STOCK PURCHASE AGREEMENT
between
INFORTE CORP.,
as Buyer,
and
DR. GLENN T. STOOPS,
as Shareholder,
for
all of the issued and outstanding
capital stock of
GTS CONSULTING, INC.
July 15, 2005
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TABLE OF CONTENTS
STOCK PURCHASE
AGREEMENT......................................................1
1. THE
TRANSACTION............................................................1
1.1. Sale and
Purchase of Shares.......................................1
1.2. Designated
Buyers.................................................1
2. PURCHASE PRICE;
PAYMENT....................................................1
2.1. Purchase
Price....................................................1
2.2. Closing
Payment...................................................2
2.3. Contingent
Payment................................................2
2.4. Form of First
Installment Payment, Second Installment Payment,
and Contingent Payment (collectively, the "Follow-on Payments")..3
2.5. Change of
Control.................................................4
2.6. Death of
Shareholder
2.7. Security
3. REPRESENTATIONS AND WARRANTIES OF
SHAREHOLDER..............................4
3.1.
Corporate.........................................................4
3.2.
Capitalization....................................................5
3.3.
Authority.........................................................5
3.4. No
Violation......................................................5
3.5. Financial
Matters.................................................6
3.6. Tax
Matters.......................................................6
3.7.
Receivables.......................................................7
3.8. Absence of
Certain Changes........................................7
3.9. Absence of
Undisclosed Liabilities................................8
3.10. No
Litigation..................................................8
3.11.
Compliance With Laws and
Orders................................8
3.12.
Title to and Condition of
Properties...........................9
3.13.
Insurance......................................................9
3.14.
Contracts and
Commitments.....................................10
3.15. No
Default....................................................11
3.16.
Labor
Matters.................................................11
3.17.
Employee Benefit
Plans........................................12
3.18.
Employees;
Compensation.......................................13
3.19.
Trade
Rights..................................................13
3.20.
Customers.....................................................14
3.21.
Service Warranty and
Liability................................14
3.22.
Certain Relationships to the
Company..........................14
3.23. Bank
Accounts.................................................14
3.24. No
Brokers or Finders.........................................14
3.25.
Investment
Intent.............................................15
3.26.
Disclosure....................................................16
4. REPRESENTATIONS AND WARRANTIES OF
BUYER...................................16
4.1.
Corporate........................................................16
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4.2.
Authority........................................................16
4.3. No Brokers or
Finders............................................16
5.
COVENANTS.................................................................16
5.1. Preservation of
Business Relationships and Conduct of Business...16
5.2. Other
Pre-Closing Actions of Shareholder and the Company.........17
5.3.
Noncompetition...................................................17
5.4. Confidential
Information.........................................18
5.5. Tax
Matters......................................................18
5.6. Continuation of
Best Efforts.....................................19
5.7. Further
Assurances...............................................19
6.
INDEMNIFICATION...........................................................20
6.1. By
Shareholder...................................................20
6.2. By
Buyer.........................................................20
6.3. Indemnification
of Third Party Claims............................20
6.4.
Payment..........................................................21
6.5. Limitations on
Indemnification...................................21
6.6. No
Waiver........................................................22
6.7. Set
Off..........................................................23
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF
BUYER..............................23
7.1. Representations
True.............................................23
7.2. Performance of
Obligations.......................................23
7.3. Receipt of
Documents by Buyer....................................23
7.4. No
Litigation....................................................23
7.5. No Company
Material Adverse Change...............................24
7.6.
Consents
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
SHAREHOLDER........................24
8.1. Representations
True.............................................24
8.2. Performance of
Obligations.......................................24
8.3. Receipt of
Documents by Shareholder..............................24
8.4. No
Litigation....................................................24
8.5 Consents
9.
CLOSING...................................................................25
9.1. Closing Date;
Location...........................................25
9.2. Documents to be
Delivered by the Company and Shareholder.........25
9.3. Documents to be
Delivered by Buyer...............................26
10. TERMINATION OF
AGREEMENT.................................................26
10.1.
Termination...................................................26
10.2.
Effect of
Termination.........................................27
11.
MISCELLANEOUS............................................................27
11.1.
Disclosure
Schedule...........................................27
11.2.
Publicity.....................................................28
11.3.
Assignment....................................................28
2
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11.4.
Parties in
Interest...........................................28
11.5. Law
Governing Agreement; Consent to Jurisdiction..............28
11.6.
Severability..................................................28
11.7.
Amendment and
Modification....................................29
11.8.
Waiver........................................................29
11.9.
Notice........................................................29
11.10.
Expenses......................................................30
11.11. Equitable
Relief..............................................31
11.12.
Interpretive
Provisions.......................................31
11.13. Entire
Agreement..............................................31
11.14.
Counterparts..................................................31
11.15. Section
Headings; Table of Contents...........................31
11.16. No Strict
Construction........................................32
11.17.
Definitions...................................................32
3
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STOCK PURCHASE
AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and
effective
as of July 15, 2005 between Inforte Corp.,
a Delaware corporation ("Buyer"), and
Dr. Glenn T. Stoops ("Shareholder").
WHEREAS, Shareholder owns all of the issued and outstanding
capital
stock of GTS Consulting, Inc., a Georgia
corporation (the "Company"), which is
engaged in the business of database
marketing, data mining and decision support
services, including the development of
marketing models, transaction analysis,
direct marketing, database management,
database hosting, and other activities
related to the creation of marketing
strategies (the "Business") at its
facilities located at Roswell, Georgia
(collectively, the "Facilities")
WHEREAS, Buyer desires to purchase from Shareholder, and
Shareholder
desires to sell to Buyer, all of the
outstanding capital stock of the Company,
upon the terms and subject to the
conditions set forth in this Agreement; and
WHEREAS, capitalized terms used but not otherwise defined herein
shall
have the respective meanings set forth in
Section 11.17.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants,
agreements and conditions set forth in
this Agreement, and intending to be legally
bound, the Parties agree as follows:
1.
THE TRANSACTION
1.1. Sale
and Purchase of Shares. Upon the terms and subject
to the conditions set forth in this
Agreement, Shareholder shall sell, convey,
assign, transfer and deliver to Buyer, and
Buyer shall purchase and acquire from
the Shareholder, all of the issued and
outstanding shares of the common stock of
the Company, no par value, representing all
of the issued and outstanding
capital stock of the Company (the
"Shares").
1.2.
Designated Buyers. Buyer may, upon notice to
Shareholder, assign its rights and
obligations, in whole or in part, under this
Agreement to one or more of its
wholly-owned Affiliates for the purpose of
carrying out the transactions contemplated
hereby; provided, however, that Buyer
shall be and remain jointly and severally
liable to Shareholder for all
obligations of Buyer and any such
Affiliate(s) under this Agreement and the
other documents and instruments to be
executed and delivered by Buyer or any
such Affiliate(s) pursuant hereto.
2.
PURCHASE PRICE; PAYMENT
2.1.
Purchase Price. The purchase price (the "Purchase
Price") for the Shares shall be (a) an
amount in cash equal to Two Million One
Hundred Twenty-One Thousand Dollars
($2,121,000.00) (the "Initial Payment");
plus (b) an amount equal to Five Hundred
Thousand Dollars ($500,000.00) ("First
Installment Payment") payable on the first
anniversary of the Closing Date,
(c) an amount equal to Five Hundred
Thousand Dollars ($500,000.00) ("Second
Installment Payment") payable on the second
anniversary of the Closing Date, and
(d) an additional amount not to exceed, in
the aggregate, One Million Dollars
<PAGE>
($1,000,000.00) (the "Contingent Payment")
on the terms described in Section 2.3
below.
2.2.
Closing Payment. At the Closing, Buyer shall deliver to
Shareholder an amount equal to the Initial
Payment, made by wire transfer of
immediately available funds to an account
that Shareholder, at least forty-eight
(48) hours prior to the time for payment
specified hereunder, has designated.
2.3.
Contingent Payment.
(a)
Calculation of Contingent Payment. The Contingent
Payment shall be calculated as follows:
(i)
Five Hundred Thousand Dollars ($500,000.00), but
only in the event that the Net Revenue of the Company
attributable to the Business from "*" (""*" Revenue") during
the
Revenue Measurement Period is equal to or greater than Six
Hundred Eighty Eight Thousand Dollars ($688,000.00) (the ""*"
Revenue Hurdle");
(ii) an
additional Five Hundred Thousand Dollars
($500,000.00), but only in the event that (1) the condition of
Section 2.3(a)(i) is satisfied, and (2) the Net Revenue of the
Company attributable to the Business from "*" (""*" Revenue")
for the Revenue Measurement Period is equal to or greater than
Four Hundred Ninety-Two Thousand Eight Hundred Dollars
($492,800.00) (the ""*" Revenue Hurdle"); and
(iii)
notwithstanding the foregoing, the "*" Revenue
Hurdle and the "*" Revenue Hurdle shall be deemed satisfied if
total Net Revenues of the Company attributable to the Business
during the Revenue Measurement Period exceed One Million Two
Hundred Thousand Dollars ($1,200,000.00).
(b)
Contingent Payment Schedule. The portion of the
Contingent Payment described in Section 2.3(a)(i) above shall be
paid,
if earned, on the third anniversary date of the Closing Date.
The
portion of the Contingent Payment described in Section 2.3(a)(ii)
above
shall be paid, if earned, on the fourth anniversary date of the
Closing
Date.
(c)
Calculation of Net Revenue.
(i)
The "*" Revenue and "*" Revenue shall be
calculated in a manner consistent with Buyer's practices for
timing of revenue and the characterization of revenue.
(ii)
Subject to the other provisions of this Section
2.3, for purposes of this Section 2.3, the "*" Revenue and "*"
Revenue for the Revenue Measurement Period shall be initially
calculated by Buyer and reviewed by Buyer's independent public
accountants. Buyer shall make available to the Shareholder such
information and documentation, including books, records,
contracts, audit workpapers, operating and financial reports
and
other documents and instruments and Buyer's personnel
(including
its internal and independent accounting personnel) for all
2
<PAGE>
purposes reasonably related to the review and evaluation by
Shareholder of the Preliminary Contingent Payment Statement (as
defined below).
(iii)
The initial
determination of "*" Revenue and "*"
Revenue shall be made by Buyer on or before thirty (30) days
following the expiration of the Revenue Measurement Period and
a
statement (the "Preliminary Contingent Payment Statement")
regarding the same, including supporting information regarding
the calculation of the "*" Revenue and "*" Revenue, will be
delivered to Shareholder on or before such date. If, within
fifteen (15) days after delivery of the Preliminary Contingent
Payment Statement, Shareholder shall determine that there is an
inaccuracy in the Preliminary Contingent Payment Statement,
Shareholder shall deliver to Buyer a written notice ("Dispute
Notice") setting forth such alleged inaccuracy (the "Disputed
Matters"). Buyer and Shareholder shall endeavor in good faith
to
resolve the Disputed Matters by mutual agreement. If, within
fifteen (15) days after Shareholder delivers the Dispute Notice
to Buyer (the "Negotiation Period"), all Disputed Matters are
resolved to the mutual satisfaction of Buyer and Shareholder,
the Preliminary Contingent Payment Statement shall be revised
to
reflect such understanding and such revised Preliminary
Contingent Payment Statement shall be the "Contingent Payment
Statement" for purposes of this Agreement. If Buyer and
Shareholder are unable to reach a mutually satisfactory
resolution of any Disputed Matter within the Negotiation
Period,
Buyer and Shareholder shall promptly submit any Disputed
Matters
to the Independent Accountant. Such submission may include any
additional statements or supporting materials furnished on a
timely basis by Buyer or Shareholder. The decision of the
Independent Accountant shall be binding on the Parties, the
Preliminary Contingent Payment Statement shall be revised to
reflect such decision and such revised Preliminary Contingent
Payment Statement shall be the "Contingent Payment Statement"
for purposes of this Agreement. If the Contingent Payment
Statement reflects that Shareholder would be entitled to a
Contingent Payment greater than the Contingent Payment based on
the Preliminary Contingent Payment Statement, all fees of and
costs incurred by the Independent Accountant shall be borne by
Buyer. If the Contingent Payment Statement reflects that
Shareholder would not be entitled to a greater Contingent
Payment, all fees of and costs incurred by the Independent
Accountant shall be borne by Shareholder. In the event that
Shareholder does not deliver a Dispute Notice within fifteen
(15) days after the delivery of the Preliminary Contingent
Payment Statement, the Preliminary Contingent Payment Statement
shall be the "Contingent Payment Statement" for purposes of
this
Agreement.
2.4. Form of First Installment Payment, Second Installment
Payment, and Contingent Payment
(collectively, the "Follow-on Payments").
(a) Composition of Follow-on Payments. Each Follow-on Payment
shall consist of (i) cash in an amount equal to eighty percent
(80%) of
such Follow-on Payment and (ii) that number of shares of Buyer
common
stock equal to twenty percent (20%) of such Follow-on Payment
("Restricted Shares"). For purposes of determining the number
of
3
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Restricted Shares payable for each Follow-on Payment, the price of
the
Buyer common stock will be the closing price on the second business
day
preceding the day on which the Follow-on Payment is scheduled to
be
made; provided, however, that in the event that Buyer's stock
price
falls below Three Dollars ($3.00)] per share, Buyer may in its
sole
discretion elect to pay all or any part of the Restricted
Shares
portion of the Follow-on Payment as a cash payment.
(b)
Restriction on Share Transfers. Shareholder shall be
prohibited from Transferring Restricted Shares until the second
anniversary of the receipt of such Restricted Shares.
(c)
Applicability of Securities Act. The distribution of
shares to Shareholder as part of each Follow-on Payment will not
be
registered pursuant to the Securities Act of 1933, as amended
(the
"Securities Act"). Such Restricted Shares will be "restricted
securities" as defined by 17 C.F.R. ss. 230.144 promulgated under
the
Securities Act. Thus, in addition to the Transfer restriction
provided
in the foregoing Section 2.4(b), the Transfer of Restricted Shares
will
be subject to rules described in 17 C.F.R. ss. 230.144. By
executing
this Agreement, Shareholder acknowledges that he is knowledgeable
of
the various transfer restrictions which may be imposed by the
Securities Act and agrees to hold Buyer and any of its
directors,
officers, employees, and shareholders harmless with regard to any
loss
or perceived loss suffered by Shareholder as a result of the
application of the Securities Act to his Restricted Shares.
2.5.
Change of Control. In the event that a Change of Control
Event occurs prior to the expiration of the
Revenue Measurement Period, then the
conditions of Sections 2.3(a)(i) and (ii)
shall immediately be deemed satisfied.
The Contingent Payment schedule described
in Section 2.3(b) shall not be
affected by a Change of Control Event.
2.6
Restructure of the Company. In the event that, prior to
the expiration of the Revenue Measurement
Period, the Company (i) shall no
longer be a direct or indirect wholly owned
subsidiary of Buyer or (ii) is the
subject of a corporate restructuring by way
of merger or otherwise, such that
the Company shall no longer be a separate
legal entity, then the conditions of
Sections 2.3(a)(i) and (ii) shall
immediately be deemed satisfied. The
Contingent Payment schedule described in
Section 2.3(b) shall not be affected by
such deemed satisfaction.
2.7
Death of Shareholder. In the event Shareholder dies
prior to the expiration of the Revenue
Measurement Period, then the conditions
of Sections 2.3(a)(i) and (ii) shall
immediately be deemed satisfied. The
Contingent Payment schedule described in
Section 2.3(b) shall not be affected by
the death of Shareholder.
2.8
Security.
(a)
In the event that (i) Buyer fails to maintain the Buyer
Net Working Capital at or above Fifteen Million Dollars
($15,000,000.00) (the "Buyer Net Working Capital Threshold"),
provided
that the Buyer Net Working Capital Threshold shall be reduced to
Ten
Million Dollars ($10,000,000.00) if, after the first anniversary
date
of the Closing Date, the Contingent Payment has not been earned,
or,
after the second anniversary date of the Closing Date, the
First
4
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Installment Payment and the Second Installment Payment have been
paid
or otherwise satisfied, or (ii) a Buyer Material Adverse Event
has
occurred and is continuing, then Buyer promptly shall deposit cash
to
secure payment of the Follow-on Payments in an escrow account with
a
financial institution reasonably satisfactory to Shareholder, on
terms
and conditions mutually reasonably satisfactory to Buyer,
Shareholder
and escrow agent, in an amount equal to eighty percent (80%) of the
sum
of (i) the then unpaid amount of the First Installment Payment and
the
Second Installment Payment, if any, plus, (ii) the then earned
and
unpaid Contingent Payment, if any.
It is the intention of Buyer and Shareholder that the escrow
account,
if established, will give Shareholder, to the extent permitted by
law a
first priority security interest or the equivalent thereof, in
the
escrow account funds. Buyer shall take all action reasonably
requested
to allow for, to the extent permitted by law, a first priority
security
interest, or the equivalent thereof, in favor of Shareholder in
the
escrow account funds
(b)
A "Buyer Material Adverse Event" shall mean either of
the following:
(i)
Other than such litigation as is disclosed in
Buyer's most current Quarterly Report on Form 10-Q filed with
the SEC on May 13, 2005, Buyer is the defendant in a lawsuit or
arbitration proceeding, for which
(A)
The amount of damages claimed against
Buyer is greater than the amount of the Buyer Net
Working Capital at the time of the initiation of such
lawsuit or arbitration proceeding minus the Buyer Net
Working Capital Threshold (the "Litigation Dollar
Threshold"), and
(B)
One year has passed since the initiation
of such lawsuit or arbitration proceeding or, if prior
to the one-year anniversary of the initiation of such
lawsuit or arbitration proceeding, Buyer has filed a
motion for summary judgment or a motion to dismiss all
or a portion of the claims asserted in such lawsuit or
arbitration proceeding (but only if claims not subject
to such motion or motions are, by themselves, for an
aggregate amount less than the Litigation Dollar
Threshold), until a ruling denying such motion for
summary judgment or motion to dismiss has occurred; or
(ii) Buyer
has been indicted of a criminal offense
material to Buyer's business.
(c)
If Buyer Net Working Capital falls and remains below
Twenty Million Dollars ($20,000,000.00), then, subject to
Shareholder
executing such confidentiality agreement as Buyer reasonably
deems
appropriate, Buyer shall provide Shareholder with a monthly
statement
of the Buyer Net Working Capital.
3.
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
Shareholder makes the following representations and warranties
to
Buyer, each of which is true and correct on
the date hereof and shall survive
the consummation of the transactions
contemplated hereby.
5
<PAGE>
3.1.
Corporate. The Company is a corporation duly organized,
validly existing and in good standing under
the laws of the State of Georgia.
the Company is duly licensed or qualified
to do business as a foreign
corporation, and is in good standing, in
each jurisdiction in which the
character of the properties owned or leased
by it, or the nature of its
business, makes such licensing or
qualification necessary. Schedule 3.1 lists
each jurisdiction in which the Company is
so licensed or qualified. The Company
does not own, directly or indirectly, any
capital stock or other equity or
ownership interest of any corporation,
limited liability company, partnership or
other entity. The Company has not engaged
in any business other than the
Business. Shareholder has made available to
Buyer true, correct and complete
copies of the following, to the extent they
exist: Company's charter, bylaws,
stock records and minute books, including
minutes or consents reflecting all
actions taken by the directors and
shareholders of the Company.
3.2.
Capitalization. The authorized capital stock of the
Company consists of all shares of no par
value common stock, 100 of which shares
are presently issued and outstanding and
constitute the Shares. All of the
Shares have been duly authorized and
validly issued in compliance with all
applicable laws, and are fully paid and
nonassessable. There are no outstanding
options, warrants, convertible or
exchangeable securities or other rights,
agreements, arrangements or commitments
obligating Shareholder or the Company,
directly or indirectly, to issue, sell,
purchase, acquire or otherwise transfer
or deliver any shares of capital stock of
or other equity interest in the
Company, or any agreement, document,
instrument or obligation convertible or
exchangeable therefore. There are no
agreements, arrangements or commitments of
any character (contingent or otherwise)
pursuant to which any Person is or may
be entitled to receive any payment based on
the revenues or earnings, or
calculated in accordance therewith, of the
Company. There are no voting trusts,
proxies or other agreements or
understandings to which Shareholder or the
Company is a party or by which Shareholder
or the Company is bound with respect
to the voting of any equity capital of the
Company. Shareholder is the sole
record and beneficial owner of the Shares,
and owns the Shares free and clear of
any Lien.
3.3.
Authority. Shareholder has all requisite power and
authority to execute, deliver and perform
his obligations under this Agreement
and each other agreement, certificate and
instrument to be executed by him in
connection with or pursuant to this
Agreement (collectively, the "Shareholder
Documents"). This Agreement has been, and
by the Closing each other Shareholder
Document will be, duly executed and
delivered by the Shareholder. This Agreement
constitutes, and when executed and
delivered the other Shareholder Documents
will constitute, valid and binding
agreements of Shareholder, enforceable in
accordance with their respective terms.
3.4. No
Violation. Neither the execution and delivery of this
Agreement or the other documents and
instruments to be executed and delivered by
Shareholder pursuant hereto nor the
consummation by Shareholder of the
transactions contemplated hereby and
thereby (a) will violate any applicable Law
or Order, (b) will require any consent,
approval or other action by or notice to
any Governmental Entity or (c) will violate
or conflict with, or constitute a
default (or an event that, with notice or
lapse of time, or both, would
constitute a default) under, or will result
in the termination of, or accelerate
the performance required by, or result in
the creation of any Lien upon the
6
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Shares or any assets of the Company under
any term or provision of the charter,
bylaws or similar organizational documents
of the Company or any Contract or
restriction of any kind or character to
which the Company or Shareholder is a
party or by which the Company, Shareholder
or the Shares may be bound or
affected.
3.5.
Financial Matters. Included as Schedule 3.5 are true,
correct and complete copies of financial
statements of the Company consisting of
(i) the financial statements (including a
statement of assets, liabilities and
stockholders' equity--income tax basis and
the related statements of revenues
and expenses--income tax basis of the
Business for each of the fiscal years
ended December 31, 2002, 2003 and 2004
(including notes contained therein or
annexed thereto), and (ii) a statement of
assets, liabilities and stockholders'
equity - income tax basis as of July 9,
2005 (including notes contained therein
or annexed thereto) (the "Recent Balance
Sheet"), and the related unaudited
statements of revenues and expenses -
income tax basis for the fiscal year to
date period then ended. All of such
financial statements are prepared in
accordance with GAAP except as otherwise
described in Schedule 3.5 applied on a
consistent basis and have been prepared
from and are consistent with the books
and records of the Company and fairly
present, in all material respects, the
assets, liabilities, and stockholders'
equity of the Company and its revenues
and expenses as of the dates and for the
periods indicated.
3.6. Tax
Matters.
(a)
S Corporation. For all periods from the date of its
formation up to and including the Closing Date, the Company (and
any
predecessor of the Company) has had in effect a valid election
under
Code ss. 1362 to be an S corporation within the meaning of Code
ss.
1361(a). Except as set forth on Schedule 3.6(a), the Company does
not
own, and has not owned at any time during the ten (10) year
period
preceding the Closing Date, the stock of any corporation that is
a
"qualified subchapter S subsidiary" within the meaning of Code
ss.
1361(b)(3)(B), with respect to the Company. Neither the Company nor
any
qualified subchapter S subsidiary of the Company has, in the ten
(10)
year period preceding the Closing Date, (i) acquired assets
from
another corporation in a transaction in which the Company's (or
such
subsidiary's) tax basis for the acquired assets was determined,
in
whole or in part, by reference to the tax basis of the acquired
assets
(or any other property) in the hands of the transferor for
federal
income tax purposes or (ii) acquired from any other person the
stock of
any corporation that is or was (during such ten (10) year period)
a
qualified subchapter S subsidiary of the Company.
(b)
Provision For Taxes; Tax Returns. (i) All Tax Returns
required to be filed with respect to the Company or relating to
the
Business or the assets thereof on or before the date hereof have
been
timely filed; (ii) all such Tax Returns, when filed, were true,
correct
and complete; (iii) all Taxes (whether or not reflected on such
Tax
Returns) required to be paid with respect to the Company or
relating to
the Business or the assets thereof have been paid; (iv) all
Taxes
imposed on the Company or relating to the Business or assets of
the
Company for any taxable period (or a portion thereof) ending on
or
prior to the date hereof which are not yet due and payable have
been
properly reserved for on the books and records of the Company; and
(v)
all Taxes required to be withheld by the Company have been duly
and
timely withheld, and such withheld Taxes have been either duly
and
7
<PAGE>
timely paid to the proper governmental authorities or properly
set
aside in accounts for such purpose and, to the extent due on or
prior
to the Closing Date, will be duly and timely paid to the proper
governmental authorities. Except for the extension identified
on
Exhibit 3.6(b), an extension of time within which to file any
Tax
Return which has not been filed has not been requested or
granted.
(c)
Tax Audits. No Tax Returns relating to the Business
required to be filed by or on behalf of the Company or
Shareholder,
including, without limitation, any federal and state income and
franchise Tax Returns, have been audited by the IRS or any other
taxing
authorities, and neither Shareholder nor the Company has received
any
(i) notice of underpayment of Taxes or other deficiency relating to
the
Business that has not been paid or (ii) objection to any Tax
Return
filed by or on behalf of Shareholder or the Company relating to
the
Business. There are no outstanding agreements or waivers extending
the
statutory period of limitations applicable to any Tax Return
required
to be filed by or on behalf of Shareholder or the Company relating
to
the
Business.
(d)
Liens. There are no liens for Taxes (other than for
current Taxes not yet due and payable) upon the assets of the
Company.
(e)
Other. Neither Shareholder nor the Company has (i)
applied for any Tax ruling relating to the Business, (ii) been a
party
to a closing agreement with any Taxing authority relating to
the
Business, (iii) made any payments, or been a party to any
Contract
(including this Agreement), that under any circumstances could
obligate
it to make payments that are not deductible because of Code ss.
280G,
(iv) been a party to any Tax allocation or Tax sharing Contract or
(v)
been a member of an affiliated group of corporations that filed
a
consolidated Tax Return. The Company is not a "United States
real
property holding company" within the meaning of Code ss. 897.
3.7.
Receivables. All accounts receivable of the Company (a)
arose out of arm's length transactions
actually made in the ordinary course of
the Business, (b) are valid and legally
binding obligations of the parties
obligated to pay such amounts, (c) are
collectible in the ordinary course of the
Business without the necessity of
commencing litigation and (d) are subject to
no counterclaim or setoff. Schedule 3.7
contains an aged schedule of accounts
receivable as of the date that is two (2)
days prior to the Closing Date.
3.8.
Absence of Certain Changes. Except as and to the extent
set forth in Schedule 3.8, since December
31, 2004, there has not been:
(a)
No Company Material Adverse Change. Any material adverse
change in the assets, liabilities, business, operations, results
of
operations, condition (financial or otherwise) or prospects of
the
Company or the Business ("Company Material Adverse Change").
Without
limiting the generality of the foregoing sentence, Company
Material
Adverse Change shall include, but not be limited to, (i) the
termination of, or material reduction in, the "*" customer
relationship
or (ii) a greater than 20% reduction in the Projected Revenues or
net
income to be generated after the Closing. "Projected Revenues"
means
Net Revenues of One Million Five Hundred Thousand
($1,500,000.00)
projected for the Revenue Measurement Period.
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(b) No Damage. Any material
loss, damage or destruction,
whether covered by insurance or not, relating to or affecting
the
Business.
(c)
No Increase in Compensation. Any increase in the
compensation, salaries, commissions, wages, bonuses or benefits
payable
or to become payable to any employees or agents of the Company.
(d)
Credit. Any grant of credit by the Company to any
customer of the Business on terms or in amounts more favorable
than
those that have been extended to such customer in the past, any
other
change made by the Company in the terms of any credit
heretofore
extended in connection with the Business or any other change of
the
Company's
policies or practices with respect to the granting of credit
in connection with the Business.
(e)
No Distributions. Any distribution of the Company assets
to Shareholder or any other Person other than distributions that
were
made in the ordinary course of the Business consistent with
past
practice to provide cash to Shareholder to satisfy current Tax
liabilities.
(f)
No Unusual Events. Any other event or condition not in
the ordinary course of the Company's operation of the Business,
including (i) any sale, lease, grant or other disposition of
any
material properties or assets, (ii) any entering into, amendment
or
early termination of any material Contract relating to or affecting
the
Business or (iii) any release or waiver of any material claims
or
rights relating to or affecting the Business.
3.9.
Absence of Undisclosed Liabilities. Except as and to the
extent specifically set forth on the Recent
Balance Sheet, or in Schedule 3.9,
to the knowledge of Shareholder, the
Company does not have any liabilities
relating to or affecting the Business,
other than: (a) commercial liabilities
incurred since the date of the Recent
Balance Sheet in the ordinary course of
the Business consistent with past practice,
none of which has had or is
reasonably likely to have a material
adverse effect on the assets, liabilities,
business, operations, results of
operations, condition (financial or otherwise)
or prospects of the Company or the
Business; or (b) liabilities disclosed in
this Agreement or in the Disclosure
Schedule.
3.10. No
Litigation. Except as set forth in Schedule 3.10,
there are currently no pending or, to the
knowledge of Shareholder, threatened
lawsuits, administrative proceedings or
reviews, or formal or informal
complaints or investigations (collectively,
"Litigation") by any Person against
or relating to Shareholder, the Company or
any director, employee or agent (in
their capacities as such) of the Company or
to which the Shares or any of the
assets of the Company is subject, and no
basis therefor. Neither the Company nor
Shareholder, as relates to the Company, the
Business or the Shares, is subject
to or bound by any currently existing
judgment, order, writ, injunction or
decree. No lawsuit or administrative
proceeding has been commenced against the
Company or, as Shareholder as relates to
the Business, during the last five
years.
3.11. Compliance
With Laws and Orders.
(a)
Laws and Orders. The Company is and has been in
compliance in all material respects with all applicable Laws
and
Orders. Neither Shareholder nor the Company has received notice of
any
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violation or alleged violation of any Laws or Orders with respect
to
the Business. All
reports related to the Business required to be filed
by or on behalf of the Company with any Governmental Entity have
been
filed and, when filed, were true, correct and complete.
(b)
Licenses and Permits. The Company has all material
licenses, permits, approvals, certifications, consents and listings
of
all Governmental Entities and all certification organizations
required,
and all exemptions from requirements to obtain or apply for any of
the
foregoing, for the conduct of the Business and the operation of
the
Facilities. All such licenses, permits, approvals,
certifications,
consents and listings are set forth in Schedule 3.11(b), and are
in
full force and effect. Except as set forth in Schedule 3.11(b),
the
Company (including its operations, practices, properties and
assets) is
and has been in compliance with all such licenses, permits,
approvals,
certifications, consents and listings.
(c)
Environmental Matters. Without limiting the generality
of the foregoing provisions of this Section 3.11, the Company
in
respect of the operations, practices, properties and assets of
the
Business is and has been in compliance in all material respects
with
all Environmental Laws.
3.12. Title to
and Condition of Properties.
(a)
Set forth in Schedule 3.12(a) is a complete list
(including the street address, where applicable) of: (i) all
real
property leased by the Company (the "Leased Real Property"); (ii)
each
vehicle owned or leased by the Company; and (iii) each other
asset
owned or leased by the Company with a book value of $5,000 or
more
(each a "Material Asset" and collectively, the "Material Assets").
The
Material Assets constitute all of the assets required in order
to
conduct the Business as currently conducted by the Company.
(b)
The Company has good and marketable title to all of the
assets it purports to own, and owns all of such assets free and
clear
of any Liabilities and Liens, other than: (i) statutory Liens
securing
current Taxes and other obligations that are not yet delinquent;
and
(ii) Liens described in Schedule 3.12(b). The Company holds a
valid
leasehold interest in all of the leased assets of the Company.
(c)
The Company owns no real property.
(d)
The
assets of the Company, including any assets held
under leases or licenses, are in good condition and repair,
ordinary
wear and tear excepted, are in good working order and have been
properly and regularly maintained and are sufficient to carry on
the
Business as conducted during the preceding twelve (12) months.
3.13. Insurance.
Schedule 3.13 sets forth a true, correct and
complete list and description of all
policies of insurance currently in effect
with respect to the Business (collectively,
"Business Insurance Policies"). All
general liability policies maintained by or
for the benefit of the Company
relating to the operations of the Business
(collectively, "Liability Policies")
have been "occurrence" policies and not
"claims made" policies. All Business
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<PAGE>
Insurance Policies and Liability Policies
are valid, outstanding and enforceable
policies. To Shareholder's knowledge, none
of the insurance carriers providing
coverage under any of the Business
Insurance Policies or Liability Policies has
declared bankruptcy or provided notice of
insolvency to the Company or
Shareholder. The Company has duly and
timely made all claims that it has been
entitled to make under all such policies.
To Shareholder's knowledge, no
Business Insurance Policy (nor any previous
policy) or Liability Policy provides
for or is subject to any currently
enforceable retroactive rate or premium
adjustment, loss sharing arrangement or
other actual or contingent Liability
arising wholly or partially out of events
arising prior to the Closing. There is
no claim by the Company pending
under any Business Insurance Policy or
Liability Policy as to which coverage has
been questioned, denied or disputed by
the underwriters of such policies, and to
Shareholder's knowledge, there is no
basis for denial of any pending claim under
any Business Insurance Policy or
Liability Policy.
3.14. Contracts
and Commitments. Except as set forth in
Schedule 3.14:
(a)
Real Property Leases. The Company has no oral or written
contracts, purchase
orders, sales orders, licenses, leases and other
agreements, arrangements and understandings (collectively,
"Contracts")
for the lease or occupancy of Leased Real Property.
(b)
Personal Property Leases. The Company has no Contracts
for the lease or use of personal property used, held for use or
acquired or developed for use primarily in the Business
(collectively,
"Personal Property Leases") involving any remaining
consideration,
termination charge or other expenditure in excess of One
Thousand
Dollars ($1,000.00) or involving performance over a period of more
than
twelve (12) months.
(c)
Customer Contracts. The Company has no Contracts in
respect of the Business that aggregate in excess of One
Thousand
Dollars ($1,000.00) to or from any customer or client of the
Company.
The Company has no Contracts with any customer or client except
those
made in the ordinary course of the Business at arm's length.
(d)
Supplier/Vendor Contracts. The Company has no Contracts
in respect of the Business that aggregate in excess of One
Thousand
Dollars ($1,000.00) to or from any supplier or vendor of the
Company.
The Company has no Contracts with any supplier or vendor except
those
made in the ordinary course of the Business at arm's length.
(e)
Contracts for Services. The Company has no Contract in
respect of the Business with any officer, employee, agent,
consultant
or other third party performing similar functions that is not
cancelable by the Company on notice of not longer than thirty
(30)
calendar days without liability, penalty or premium of any nature
or
kind whatsoever.
(f)
Powers of Attorney. The Company has not given a power of
attorney that is currently in effect in connection with or
affecting
the Company or the Business.
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(g)
Collective Bargaining Agreements. The Company has no
Contract with any collective bargaining groups representing or
purporting to represent employees who perform services primarily
for
the benefit of the Business.
(h)
Loan Agreements. The Company has no loan Contract,
promissory note, letter of credit or other evidence of
indebtedness, as
a signatory, guarantor or otherwise, in respect of the
Business.
(i) Guarantees. The
Company has not guaranteed the payment
or performance of any person or entity, agreed to indemnify any
person
or entity (except under Contracts entered into by the Company in
the
ordinary course of the Business) or to act as a surety, or
otherwise
agreed to be contingently or secondarily liable for the obligations
of
any person or entity in connection with or affecting the Company or
the
Business.
(j)
Governmental Contracts. The Company has no Contract with
any Governmental Entity in connection with or affecting the
Business.
(k)
Agreements Relating to Trade Rights. The Company has no
consulting, development, joint development or similar Contract
relating
to any of the Business Trade Rights, nor does the Company have
any
Contract requiring the Company to assign its interest in any
Business
Trade Rights.
(l)
Restrictive Agreements. The Company is not subject to
any Contract or obligation prohibiting or restricting the Company
from
competing in any business or geographical area, or soliciting
customers
or employees, or therwise restricting it from carrying on any
business
anywhere in the world.
(m)
Other Material Contracts. The Company has no other
Contract of any nature in connection with or affecting the Business
and
involving consideration or other expenditure in excess of One
Thousand
Dollars ($1,000.00), or involving performance over a period of
more
than twelve (12) months, or that is otherwise individually material
to
the operations of the Business.
3.15. No
Default. No event or omission has occurred that,
currently or through the passage of time or
the giving of notice, constitutes or
would constitute a material default by the
Company under any Contract relating
to or affecting the Business or cause the
acceleration of any of the Company's
obligations thereunder or result in the
creation of any Lien on any of the
Company's assets. To Shareholder's
knowledge, no event or omission has occurred
that, currently or through the passage of
time or the giving of notice, would
constitute a default by such third party
under any such Contract, or give rise
to an automatic termination, or the right
of discretionary termination thereof.
Each Contract listed on Schedule 3.14 is in
full force and effect and is a valid
and binding agreement enforceable against
the Company and, to Shareholder's
knowledge, the other party or parties
thereto in accordance with its terms.
3.16. Labor
Matters. The Company has not experienced any labor
disputes, any union organization attempts
or any work stoppages due to labor
disagreements in connection with or
affecting the Business. There is no labor
strike, dispute, request for
representation, slowdown or stoppage actually
pending or threatened against or affecting
the Company that involves or relates
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<PAGE>
to the Business nor any secondary boycott
with respect to any products or
services of the Business. No question
concerning representation has been raised
or is threatened relating to the employees
of the Company who perform services
primarily for the benefit of the
Business.
3.17. Employee
Benefit Plans.
(a)
Disclosure. Schedule 3.17(a) sets forth a true, correct
and complete list of all plans, programs, Contracts, policies
and
practices providing benefits to any current or former employee,
director or independent contractor who performs or performed
services
primarily for the benefit of the Business, or a beneficiary or
dependent thereof, sponsored or maintained by the Company or any
ERISA
Affiliate, to which the Company or any ERISA Affiliate has
contributed,
contributes or is obligated to contribute, or under which the
Company
or any ERISA Affiliate had or has any Liability, including any
pension,
thrift, savings, profit sharing, retirement, bonus, incentive,
health,
dental, death, accident, disability, stock purchase, stock
option,
stock appreciation, stock bonus, executive or deferred
compensation,
hospitalization, "parachute," severance, vacation, sick leave,
fringe
or welfare benefits, any employment or consulting Contracts,
"golden
parachutes,"
collective bargaining agreements, "employee benefit plans"
(as defined in Section 3(3) of ERISA), employee manuals, and
written or
binding oral statements of policies, practices or
understandings
relating to employment (collectively, the "Employee
Plan/Agreement").
No Employee Plan/Agreement is a plan subject to Title IV of ERISA
or a
"multiemployer plan" (as defined in Section 4001 of ERISA), an
