past practices, all of which liens in clauses (i) through
(iv) are less
than $10,000 in the aggregate;
(c) discharged or satisfied any lien or encumbrance or paid any
liability, in
each case with a value in excess of $10,000, other than
current
liabilities paid in the ordinary course of business consistent
with
past
practices;
(d) sold, assigned, leased, licensed, transferred or otherwise
disposed of
(including, without limitation, transfers to any employees,
affiliates or
shareholders) any tangible assets which, individually or in
the aggregate,
have a fair market value in excess of $5,000 or canceled any
debts or claims,
in each case, except in the ordinary course of business
consistent with
past practices;
(e) sold, assigned, leased, licensed, transferred or otherwise
disposed of
(including, without limitation, transfers to any employees,
affiliates or
shareholders) any patents, trademarks, trade names,
copyrights,
trade secrets or other intangible assets;
(f) disclosed to any person, other than Buyer or authorized
representatives
of Buyer or the Company, any proprietary confidential
information,
other than pursuant to confidentiality agreements prohibiting
the use and further
disclosure of such information, which agreements are
identified on
Section 5.11(f) of the Disclosure Schedule and are in full
force and effect
on the date hereof;
(g) waived any rights of material value or suffered any
extraordinary
losses or
adverse changes in collection loss experience;
- 10 -
<PAGE>
(h) declared, set aside, paid any dividends or other
distributions
with respect to
any shares of its capital stock or redeemed, purchased or
otherwise
acquired, directly or indirectly, any shares of its capital
stock
or options to
purchase capital stock;
(i) issued, sold or transferred any of its equity securities,
securities
convertible into or exchangeable for its equity securities or
warrants,
options or other rights to acquire its equity securities, or
any
bonds or debt
securities;
(j) taken any other action or entered into any other transaction
other
than in the
ordinary course of business consistent with past practices, or
entered into any
transaction with any Insider (as defined in Section 5.22)
other than the
transactions contemplated by this Agreement;
(k) suffered any material theft, damage, destruction, casualty or
loss
of or to any
property or properties owned or used by it, whether or not
covered by
insurance;
(l) made, granted, promised or announced any bonus or any wage,
salary
or compensation
increase to any director, officer, employee or consultant
or made or
granted any increase in any employee benefit plan or
arrangement, or
amended or terminated any existing employee benefit plan or
arrangement, or
adopted any new employee benefit plan or arrangement, or
made any
commitment or incurred any liability to any labor organization;
(m) made any single capital expenditure or commitment therefor
in
excess of
$20,000;
(n) made any loans or advances to, or guarantees for the benefit
of,
any persons such
that the aggregate amount of such loans, advances or
guarantees at
any time outstanding is in excess of $5,000;
(o) made charitable contributions or pledges which, individually or
in
the aggregate,
exceed $5,000;
(p) made any change in accounting or tax principles or practices
from
those utilized
in the preparation of the Financial Statements or the
Returns referred
to in Section 5.15(a);
(q) experienced any amendment, modification or termination of
any
existing, or
entered into any new, contract, agreement, plan, lease,
license, permit
or franchise which is, either individually or in the
aggregate,
material to its business, operations, financial position or
prospects other
than in the ordinary course of business consistent with
past
practices;
(r) experienced any labor dispute material to its business,
operations,
financial position or prospects;
(s) experienced any change in any assumption underlying or method
of
calculating, any
bad debt, inventory, warranty, contingency or other
reserve;
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<PAGE>
(t) written off as uncollectible any note or account receivable,
or
canceled any
debts, other than in the ordinary course of business
consistent with
past practices;
(u) failed to replace or replenish supplies as such supplies may
have
been depleted
from time to time, use its best efforts to collect accounts
receivable, pay
accounts payable or shorten or lengthen the customary
payment cycles
for any of its payables or receivables or otherwise manage
its working
capital accounts in the ordinary course of business consistent
with past
practices;
(v) experienced any write-down or write-up of (or failed to
write-down
or write-up in
accordance with past practices) the value of any
inventories,
receivables or other assets, or revalued any of its assets not
reflected in the
Latest Balance Sheet;
(w) failed to maintain all material assets in accordance with
good
business
practice and in good operating condition and repair, ordinary
wear
and tear
excepted; or
(x) discontinued
or altered, in any material respect, its advertising
or promotional
activities or its pricing and purchasing policies.
5.12. Title to
Properties.
(a) The real property demised by the lease or leases
(collectively
referred to as the
"Lease") set forth under Section 5.12(a) of the
Disclosure
Schedule constitutes all of the real property currently used or
occupied by the
Company (the "Real Property").
(b) The Lease is in full force and effect, and the Company holds
a
valid and
existing leasehold interest under the Lease for the term set
forth under such
caption in the Disclosure Schedule. The Shareholders have
delivered to
Buyer a complete and accurate copy of the Lease, and the Lease
has not been
modified in any respect, except to the extent that such
modifications
are disclosed by the copy delivered to Buyer. The Company is
not in default,
and no circumstances exist which, if unremedied, would,
either with or
without notice or the passage of time or both, result in
such default
under the Lease; nor, to the Knowledge of the Principal
Shareholders, is
any other party to the Lease in default.
(c) The Company does not own, and has not at any time owned, any
real
property.
(d) The Company owns good and marketable title to each of the
tangible
properties and
tangible assets reflected on its Latest Balance Sheet or
acquired since
the date thereof, free and clear of all Restrictions, except
for (i) liens
for current taxes not yet due and payable, (ii) liens set
forth under
Section 5.12(d) of the Disclosure Schedule, (iii) the
properties
subject to the Lease, (iv) assets disposed of since the date of
its Latest
Balance Sheet in the ordinary course of business consistent
with
past practices,
(v) liens imposed by law and incurred in the ordinary
course of
business consistent with past practices for obligations not yet
due to carriers,
warehousemen, laborers and materialmen and (vi) liens in
respect of
pledges or deposits under workers' compensation laws, all of
which liens in
classes (i) through (vi) aggregate less than $10,000.
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<PAGE>
(e) Section 5.12.E of the Disclosure Schedule lists all
equipment,
machinery, motor
vehicles, trailers, furniture, fixtures and leasehold
improvements
which are (i) owned by the Company (ii) leased by the Company
as lessee, or
(iii) owned by any third party for which the Company is
responsible. All
items of such property are in good operating and readily
usable condition
and state of repair, ordinary wear and tear excepted, have
been properly
serviced and maintained in accordance with the Company's
usual and
customary business practices and, in the Principal
Shareholders'
opinion, are fit
for the purposes for which they have been used.
(f) The Company has received no notice of any condemnation
proceeding
with respect to
any of the Real Property.
5.13. Accounts
Receivable. The accounts receivable, notes receivable and
other receivables of the Company reflected
on its Latest Balance Sheet and as
acquired by the Company since November 30,
2005, are valid receivables created
in the ordinary course of business
consistent with past practices and are not
subject to valid counterclaims or set-offs.
The goods and services sold and
delivered by the Company or by E2
Consulting that gave rise to such accounts
receivable were sold and delivered in
conformity with all applicable purchase
orders, agreements and specifications
consistent with past practices.
5.14. Customers.
No customer that is material to the Company has provided
notice that it will stop or decrease the
rate of business done with the Company
except for changes in the ordinary course
of the Company's business consistent
with past practices.
5.15. Tax
Matters.
(a) The Company, E2 Consulting, any affiliated, combined,
consolidated
or unitary group
of which the Company is or was a member, and any "Plans"
(as defined in
Section 5.20), as the case may be (each, a "Tax Affiliate"
and,
collectively, the "Tax Affiliates"), has: (i) timely filed, or has
had
timely filed on
its behalf, or will timely file, all returns, declarations,
reports,
estimates, information returns, and statements ("Returns")
required to be
filed or sent by it in respect of any "Taxes" (as defined in
subsection H
below) for all periods prior to the Closing Date; (ii) timely
and properly
paid, or has had paid on its behalf or has reflected such
obligation on
the Latest Balance Sheet, all Taxes due and payable with
respect to such
Returns; and (iii) complied with all applicable laws,
rules, and
regulations relating to the withholding of Taxes and the
payment
thereof
(including, without limitation, withholding of Taxes under
Sections
1441 and 1442 of
the Internal Revenue Code of 1986, as amended (the "Code))
and timely and
properly withheld from individual employee wages and paid
over to the
proper governmental authorities all amounts required to be so
withheld and
paid over under all applicable laws.
(b) All Taxes of the Company and any Tax Affiliate which will be
due
and payable,
whether now or hereafter, for any period ending on or prior to
the Closing
Date, shall have been paid by or on behalf of the Company or a
good faith
estimate thereof shall have been reflected on the Latest
Balance
Sheet.
(c) The Company has in effect a valid and continuing election to
be
taxed under
Subchapter S of the Code, and has been duly qualified as a
Subchapter S
corporation for all tax
- 13 -
<PAGE>
periods
commencing November 13, 1997. The Company and the Principal
Shareholders
have taken all action necessary to preserve Subchapter S
status.
(d) There are no liens for Taxes upon any assets of the Company or
of
any Tax
Affiliate, except liens for Taxes not yet due and payable. The
Company is not a
party to any tax sharing agreement or other arrangement
for the payment
or reimbursement of Taxes.
(e) No deficiency for any Taxes has been proposed, asserted or
assessed against
the Company or any Tax Affiliate that has not been
resolved and
paid in full. No waiver, extension or comparable consent given
by the Company
or the Tax Affiliates regarding the application of the
statute of
limitations with respect to any Taxes or Returns is
outstanding,
nor is any
request for any such waiver or consent pending. There has been
no Tax audit or
other administrative proceeding or court proceeding with
regard to any
Taxes or Returns, nor is any such Tax audit or other
proceeding
pending, nor has there been any notice to the Company or any
Tax
Affiliate by any
Taxing authority regarding any such Tax audit or other
proceeding, or,
to the Knowledge of the Principal Shareholders, is any such
Tax audit or
other proceeding threatened with regard to any Taxes or
Returns. The
Shareholders do not expect the assessment of any additional
Taxes of the
Company or the Tax Affiliates and are not aware of any
unresolved
questions, claims or disputes concerning the liability for
Taxes
of the Company
or the Tax Affiliates which would exceed the estimated
reserves
established on the Latest Financial Statements.
(f) Neither the Company nor any Tax Affiliate is a party to any
agreement,
contract or arrangement that would result, separately or in the
aggregate, in
the payment of any "excess parachute payments" within the
meaning of
Section 280G of the Code and the consummation of the
transactions
contemplated by this Agreement will not be a factor causing
payments to be
made by the Company or any Tax Affiliate that are not
deductible (in
whole or in part) under Section 280G of the Code.
(g) Neither the Company nor any Tax Affiliate has requested any
extension of
time within which to file any Return, which Return has not
since been
filed.
(h) For purposes of this Agreement, the term "Taxes" means all
taxes,
charges, fees,
levies, or other assessments, including, without limitation,
all net income,
gross income, gross receipts, sales, use, ad valorem,
transfer,
franchise, profits, license, withholding, payroll, employment,
social security,
unemployment, excise, estimated, severance, stamp,
occupation,
property, or other taxes, customs duties, fees, assessments, or
charges of any
kind whatsoever, including, without limitation, all interest
and penalties
thereon, and additions to tax or additional amounts imposed
by any taxing
authority, domestic or foreign, upon the Company or any Tax
Affiliate.
5.16. Contracts
and Commitments.
(a) Section 5.16 of the Disclosure Schedule lists the following
agreements,
whether written or, to the Knowledge of the Principal
Shareholders,
oral, to which the Company is a party and which are currently
in effect:
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<PAGE>
(i) bonus, pension, profit sharing, retirement or other form of
deferred compensation plan, other than as described under Section
5.20
the Disclosure Schedule (or excluded thereby from inclusion
thereunder) ;
(ii) hospitalization insurance or other welfare benefit plan or
practice, whether formal or informal, other than as described
under
Section 5.20 of the Disclosure Schedule (or excluded thereby
from
inclusion thereunder);
(iii) stock purchase or stock option plan;
(iv) contract for the employment of any officer, individual
employee or other person on a full-time or consulting basis or
relating to severance pay for any such person;
(v) confidentiality agreements other than described in Section
5.11(f) of the Disclosure Schedule;
(vi) agreement or indenture relating to the borrowing of money
or
to mortgaging, pledging or otherwise placing a lien on any of
the
assets of the Company;
(vii) guaranty by it or any Shareholder of any obligation for
money borrowed by or for the benefit of the Company;
(viii) lease, guaranty of any lease by any Shareholder of which
the Company is a party or agreement under which the Company is
lessee
of, or holds or operates any property, real or personal, owned by
any
other party, for which the annual rental exceeds $10,000 other than
as
described on Section 5.12 of the Disclosure Schedule;
(ix) lease or agreement under which it is lessor of, or permits
any third party to hold or operate, any property, real or
personal,
for which the annual rental exceeds $10,000 other than as described
on
Section 5.12 of the Disclosure Schedule;
(x) contract or group of related contracts with the same party
for the purchase of products or services under which the
undelivered
balance of such products or services is in excess of $10,000
(other
than purchase orders entered into in the ordinary course of
business
consistent with past practices);
(xi) contract or group of related contracts with the same party
for the sale of products or services under which the
undelivered
balance of such products or services has a sales price in excess
of
$10,000 (other than purchase orders entered into in the
ordinary
course of business consistent with past practices);
(xii) contract or group of related contracts with the same
party
(other than any contract or group of related contracts for the
purchase or sale of products or services) continuing over a period
of
more than six months from the date or dates thereof, not terminable
by
it on 30 days' or less notice without penalty and involving more
than
$10,000;
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<PAGE>
(xiii) contract or group of related contracts with the same
party
calling for any rebates, allowances, discounts, performance money
or
compensation of any type previously paid or granted or to be paid
or
granted to or by the Company;
(xiv) contract which prohibits the Company from freely engaging
in business anywhere in the world;
(xv) franchise agreement;
(xvi) license agreement or agreement providing for the payment
or
receipt of royalties or other compensation by the Company in
connection with the intellectual property rights listed on
Section
5.17 of the Disclosure Schedule;
(xvii) contract or commitment for capital expenditures in
excess
of $20,000;
(xviii) agreement for the sale of any capital asset;
(xix) contract with any Affiliate which in any way relates to
the
Company (other than for employment on customary terms);
(xx) contract under which a change in control of the Company
terminates or modifies any of the Company's rights or
obligations;
(xxi) any agreement pursuant to which the Company is providing,
or proposes to provide, services or products, including but not
limited to any maintenance agreements, or volume sales
agreements;
(xxii) any strategic alliance and business partnership
agreements
or subcontract agreements; or
(xxiii) other agreement which is either material to the
business
of the Company or the transactions contemplated hereby or which
was
not entered into in the ordinary course of business consistent
with
past practices.
Section 5.16 of
the Disclosure Schedule shall separately indicate whether
any contract, commitment or obligation of
the Company listed on such schedule
has been guaranteed by any of the
Shareholders.
(b) The Company has performed all material obligations required to
be
performed by it
in connection with the contracts or commitments required to
be disclosed on
Section 5.16 of the Disclosure Schedule and is not in
receipt of any
written claim of default under any contract or commitment
required to be
disclosed under such caption. The Company has no present
expectation or
intention of not fully performing any material obligation
pursuant to any
contract or commitment required to be disclosed under such
caption. To the
Knowledge of the Principal Shareholders, no other party to
any contract or
commitment required to be disclosed under such caption has
committed any
material breach or anticipated material breach of such
contracts or
commitments.
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<PAGE>
(c) As of the Closing Date, the Principal Shareholders have
provided
to Buyer a true
and correct copy of each material written contract or
commitment, and
to the Knowledge of the Principal Shareholders, a written
description of
each material oral contract or commitment, referred to on
Section 5.16 of
the Disclosure Schedule, together with all amendments,
waivers or other
changes thereto.
5.17.
Intellectual Property Rights. Section 5.17 of the Disclosure
Schedule
lists all patents, patent applications,
trademarks, service marks, trade names,
corporate names and registered copyrights
owned by or licensed to the Company,
but not including intellectual property
rights in mass-market software, e.g.,
Microsoft Word and Windows XP, that are
necessary to the conduct of the
Company's business as now conducted. The
Company owns and possesses all right,
title and interest, or holds a valid
license, in and to the intellectual
property rights that are necessary to the
conduct of the Company's business as
now conducted (excluding generally
commercially available off-the-shelf software
programs l
