Exhibit 2.1
STOCK PURCHASE
AGREEMENT
BY AND AMONG
INVESTOOLS INC.,
PROPHET FINANCIAL SYSTEMS,
INC.
AND ITS
SHAREHOLDERS
January 26,
2005
TABLE OF
CONTENTS
i
ii
LIST OF
EXHIBITS
iii
STOCK PURCHASE
AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated
as of January 26, 2005 (the “ Agreement ”),
is by and among INVESTOOLS INC., a Delaware corporation (the
“ Purchaser ”), PROPHET FINANCIAL SYSTEMS, INC.,
a California corporation (the “ Company ”), each
of Timothy Knight and Andreas Bechtolsheim (together, the “
Primary Shareholders ”) and each of the individuals or
entities listed on Exhibit A hereto (collectively, the
“ Other Shareholders, ” and together with the
Primary Shareholders, the “ Shareholders
”). Each of the Purchaser, the Company and the
Shareholders is a “ Party ” and, collectively,
they are the “ Parties .”
W I T N E S S E T
H:
WHEREAS, the Shareholders own in the
aggregate 100% of the issued and outstanding shares of common
stock, $0.01 par value per share, of the Company (the “
Common Stock ”);
WHEREAS, the Purchaser desires to
purchase from the Shareholders, and the Shareholders desire to sell
to the Purchaser, all of the Common Stock, which constitutes all of
the issued and outstanding capital stock of the Company, upon the
terms and conditions set forth herein (the “ Stock
Sale ”);
WHEREAS, the Company is in the
business of administering an Internet website devoted to providing
financial analytical tools and investment research; and
WHEREAS, each of the Parties is
making certain representations, warranties, covenants and
indemnities as expressly set forth herein as an inducement to the
other Parties to enter into this Agreement.
NOW, THEREFORE, in consideration of
the premises and the representations, warranties, covenants and
agreements stated herein, the receipt and sufficiency of which are
hereby acknowledged, the Parties, intending to be legally bound,
covenant and agree as follows:
Section 1.1.
Defined Terms . As used in this
Agreement, certain words and terms shall have the meanings ascribed
to them in the Glossary attached hereto as Exhibit B . Other
initially capitalized terms have the meanings ascribed to them
elsewhere in this Agreement.
Section 1.2.
Accounting Terms . All accounting terms
not specifically defined herein shall be construed in accordance
with generally accepted accounting principles applied on a
consistent basis (“ GAAP ”).
Section 2.1.
Closing . The Stock Sale as
provided for in this Agreement (the “ Closing ”)
shall take place at the offices of Purchaser’s counsel, Locke
Liddell & Sapp LLP, at 3400 JP Morgan Chase Tower, 600 Travis,
Houston, Texas 77002, or at such other place as the
Purchaser and the Shareholder Representative
shall agree in writing. The date on which the Closing occurs
is the “ Closing Date .”
Section 3.1.
Common Stock . Upon the terms and
conditions of this Agreement, the Shareholders will sell, transfer
and deliver to the Purchaser, and the Purchaser will purchase from
the Shareholders, the Common Stock on the Closing Date.
Section 3.2.
Purchase Price . Upon the terms and
conditions of this Agreement, and as full consideration for the
Common Stock and the representations, warranties, covenants and
agreements provided by the Shareholders herein, the Purchaser will
pay to the Shareholders the aggregate sum of $8,000,000, subject to
adjustment as set forth in Section 3.3 (the “
Purchase Price ”). Subject to any adjustment as
set forth in Section 3. 3 and to the escrow provisions
of Section 3.5 , the Purchase Price shall be payable in
cash (by check and/or wire transfer) at Closing (the “
Cash Consideration ”). The Shareholder
Representative has provided to the Purchaser, at or prior to
Closing, true, accurate and complete schedules setting forth (i)
the ownership, beneficially and of record, of all issued and
outstanding Common Stock (the “ Ownership Schedule
”), and (ii) a true, accurate and complete
schedule setting forth the aggregate amount to be paid to each
Shareholder opposite such Shareholder’s name (the “
Consideration Schedule ”).
Section 3.3.
Purchase Price Adjustment
.
(a)
Attached hereto
as Exhibit C is a worksheet, prepared on behalf of the
Shareholders by the Shareholder Representative, setting forth a
reasonable estimate of the Indebtedness and Net Working Capital of
the Company as of the Closing Date as well as a computation of the
estimated Adjustment Amount (the “ Estimated Adjustment
Amount ”). If the Estimated Adjustment Amount is a
positive number, the Purchase Price payable at Closing shall be
decreased in an amount equal to the Estimated Adjustment Amount,
with a reduction (allocated on a Pro-Rata Basis) in the Cash
Consideration otherwise payable to each Shareholder at
Closing. If the Estimated Adjustment Amount is a negative
number ( i.e. , if the Company’s Net Working Capital
in excess of $200,000 exceeds the Company’s Indebtedness as
of Closing), the Purchase Price payable at Closing shall be
increased in an amount equal to the Estimated Adjustment Amount,
with an increase (allocated on a Pro-Rata Basis) in the Cash
Consideration otherwise payable to each Shareholder at
Closing.
(b)
Within 90 days
after the Closing, the Purchaser shall prepare a computation of the
actual Adjustment Amount as of the Closing Date (the “
Actual Adjustment Amount ”). If within 15 days
following delivery of such computation the Shareholder
Representative does not object in writing thereto, then the Actual
Adjustment Amount shall be the final, binding and conclusive
computation of the Actual Adjustment Amount. If the
Shareholder Representative objects in writing to the computation,
then the Purchaser and the Shareholder Representative shall
negotiate in good faith and attempt to resolve the
disagreement. Should such negotiations not result in an
agreement within 20 days, then the matter shall be
2
submitted to an independent accounting firm of
national reputation mutually acceptable to both the Purchaser and
the Shareholder Representative (the “ Neutral Auditor
”). If the Purchaser and the Shareholder Representative are
unable to agree on the Neutral Auditor, then they shall request the
American Arbitration Association to appoint the Neutral
Auditor. All fees and expenses relating to appointment of the
Neutral Auditor and the work, if any, to be performed by the
Neutral Auditor will be borne equally by the Purchaser and the
Primary Shareholders (unless the Primary Shareholders’ share
of such fees and expenses is less than $25,000, in which case such
amount shall be distributed to the Neutral Auditor, upon the
agreement and instruction of Purchaser and the Shareholder
Representative, from the Escrow Funds, allocated on a Primary
Pro-Rata Basis). The Neutral Auditor will deliver to the
Purchaser and the Shareholder Representative a written
determination (such determination to include a worksheet setting
forth all material calculations used in arriving at such
determination and to be based solely on the provisions of this
Agreement and information provided to the Neutral Auditor by the
Purchaser and the Shareholder Representative, or their respective
representatives) of the disputed items within 30 days of receipt of
the disputed items, which determination will be final, binding and
conclusive on the Parties.
(c)
Promptly
following agreement on or delivery of a final written determination
setting forth the Actual Adjustment Amount (as contemplated in
Section 3.3(b) ), the Purchaser and the Shareholders
shall account to each other as provided for in this
Section 3.3(c) . If the Estimated Adjustment
Amount less the Actual Adjustment Amount is a positive number, the
Shareholders shall have a right to receive a cash payment equal to
such excess, allocated on a Pro-Rata Basis, as an increase in the
Purchase Price. If the Estimated Adjustment Amount less the
Actual Adjustment Amount is a negative number, Purchaser shall be
entitled to receive a payment from the Primary Shareholders equal
to such deficit, allocated on a Primary Pro-Rata Basis (unless such
deficit is less than $50,000, in which case such amount shall be
distributed to Purchaser the Escrow Funds, allocated on a Primary
Pro-Rata Basis). Any such excess or deficit payment shall be
due and payable within three business days after the Actual
Adjustment Amount is determined pursuant to this
Section 3.3 .
Section 3.4.
Options . The Company has provided to
the Purchaser a true, accurate and complete list of all issued and
outstanding options (each, an “ Option ” and,
collectively, the “ Options ”) to purchase
shares of Common Stock (the “ Option Schedule
”). Prior to the Closing, each of the Options shall
either be terminated or fully exercised in accordance with its
terms and the terms of any incentive or option plan pursuant to
which such Option was granted.
Section 3.5.
Escrow Funds . The Primary
Shareholders hereby agree that the sum of $1,200,000 (the “
Escrow Funds ”) otherwise payable to the Primary
Shareholders for the Common Stock on the Closing Date shall be
deposited with an escrow agent reasonably acceptable to both the
Purchaser and the Primary Shareholders (the “ Escrow
Agent ”), to be held and ultimately disbursed in
accordance with an escrow agreement in a form mutually acceptable
to Purchaser and the Primary Shareholders (the “ Escrow
Agreement ”).
(a)
At or prior to
the Closing, the Shareholders shall deliver the following
to
3
the Purchaser:
(i)
stock
certificates representing the Common Stock, duly endorsed for
transfer to the Purchaser or accompanied by duly executed
assignment documents, which shall transfer to the Purchaser good
and valid title to the Common Stock, free and clear of all
Encumbrances;
(ii)
evidence of
consents, if any, as shall be required to enable Purchaser to
continue to enjoy the benefit of any Governmental Authorization,
lease, license, permit, contract, or other agreement or instrument
to or of the Company, or of which the Company is a party or a
beneficiary;
(iii)
pay-off letters
for all Indebtedness of the Company for money borrowed and evidence
that such Indebtedness has been repaid and fully satisfied as of
the Closing Date;
(iv)
evidence of the
exercise or termination of the Options, as described in
Section 3.4 ;
(v)
the Escrow
Agreement, executed by the Shareholder Representative;
(vi)
an Executive
Employment Agreement, in a form mutually acceptable to Purchaser
and Timothy Knight (the “ Employment Agreement
”), executed by Timothy Knight;
(vii)
Release of Claims
Agreements, in a form acceptable to Purchaser, executed by each of
the Shareholders and officers and directors of the Company
releasing the Company from any and all prior claims of such
officers, directors and Shareholders in their capacity as
such;
(viii)
all corporate,
accounting, business and tax records of the Company;
(ix)
certificates,
dated within 15 days of the Closing Date, from the Secretary of
State of the State of California and of comparable authority in
other jurisdictions in which the Company or its Subsidiaries are
incorporated or qualified to do business, establishing that each is
a validly existing corporation in good standing to transact
business;
(x)
a copy of the
Articles of Incorporation of the Company, certified by the
Secretary of State of the State of California within ten days of
the Closing Date;
(xi)
a copy of the
Bylaws of the Company in effect as of the Closing, certified by an
appropriate officer;
(xii)
written
resignations of each of the directors and officers of
the
4
Company, in a
form acceptable to the Purchaser;
(xiii)
the Shareholder
Disclosure Letter;
(xiv)
an agreement
regarding certain additional matters, in a form mutually acceptable
to Purchaser and the Primary Shareholders (the “
Additional Agreement ”), executed by the Primary
Shareholders; and
(xv)
such other
documents as may be required by this Agreement or reasonably
requested by the Purchaser.
(b)
At or prior to
the Closing, the Purchaser shall deliver the following:
(i)
to each
Shareholder, the Cash Consideration payable to such Shareholder as
set forth on the Consideration Schedule;
(ii)
to the Escrow
Agent, the Escrow Funds in accordance with Section 3.5
;
(iii)
to the Primary
Shareholders, the Escrow Agreement executed by the
Purchaser;
(iv)
to Timothy
Knight, the Employment Agreement executed by the Company and/or the
Purchaser;
(v)
to the
Shareholder Representative, the Purchaser Disclosure
Letter;
(vi)
to the Primary
Shareholders, the Additional Agreement executed by the Purchaser;
and
(vii)
to the
Shareholder Representative, such other documents as may be required
by this Agreement or reasonably requested by the Shareholder
Representative.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Subject to the exceptions set forth
in the disclosure letter of the Purchaser delivered to the
Shareholder Representative concurrently with the Parties’
execution of this Agreement (the “ Purchaser Disclosure
Lette r”), the Purchaser represents and warrants to the
Shareholders as follows, except as set forth in the Purchaser SEC
Reports:
Section 4.1.
Organization and
Qualification . The Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite
corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being
conducted. The Purchaser is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction
in which the properties owned, leased, or operated by it or the
nature of the business conducted by it makes
5
such qualification necessary, except where the
failure to be so qualified and in good standing would not have, or
could not reasonably be anticipated to have, individually or in the
aggregate, a Material Adverse Effect.
Section 4.2.
Authority; Non-Contravention;
Approvals .
(a)
The Purchaser has
full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated
hereby. No approval of the shareholders of the Purchaser is
required, pursuant to any Legal Requirement, other regulatory
requirement or otherwise, in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly executed
and delivered by the Purchaser, and, assuming the due
authorization, execution and delivery hereof by the Company and the
Shareholders, constitutes a valid and legally binding agreement of
the Purchaser enforceable against it in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors’ rights
generally and (ii) general equitable principles.
(b)
The execution and
delivery of this Agreement by and the consummation by the Purchaser
of the transactions contemplated hereby do not and will not violate
or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance, upon any of the
properties or assets of the Purchaser or any of its Subsidiaries
under any of the terms, conditions or provisions of (i) the
respective charters or bylaws of the Purchaser or any of its
Subsidiaries, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any
court or Governmental Authority applicable to the Purchaser or any
of its Subsidiaries or any of their respective properties or assets
(assuming compliance with the matters referred to in
Section 4.2(c) ) or (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any
kind to which the Purchaser or any of its Subsidiaries is now a
party or by which the Purchaser or any of its Subsidiaries or any
of their respective properties or assets may be bound or affected,
except, in the case of clauses (ii) and (iii), for matters as would
not have, or could not reasonably be anticipated to (x) have,
individually or in the aggregate, a Material Adverse Effect, or (y)
materially impair the ability of the Purchaser to consummate the
transactions contemplated by this Agreement.
(c)
No declaration,
filing or registration with, or notice to, or authorization,
consent or approval of, any Governmental Authority is necessary for
the execution and delivery of this Agreement by the Purchaser or
the consummation by the Purchaser of the transactions contemplated
hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not, have, or could not
reasonably be anticipated to have, individually or in the
aggregate, a Material Adverse Effect or materially impair the
ability of the Purchaser to consummate the transactions
contemplated by this Agreement.
6
Section 4.3.
Brokers and Finders
. The
Purchaser has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders’ fees or
agents’ commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
Section 4.4.
Litigation.
Other than that
which is disclosed in the Purchaser SEC Reports, there is no
litigation, action, suit, proceeding or governmental investigation
pending or, to the Knowledge of the Purchaser, threatened against
the Purchaser or affecting any of the Purchaser’s properties
or assets, which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay the consummation of the
transactions contemplated by this Agreement.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each of the Shareholders hereby,
severally and not jointly, represents and warrants to Purchaser as
follows:
Section 5.1.
Ownership . Such Shareholder
owns, beneficially and of record, the number of shares of Common
Stock set forth on the duly executed stock power being delivered by
such Stockholder to the Purchaser concurrently with the execution
and delivery of this Agreement, free and clear of any adverse claim
of any other Person, including without limitation, any
Encumbrances. There are no outstanding subscriptions,
options, calls, agreements, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right
of conversion or exchange under any outstanding security,
debenture, instrument or other agreement, obligating such
Shareholder to deliver or sell, or cause to be delivered or sold,
shares of the capital stock of the Company or obligating such
Shareholder to grant, extend or enter into any agreement or
commitment described above. There are no shareholder or
stockholder agreements, voting trusts, proxies or other agreements
or understandings to which such Shareholder is a party or is bound
with respect to the voting of any shares of capital stock of the
Company.
Section 5.2.
Organization and
Qualification . If an entity, such
Shareholder is a corporation, partnership or limited liability
company duly organized, validly existing and in good standing under
the laws of the state of its organization, and has the requisite
power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being
conducted. If an entity, such Shareholder is duly qualified
to do business as a foreign entity and is in good standing in each
jurisdiction in which the properties owned, leased, or operated by
it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so
qualified and in good standing would not have, or could not
reasonably be anticipated to have, individually or in the
aggregate, a Material Adverse Effect on such
Shareholder.
Section 5.3.
Authority; Non-Contravention;
Approvals .
(a)
Such Shareholder
has full power and authority to execute and deliver
this
7
Agreement and to sell, transfer and deliver the
shares of Common Stock of the Company to be sold by such
Shareholder. If such Shareholder is an entity, this Agreement
has been approved by the board of directors, general partner(s) or
manager(s)/member(s), as applicable, of such Shareholder, and no
other proceedings on the part of such Shareholder are necessary to
authorize the execution and delivery of this Agreement or the
consummation by such Shareholder of the transactions contemplated
hereby. This Agreement has been duly executed and delivered
by such Shareholder and, assuming the due authorization, execution
and delivery hereof by the Purchaser, constitutes a valid and
legally binding agreement of such Shareholder, enforceable against
such Shareholder in accordance with its terms, except that such
enforcement may be subject to (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors’ rights generally and
(b) general equitable principles.
(b)
The execution and
delivery of this Agreement by such Shareholder and the consummation
by such Shareholder of the transactions contemplated hereby do not
and will not violate or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or
result in a right of termination or acceleration (i) under any
material agreement or instrument to which such Shareholder is bound
or (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to such Shareholder.
(c)
No declaration,
filing or registration with, or notice to, or authorization,
consent or approval of, any Governmental Authority is necessary for
the execution and delivery of this Agreement by such Shareholder or
the consummation by such Shareholder of the transactions
contemplated hereby.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
OF THE PRIMARY SHAREHOLDERS
Subject to the exceptions set forth
in the disclosure letter of the Primary Shareholders delivered to
Purchaser concurrently with the Parties’ execution of this
Agreement (the “ Shareholder Disclosure Letter
”), each of the Primary Shareholders hereby, severally and
not jointly, represents and warrants to Purchaser as
follows:
Section 6.1.
Organization and
Qualification . The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of California and has the requisite
corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being
conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in
which the properties owned, leased, or operated by it or the nature
of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing
would not have, or could not reasonably be anticipated to have,
individually or in the aggregate, a Material Adverse Effect on the
Company. True, accurate and complete copies of the
Company’s Articles of Incorporation and Bylaws, in each case
as in effect on the date hereof
8
including all amendments thereto, have
heretofore been delivered to Purchaser.
Section 6.2.
Capitalization; Ownership
.
(a)
The authorized
capital stock of the Company consists of 10,000,000 shares of
Common Stock. As of the Closing there will be 477,089 shares
of Common Stock issued and outstanding and no other shares of
capital stock of the Company issued and outstanding. All of
such issued and outstanding shares of Common Stock are validly
issued, fully paid, nonassessable and free of preemptive rights,
and are owned beneficially and of record as set forth on the
Ownership Schedule. No Subsidiary of the Company holds any
shares of the capital stock of the Company. All dividends and
other distributions declared with respect to the issued and
outstanding shares of the capital stock or other equity interests
of the Company have been paid or distributed.
(b)
There are no
outstanding (i) subscriptions, options, calls, agreements,
contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange
under any outstanding security, debenture, instrument or other
agreement, obligating the Company or, to the Knowledge of the
Officers, any Shareholder to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital stock
of the Company or obligating the Company or, to the Knowledge of
the Officers, any Shareholder to grant, extend or enter into any
agreement or commitment described above or (ii) obligations of
the Company or, to the Knowledge of the Officers, any Shareholder
to repurchase, redeem or otherwise acquire any securities referred
to in clause (i) above. There are no shareholder or
stockholder agreements, voting trusts, proxies or other agreements
or understandings to which the Company or, to the Knowledge of the
Officers, any Shareholder is a party or is bound with respect to
the voting of any shares of capital stock of the
Company.
Section 6.3.
Subsidiaries . The Company does not
have any Subsidiaries or any organizational predecessors, nor does
the Company hold any equity interest in or control (directly or
indirectly, through the ownership of securities, by contract, by
proxy, alone or in combination with others, or otherwise) any
corporation, limited liability company, partnership, business
organization or other Person.
Section 6.4.
Authority; Non-Contravention;
Approvals .
(a)
The Company has
full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated
hereby. This Agreement has been approved by the board of
directors of the Company, and no other corporate proceedings on the
part of the Company or the Shareholders are necessary to authorize
the execution and delivery of this Agreement or the consummation by
the Company of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company, and,
assuming the due authorization, execution and delivery hereof by
the Purchaser, constitutes a valid and legally binding agreement of
the Company, enforceable against the Company in accordance with its
terms, except that such enforcement may be subject to
(a) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of
creditors’ rights generally and (b) general equitable
principles.
9
(b)
The execution and
delivery of this Agreement by the Company and the Shareholders and
the consummation by the Company and the Shareholders of the
transactions contemplated hereby do not and will not violate or
result in a breach of any provision of, or constitute a default (or
an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any
lien, security interest, charge or Encumbrance upon any of the
properties or assets of the Company under any of the terms,
conditions or provisions of (i) the charter or bylaws of the
Company, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to the Company or any
Shareholder, or any of their respective properties or assets, or
(iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which the Company is now a
party or by which the Company or any of its properties or assets
may be bound or affected.
(c)
No declaration,
filing or registration with, or notice to, or authorization,
consent or approval of, any Governmental Authority is necessary for
the execution and delivery of this Agreement by the Company and the
Shareholders or the consummation by the Company and the
Shareholders of the transactions contemplated hereby.
Section 6.5.
Financial Statements.
The
unaudited balance sheet, cash flow statement and income statement
of the Company attached to the Shareholder Disclosure Letter
(collectively, the “ Company Financial Statements
”) are true, correct and complete, and fairly present the
financial position of the Company as of December 31, 2003 and
December 31, 2004, and the results of its operations and cash
flows for the periods then ended, on an accrual basis of accounting
and on a basis consistent with the books and records of the Company
and prior periods, subject to normal year-end adjustments and any
other adjustments described therein.
Section 6.6.
Absence of Undisclosed
Liabilities . The Company has not
incurred any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except liabilities,
obligations or contingencies (i) which are accrued on or reserved
against the Company Financial Statements or reflected in the notes
thereto, or (ii) which were incurred after December 31, 2004,
were incurred in the ordinary course of business and consistent
with past practices and are immaterial.
Section 6.7.
Absence of Certain Changes or
Events . Since January 1,
2004, except as set forth in the Salary Increase Schedule, (i) the
Company has not, directly or indirectly, purchased, redeemed or
otherwise acquired any of its securities; (ii) the Company has not
granted any general increase in the compensation of its officers,
directors or employees (including any increase pursuant to any
bonus, pension, profit-sharing or other plan or commitment) and has
not paid any bonuses to any officers, directors or employees other
than in the ordinary course of business and consistent with past
practices; (iii) the Company has not adopted, entered into or
amended any bonus, profit sharing, compensation, stock option,
pension, retirement, deferred compensation, health care, employment
or other employee benefit plan, agreement, trust fund or
arrangement for the benefit or welfare of any employee or retiree,
except as required to comply with changes in applicable law; (iv)
the Company has not made any
10
amendment to its Articles of Incorporation or
Bylaws or changed the character of its business in any material
manner; (v) the business of the Company has been conducted in the
ordinary course of business consistent with past practices; (vi)
there has not been any event, occurrence, development or state of
circumstances or facts which has had, or could reasonably be
anticipated to have, individually or in the aggregate, a Material
Adverse Effect on the Company; (vii) the Company has not authorized
a stock split; and (viii) the Company has not permitted or allowed
any of its material assets to be subject to any Encumbrance, except
for Permitted Encumbrances.
Section 6.8.
Litigation. There are no claims,
suits, actions, Environmental Claims, inspections, investigations
or proceedings pending or, to the Knowledge of the Officers,
threatened against, relating to or affecting the Company before any
Governmental Authority, or any mediator or arbitrator, and, to the
Knowledge of the Officers, there is no reasonable basis for
same. The Company is not subject to any Order of any
Governmental Authority specifically applicable to the Company, or
any mediator or arbitrator.
Section 6.9.
Billed but Uncollected
Invoices . All billed but
uncollected invoices of the Company represent bona fide sales
actually made in the ordinary course of business and are
collectible within 90 days after the applicable billing date,
without set off or counterclaim. To the Knowledge of the
Officers, none of the parties owing funds to the Company is
involved in a bankruptcy or insolvency proceeding or is generally
unable to pay its debts as they become due. The Company has
good and valid title to the claims represented by the billed but
uncollected invoices free and clear of all Encumbrances. No
goods or services, the sale or provision of which gave rise to any
billed but uncollected invoices, have been returned or rejected by
any account debtor or lost or damaged prior to the receipt
thereby.
Section 6.10.
No Violation of Law; Compliance with
Agreements .
(a)
The Company is
not in violation of, and has not been given notice or been charged
with any violation of, any Legal Requirement (including, without
limitation, any applicable Environmental Law) of any Governmental
Authority. No investigation or review by any Governmental
Authority is pending or, to the Knowledge of the Officers,
threatened, nor has any Governmental Authority indicated an
intention to conduct the same. The Company has all permits
(including without limitation Environmental Permits), licenses,
franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals required or necessary to
conduct its business as presently conducted (collectively, the
“ Company Permits ”). The Company is not
in violation of the terms of any Company Permit.
(b)
The Company is
not in breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred
which, with lapse of time or action by a third party, could result
in a default under, (i) the charter, bylaws or similar
organizational instruments of the Company or (ii) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which the
Company is a party or by which it is bound or to which any of its
properties or assets is subject.
Section 6.11.
Insurance . The Shareholder
Disclosure Letter sets forth a list of all
11
insurance policies owned by the Company or by
which the Company or any of its properties or assets is covered
against present losses, all of which have been for the periods
covered, and are currently, in full force and effect. The
scope and amount of such listed insurance policies are customary
and reasonable for the businesses in which the Company has been
engaged during the last three years and provide adequate insurance
coverage for the assets and the operations of the Company for all
risks normally insured against by a Person carrying on the same
business or businesses as the Company. No insurance has been
refused with respect to any operations, properties or assets of the
Company nor has coverage of any insurance been limited by any
insurance carrier that has carried, or received any application
for, any such insurance during the last three years. No
insurance carrier has denied any claims made against any of the
policies listed in the Shareholder Disclosure Letter.
Further, all such policies are sufficient for compliance with all
Legal Requirements and Contracts to which the Company is a party,
and will continue in full force and effect following the
consummation of the transactions contemplated hereby.
(a)
(i) The
Company has (x) duly filed (or there has been filed on its behalf)
with the appropriate taxing authorities all Tax Returns required to
be filed by it on or prior to the date hereof, and (y) duly paid in
full or made adequate provision therefor on its financial
statements (or there has been paid or adequate provision has been
made on its behalf) for the payment of all Taxes for all periods
ending through the date hereof (whether or not shown on any Tax
Return); (ii) all such Tax Returns filed by or on behalf of the
Company are true, correct and complete in all material respects and
have been prepared in substantial compliance with all applicable
laws and regulations; (iii) the Company is not the beneficiary
of any extension of time within which to file any Tax Return; (iv)
no claim has ever been made in writing by any authority in a
jurisdiction where the Company does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction; (v) there
is no liability for Taxes for any period beginning after
December 31, 2004 other than Taxes arising in the ordinary
course of business; (vi) there are no liens for Taxes upon any
property or assets of the Company, except for liens for Taxes not
yet due and payable; (vii) the Company has not made any change
in accounting methods since December 31, 1999, except for the
change to accounting on an accrual basis, in compliance with GAAP,
pursuant to the terms hereof; (viii) the Company has not
received a ruling from any taxing authority or signed an agreement
with any taxing authority; (ix) the Company has complied in
all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to
Sections 1441 and 1442 of the Code, as amended or similar
provisions under any foreign laws) and has, within the time and the
manner prescribed by law, withheld and paid over to the appropriate
taxing authority all Taxes required to be so withheld and paid over
under all applicable laws in connection with any amounts paid or
owing to any employee, independent contractor, creditor,
shareholder or other third party; (x) no federal, state, local
or foreign audits or other administrative proceedings or court
proceedings are presently pending with regard to any Taxes or Tax
Returns of the Company, and, as of the date of this Agreement, the
Company has not received a written notice of any pending audits or
proceedings; (xi) no shareholder or director or officer (or
employee responsible for Tax matters) of the Company expects any
authority to assess any additional Taxes relating to the Company
for any period for which Tax
12
Returns have been filed; (xii) the federal
income Tax Returns of the Company have been examined by the
Internal Revenue Service (“ IRS ”) (which
examination has been completed) or the statute of limitations for
the assessment of federal income Taxes of the Company has expired,
for all periods through and including December 31, 2000, and
no deficiencies were asserted as a result of such examinations
which have not been resolved and fully paid; (xiii) no
adjustments or deficiencies relating to Tax Returns of the Company
have been proposed, asserted or assessed by any taxing authority,
except for such adjustments or deficiencies which have been fully
paid or finally settled; (xiv) the Company has delivered to
Purchaser true, correct and complete copies of all federal income
Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company since January 1,
2001; (xv) the Company has been a validly electing S corporation
within the meaning of Sections 1361 and 1362 of the Code at all
times during its existence, and the Company will be an S
corporation up to and including the Closing; (xvi) neither the
Company nor any qualified subchapter S subsidiary of the Company
have, in the past ten years, (A) acquired assets from another
corporation in a transaction which the Company Tax basis for the
acquired assets was determined, in whole or in part, by reference
to the Tax basis of the acquired assets (or any other property) in
the hands of the transferor or (B) acquired the stock of any
corporation which is a qualified subchapter S subsidiary; and
(xvii) the Company shall not be liable for any Tax under Code
Section 1374 in connection with the deemed sale of the Company
assets (including assets of any qualified subchapter S subsidiary)
caused by the Section 338(h)(10) Election (as defined in
Section 7.5(g) ).
(b)
There are no
outstanding requests, agreements, consents or waivers to extend the
statute of limitations applicable to the assessment of any Taxes or
deficiencies against the Company, and no power of attorney granted
by the Company with respect to any Taxes is currently in
force. The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning
of Section 6662 of the Code. The Company is not a party
to any agreement providing for the allocation or sharing of
Taxes. The Company has not been a United States real property
holding corporation within the meaning of Section 897(c)(2)
during the applicable period specified in
Section 897(c)(1)(A)(ii). The Company (i) has not
been a member of an affiliate group filing a consolidated federal
income Tax Return (other than a group the common parent of which
was the Company) and (ii) has no liability for Taxes of any Person
(other than the Company) under Section 1.1502-6 of the United
States Treasury Regulations (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract,
or otherwise.
(c)
The Company (or
its successor) will not be required to include any item of income
in, or exclude any item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Closing Date
as a result of any: (A) change in method of accounting for a
taxable period ending on or prior to the Closing Date; (B)
“closing agreement” as described in Section 7121
of the Code (or any corresponding or similar provision of state,
local or foreign income Tax law) executed on or prior to the
Closing Date; (C) installment sale or open transaction disposition
made on or prior to the Closing Date; or (D) prepaid amount
received on or prior to the Closing Date.
13
(a)
The Primary
Shareholders have listed each Employee Benefit Plan in the
Shareholder Disclosure Letter. For these purposes,
“
Employee
Benefit Plan ” means any “employee
benefit plan” (within the meaning of Section 3(3) of
ERISA), stock option plan, severance agreement, employment
contract, stock purchase plan, bonus program, incentive plan,
cafeteria or flexible benefit plan, deferred compensation
arrangement, and all other similar employee benefit plans,
programs, arrangements, policies, or agreements, whether or not
subject to ERISA, that the Company sponsors, maintains, or
contributes to, or to which the Company has any liability
thereunder.
(b)
The Company has
provided the Purchaser with correct and complete copies of each
Employee Benefit Plan, current summary plan descriptions for each
Employee Benefit Plan, all related trusts, insurance, and other
funding contracts which implement each such Employee Benefit Plan,
the prior three years Form 5500, and all correspondence with any
governmental authority respecting any such Employee Benefit
Plan.
(c)
Each Employee
Benefit Plan (and each related trust, insurance contract, or fund)
complies in form and in operation in all material respects with all
applicable laws, rules and regulations.
(d)
All premiums
required to be paid, all benefits, expenses and other amounts due
and payable, and all contributions, transfers or payments required
to be made to or under the Employee Benefit Plans will have been
paid, made or accrued for all services on or prior to the Closing
Date.
(e)
No Employee
Benefit Plan is or has ever been covered by Title IV of ERISA or
subject to Section 412 of the Code.
(f)
No Employee
Benefit Plan is or has ever been a Multiemployer Plan (as defined
in ERISA Section 3(37)) nor has the Company nor any member of
its controlled group of corporations (as defined in Code
Section 1563) contributed to, or ever had an obligation to
contribute to, any such Multiemployer Plan.
(g)
The Company has
never maintained nor contributed to any Employee Benefit Plan
providing medical, health, or life insurance or other welfare-type
benefits for current or future retired or terminated employees,
their spouses, or their dependents (other than in accordance with
Code Section 4980B).
(h)
No event has
occurred and no condition exists with respect to the Employee
Benefit Plans that could subject the Company, any Employee Benefit
Plan, or Purchaser to any liability under applicable
laws.
(i)
Neither the
execution and delivery of this Agreement, nor the consummation of
the transactions hereunder, will:
(1)
result in any
payment to be made by the Company, including without limitation,
severance, unemployment compensation, golden parachute (as defined
in Section 280G of the Code) or otherwise, becoming due to any
employee, director or
14
consultant of the
Company, or
(2)
increase any
benefits or accelerate vesting otherwise provided under any
Employee Benefit Plan.
(j)
No condition,
agreement or plan provision limits the right of the Company to
amend, cut back or terminate any Employee Benefit Plan that it
sponsors in accordance with the terms of such Employee Benefit Plan
(except to the extent such limitation arises under the Code or
ERISA).
(k)
There are no
pending actions that have been asserted or instituted against the
Employee Benefit Plans other than routine claims for benefits and,
to the Knowledge of the Officers, no such action has been
threatened.
Section 6.14.
Employee and Labor Matters
.
(a)
At or prior to
Closing, the Company has separately provided Purchaser with (i) a
true and complete list, dated as of January 1, 2005 (the
“ Employee Schedule ”), of all employees of the
Company listing the title or position held, base salary or wage
rate and any bonuses, commissions, profit sharing, or other
material compensation or perquisites payable to, and all material
employee benefits received, by such employees and (ii) a true and
complete schedule (the “ Salary Increase Schedule
”) describing all changes in the compensation of the
Company’s directors, officers and employees since
January 1, 2004. The Company has provided Purchaser
copies of all written agreements between the Company and all
current employees. The Company has not entered into any
agreement or agreements pursuant to which the combined annual
payroll of the Company, including projected pay increases, overtime
and fringe benefit costs, required to operate its business
(including all administrative and support personnel) would be
materially greater than as listed on the Employee
Schedule.
(b)
The Company has
provided Purchaser copies of all health, dental, life and
disability insurance plans of the Company.
(c)
The Company is
not a party to or bound by any written employment agreements or
commitments, other than on an at-will basis.
(d)
The Company is
not a party to or bound by any collective bargaining or similar
agreement with any labor organization or work rules or practices
agreed to with any labor organization or employee association
applicable to employees of the Company. There is presently no
pending grievance or arbitration proceeding arising out of any
collective bargaining agreement or other grievance procedure
relating to the Company.
(e)
None of the
employees of the Company is represented by any labor organization
and, to the Knowledge of the Officers, there have been no union
organizing activities among the employees of the Company within the
past five years, and there are no negotiations or discussions
currently pending or occurring between the Company and any union or
employee association regarding any collective bargaining agreement
or any other work rules or policies which might otherwise affect
the Company.
15
(f)
There is no labor
strike, dispute, slowdown, stoppage or lockout actually pending, or
to the Knowledge of the Officers, threatened against or affecting
the Company and during the past five years there has not been any
such action.
(g)
There is no
unfair labor practice charge or complaint against the Company
pending or, to the Knowledge of the Officers, threatened before the
National Labor Relations Board or any similar state, local or
foreign agency responsible for administering such charges or
complaints.
(h)
There are no
material written personnel policies, rules or procedures applicable
to employees of the Company.
(i)
There are no
proceedings pending or, to the Knowledge of the Officers,
threatened against the Company in any forum by or on behalf of any
present or former employee of the Company, any applicant for
employment, or classes of the foregoing, alleging breach of any
express or implied contract of employment, any law or regulation
governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the
employment relationship.
(j)
No charge with
respect to or relating to the Company is pending before the Equal
Employment Opportunity Commission or any other local, state, or
federal agency responsible for the prevention of unlawful
employment practices.
(k)
To the Knowledge
of the Officers, no federal, state, local or foreign agency
responsible for the enforcement of labor or employment laws is
conducting or intends to conduct an investigation with respect to
or relating to the Company.
(l)
The Company is,
and at all times has been, in material compliance with all Legal
Requirements applicable to the Company respecting employment and
employment practices, terms and conditions of employment, wages,
hours of work, overtime, leave time, immigration, and occupational
safety and health, and is not engaged in any unfair labor practices
as defined in the National Labor Relations Act or other Legal
Requirements applicable to the Company.
(m)
In the last five
years, (i) the Company has not effectuated a “plant
closing” (as defined in the Worker Adjustment and Retaining
Notification Act of 1988, the “ WARN Act ”)
affecting any single site of employment or one or more facilities
or operating units within any single site of employment of the
Company, (ii) there has not occurred a “mass
layoff” (as defined in the WARN Act) affecting any single
site of employment of the Company, (iii) the Company has not
been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application
of any similar state, local or foreign law or regulation and (iv)
none of the Company’s employees has suffered an
“employment loss” (as defined in and covered by the
WARN Act) during the six-month period prior to the date
hereof.
(n)
To the Knowledge
of the Officers, no executive employee of the Company or any other
employee reasonably considered to be important to the Company has
breached any
16
agreement to keep in confidence information
acquired by that employee in confidence or in trust prior to that
employee’s employment with the Company, nor has any such
employee, through his or her employment by the Company, breached
any non-competition, non-solicitation or non-interference
agreement.
(o)
The Company is
not a party to any agreement with any employee or other party that
provides for compensation, severance pay, benefits, or the vesting
of options or shares as a result of the transactions contemplated
by this Agreement.
(p)
There is no claim
for workers’ compensation benefits, or claim arising out of
any injury suffered by an employee or contractor, pending or, to
the Knowledge of the Officers, threatened against or affecting the
Company and, since January 1, 2002, there has not been any
such claim.
Section 6.15.
Non-Competition Agreements
. The
Company has provided Purchaser true and complete copies of all
confidentiality, non-solicitation and/or non-competition agreements
between the Company and any of the Shareholders, between the
Company and any employee of the Company, or between Timothy Knight
and a party other than the Company. Neither the Company nor
any Shareholder is a party to any agreement which purports to
restrict or prohibit any of them from, directly or indirectly,
engaging in any business currently engaged in by the Company.
None of the Company’s shareholders, officers, directors, or
key employees is a party to any agreement which, by virtue of such
Person’s relationship with the Company, restricts the Company
or any Subsidiary of the Company from, directly or indirectly,
engaging in any of the businesses of the Company.
Section 6.16.
Environmental Matters
. Without
in any manner limiting any other representations and warranties set
forth in this Agreement:
(a)
The Company and
its Business Facilities are in compliance with, and have at all
times been in compliance with, all Environmental Laws in connection
with the conduct of the business of the Company and the use,
maintenance and operation of any of the Business Facilities by the
Company.
(b)
Wi
|
