STOCK PURCHASE AGREEMENT
by and among
IntegraMed America, Inc.,
IDVC Acquisition Co.,
The Sellers Named Herein,
The Guarantors Named Herein
and
Vein Clinics of America, Inc.
dated
August 8, 2007
Table of Contents
Recitals....................................................................1
I. Definitions..............................................................1
II. Purchase of Shares and Closing..........................................9
2.1 Purchase and Sale.............................................9
2.2 Purchase Price................................................9
2.3 Escrow Funds..................................................9
2.4 The Closing..................................................10
2.5 Determination of Post-Closing Adjustments....................12
2.6 Payment of Indebtedness......................................13
2.7 Earn-Out Payments............................................13
2.8 Sellers' Representative......................................13
2.9 Further Assurances...........................................14
III. Representations and Warranties of Sellers.............................15
3.1 Title to Shares..............................................15
3.2 Incorporation; Power and Authority...........................15
3.3 Valid and Binding Agreements.................................15
3.4 No Claims....................................................15
3.5 No Breach; Consents..........................................15
3.6 Brokerage....................................................16
3.7 Investment Intent............................................16
IV. Representations and Warranties Regarding the Company...................16
4.1 Incorporation; Power and Authority...........................16
4.2 Valid and Binding Agreement..................................16
4.3 No Breach; Consents..........................................16
4.4 Capitalization...............................................17
4.5 Subsidiaries.................................................17
4.6 Financial Statements.........................................18
4.7 Absence of Undisclosed Liabilities...........................18
4.8 Books and Records............................................18
4.9 Absence of Certain Developments..............................19
4.10 Property.....................................................21
4.11 Accounts Receivable..........................................22
4.12 Inventory....................................................22
4.13 Tax Matters..................................................22
4.14 Intellectual Property Rights.................................25
4.15 Material Contracts...........................................27
4.16 Litigation...................................................29
4.17 Insurance....................................................29
4.18 Compliance with Laws; Governmental Authorizations............29
4.19 Environmental Matters........................................30
4.20 Warranties...................................................31
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4.21 Employees....................................................31
4.22 Employee Benefits............................................33
4.23 Third-Party Payors...........................................36
4.24 Suppliers....................................................36
4.25 Affiliate Transactions.......................................37
4.26 Indebtedness.................................................37
4.27 Brokerage....................................................37
4.28 Availability of Documents....................................37
4.29 Disclosure...................................................37
V. Representations and Warranties of Buyer.................................37
5.1 Incorporation; Power and Authority...........................37
5.2 Valid and Binding Agreement..................................37
5.3 No Breach; Consents..........................................38
5.4 Brokerage....................................................38
5.5 Parent Common Stock..........................................38
VI. Agreements of Parent...................................................38
6.1 Board of Directors...........................................38
VII. Taxes.................................................................38
7.1 Tax Matters..................................................38
7.2 Transfer and Sales Taxes.....................................41
VIII. Conditions to Closing................................................41
8.1 Conditions to Obligations of Parent and Buyer................41
8.2 Conditions to Sellers' Obligations...........................42
IX. Indemnification........................................................43
9.1 Indemnification..............................................43
9.2 Third-Party Actions..........................................44
9.3 Tax Adjustment...............................................45
X. Guarantees..............................................................45
XI. General................................................................46
11.1 Press Releases and Announcements.............................46
11.2 Expenses.....................................................46
11.3 Amendment and Waiver.........................................46
11.4 Notices......................................................46
11.5 Assignment...................................................47
11.6 No Third Party Beneficiaries.................................47
11.7 Severability.................................................47
11.8 Complete Agreement...........................................48
11.9 Schedules....................................................48
11.10 Signatures; Counterparts.....................................48
11.11 Governing Law................................................48
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11.12 Specific Performance.........................................48
11.13 Jurisdiction.................................................48
11.14 Waiver of Jury Trial.........................................49
11.15 Construction.................................................49
11.16 Time of Essence..............................................50
Exhibit A--Form of Escrow Agreement
Exhibit B--Form of Voting Agreement
Exhibit C--Form of Opinion of ▇▇▇▇▇▇▇▇▇ Will & ▇▇▇▇▇ LLP
Exhibit D--Terms of Earn-Out Payments
Exhibit E--Form of Kush Agarwal Employment Agreement
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of [August
8] , 2007 by and among IntegraMed America, Inc., a Delaware corporation
("Parent"), IDVC Acquisition Co., a Delaware corporation and wholly-owned
subsidiary of Parent ("Buyer"), D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D. Trust Dated May 1, 2004
("▇▇▇▇▇▇▇▇ Seller"), Kush ▇. ▇▇▇▇▇▇▇ Living Trust ("Agarwal Seller") (each of
▇▇▇▇▇▇▇▇ Seller and Agarwal Seller, a "Seller" and collectively, the "Sellers"),
Kush ▇. ▇▇▇▇▇▇▇ (the "Sellers' Representative"), D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, in his
personal capacity, as guarantor of the obligations of ▇▇▇▇▇▇▇▇ Seller ("▇▇▇▇▇▇▇▇
Guarantor"), Kush ▇. ▇▇▇▇▇▇▇, in his personal capacity, as guarantor of the
obligations of Agarwal Seller ("Agarwal Guarantor") and Vein Clinics of America,
Inc., a Delaware corporation, (the "Company").
Recitals
WHEREAS, Sellers own all of the outstanding capital stock of the
Company.
WHEREAS, Sellers desire to sell, and Buyer desires to buy, all of the
outstanding capital stock of the Company on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and agreements contained in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
I. Definitions
The following terms have the meanings assigned to them below:
"Active Employee" means any employee employed on the Closing Date by
the Company or a Professional Corporation who is a bargaining unit employee
currently covered by a collective bargaining agreement or employed exclusively
by the Company or a Professional Corporation, including employees on temporary
leave of absence, family medical leave, military leave, temporary disability or
sick leave, but excluding employees on long-term disability leave.
"Admitted Claim" has the meaning set forth in Section 9.1(b).
"Affiliate" of a specified Person means any other Person which,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with such specified Person. For
purposes of this definition, "control" of any Person means possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting capital
stock or membership interests, by contract, or otherwise.
"Agarwal Guarantor" and "Agarwal Seller" each have the respective
meanings set forth in the first paragraph of this Agreement.
"Agreed Closing Statement" has the meaning set forth in Section 2.5.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annual Financial Statements" has the meaning set forth in Section 4.6.
"Buyer" has the meaning set forth in the first paragraph of this
Agreement.
"Buyer Losses" has the meaning set forth in Section 9.1(a).
"Capital Lease" means a lease on which the Company is a lessee that is
a capital lease as determined in accordance with GAAP.
"Capital Source Credit Facility" means the credit agreement, dated as
of August 10, 2006, by and among the Company, CapitalSource Finance LLC, as
agent and lenders party thereto.
"Cash Amount" has the meaning set forth in Section 2.2.
"Closing" has the meaning set forth in Section 2.4(a).
"Closing Date" has the meaning set forth in Section 2.4(a).
"Closing Long-Term Liabilities" means liabilities of the Company under
the Capital Source Credit Facility classified as "long term" liabilities on a
balance sheet under GAAP, on the Closing Date.
"Closing Working Capital" means the current assets of the Company minus
the current liabilities of the Company, as defined by GAAP, on the Closing Date,
as modified by Schedule 2.5. Closing Working Capital shall be prepared on a
basis consistent with Schedule 2.5.
"Closing Working Capital Adjustment" means an amount equal to
$1,800,000 less Closing Working Capital. The Closing Working Capital Adjustment
may be positive or negative, it being understood that an increase in the Closing
Working Capital relative to the referenced amount will result in an increase in
the Purchase Price and a decrease in the Closing Working Capital relative to the
referenced amount will result in a reduction in the Purchase Price.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Common Stock" has the meaning set forth in Section 2.1.
"Consent" means any authorization, consent, approval, filing, waiver,
exemption or other action by or notice to any Person.
"Contract" means a contract, agreement, lease, commitment or binding
understanding, whether oral or written, that is in effect as of the date of this
Agreement or any time after the date of this Agreement.
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"Department" has the meaning set forth in Section 4.21(c).
"Disclosure Schedule" means the schedule delivered by Seller to Buyer
on or prior to the date of this Agreement.
"Employment Loss" has the meaning set forth in Section 9.1(a).
"Encumbrance" means any charge, claim, community property interest,
easement, covenant, condition, equitable interest, lien, option, pledge,
security interest, right of first refusal or restriction of any kind, including
any restriction on use, voting, transfer, receipt of income or exercise of any
other attribute of ownership.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, orders, demands, directives, claims, liens,
investigations, proceedings or written or oral notices of noncompliance or
violation by or from any person alleging (1) liability of any kind or nature
(including liability or responsibility for the costs of enforcement proceedings,
investigations, cleanup, governmental response, removal or remediation, natural
resource damages, property damages, personal injuries, penalties, contribution,
indemnification and injunctive relief) arising out of, based on or resulting
from the presence or Leak of, or exposure to, any Hazardous Material at any
location, or (2) the failure to comply with any Environmental Law.
"Environmental Law" means any Law or Order issued, promulgated or
entered into by or with any Governmental Entity relating to pollution, the
environment, natural resources or human health and safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder.
"Escrow Agent" has the meaning set forth in Section 2.3.
"Escrow Agreement" has the meaning set forth in Section 2.3.
"Escrow Funds" has the meaning set forth in Section 2.3.
"Final Closing Statement" has the meaning set forth in Section 2.5.
"FIRPTA Statement" means an affidavit, under penalties of perjury,
stating that the Company is not and has not been a United States real property
holding corporation, dated as of the Closing Date and in form and substance
required under Treasury Regulation Section 1.897-2(h) for purposes of satisfying
Buyer's obligations under Treasury Regulation Sections 1.1445-1 and 1.1445-2.
"GAAP" means United States generally accepted accounting principles, as
in effect from time to time.
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"Governmental Authorization" means any approval, consent, license,
permit, waiver, registration or other authorization issued, granted, given, made
available or otherwise required by any Governmental Entity or pursuant to Law.
"Governmental Entity" means any federal, state, local, foreign,
international or multinational entity or authority exercising executive,
legislative, judicial, regulatory, administrative or taxing functions of or
pertaining to government.
"Governmental Order" means any judgment, injunction, writ, order,
ruling, award or decree by any Governmental Entity or arbitrator.
"Guarantors" means Agarwal Guarantor and ▇▇▇▇▇▇▇▇ Guarantor.
"Hazardous Substance" means any petroleum or petroleum products,
radioactive materials or wastes, asbestos in any form, polychlorinated biphenyls
and any other chemical, material, substance or waste that is prohibited, limited
or regulated under any Environmental Law.
"Indebtedness" means, as at any date of determination thereof, (without
duplication): (a) all obligations of the Company or any of its Subsidiaries for
borrowed money or funded indebtedness or issued in substitution for or exchange
for borrowed money or fund indebtedness (including obligations in respect of
principal, accrued interest, and any applicable prepayment charges or premiums);
(b) any indebtedness evidenced by any note, bond, debenture or other debt
security; (c) capital leases; (d) any indebtedness guaranteed by the Company or
any of its Subsidiaries; and (e) any obligations with respect to the termination
of any interest rate hedging or swap agreements.
"Indemnified Party" has the meaning set forth in Section 9.1(a).
"Indemnified Party Claim" has the meaning set forth in Section 9.1(b).
"Independent Accountants" has the meaning set forth in Section 2.5.
"Insider" means (i) a shareholder, officer, director or employee of the
Company or any Subsidiary, (ii) any Member of the Immediate Family of any
shareholder, officer, director or employee of the Company or any Subsidiary or
(iii) any entity in which any of the Persons described in clause (i) or (ii)
owns any beneficial interest (other than less than one percent of the
outstanding shares of capital stock of any corporation whose stock is listed on
a national securities exchange.
"Intellectual Property Rights" means (i) rights in patents, patent
applications and patentable subject matter, whether or not the subject of an
application, (ii) rights in trademarks, service marks, trade names, trade dress
and other designators of origin, registered or unregistered, (iii) rights in
copyrightable subject matter or protectable designs, registered or unregistered,
(iv) trade secrets, (v) rights in internet domain names, uniform resource
locators and e-mail addresses, (vi) know-how and (vii) all other intellectual
and industrial property rights of every kind and nature and however designated,
whether arising by operation of Law, Contract, license or otherwise.
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"IRS" means the United States Internal Revenue Service.
"Knowledge" with respect to Sellers means the knowledge of any Seller
or any knowledge that should have been acquired by any such Person had such
Person acted in a commercially reasonable manner.
"Last Fiscal Year End" has the meaning set forth in Section 4.6.
"Latest Balance Sheet" has the meaning set forth in Section 4.6.
"Latest Balance Sheet Date" has the meaning set forth in Section 4.6.
"Latest Financial Statements" has the meaning set forth in Section 4.6.
"Law" means any constitution, law, ordinance, principle of common law,
regulation, statute or treaty of any Governmental Entity.
"Leak" means any actual or threatened release, spill, emission,
leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal,
leaching or migration into or through the environment or within any building,
structure, facility or fixture.
"Leased Real Property" has the meaning set forth in Section 4.10(c).
"Liability" means any liability or obligation whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due,
whether known or unknown, and regardless of when asserted.
"Licensed-In Intellectual Property Rights" means Third-Party
Intellectual Property Rights used or held for use by the Company or any
Subsidiary with the permission of the owner.
"Litigation" means any claim, action, arbitration, mediation, audit,
hearing, investigation, proceeding, litigation or suit (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted or
heard by or before, or otherwise involving, any Governmental Entity or
arbitrator or mediator.
"Long-Term Liabilities Adjustment" means an amount equal to $6,600,000
less Closing Long-Term Liabilities. The Long-Term Liabilities Adjustment may
only be a positive number, it being understood that an adjustment will result in
an increase in the Purchase Price.
"Loss" means any Litigation, Governmental Order, complaint, claim,
demand, damage, deficiency, penalty, fine, cost, amount paid in settlement,
liability, obligation, Tax, Encumbrance, loss, expense or fee, including court
costs and attorneys' fees and expenses.
"Material Adverse Effect" means any change, effect, event or condition,
individually or in the aggregate, that has had, or, with the passage of time,
could have, a material adverse effect on the business, assets, properties,
condition (financial or otherwise), results of operations or prospects of the
Company and its Subsidiaries, taken as a whole.
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"Material Contracts" has the meaning set forth in Section 4.15(a).
"▇▇▇▇▇▇▇▇ Guarantor" and "▇▇▇▇▇▇▇▇ Seller" each have the respective
meanings set forth in the first paragraph of this Agreement.
"Member of the Immediate Family" of a Person means a spouse, parent,
child, sibling, mother- or father-in-law, son- or daughter-in-law, and brother-
or sister-in-law of such Persons.
"New Office Expenditures" means expenditures by the Company prior to
the Closing Date for leasehold improvements and furniture, fixtures and
equipment related to the Company's headquarters.
"New Office Expenditures Adjustment" means an amount equal to New
Office Expenditures, not to exceed $200,000. Any adjustment will result in an
increase in the Purchase Price.
"Notice of Objection" has the meaning set forth in Section 2.5.
"Off-the-Shelf Software" means Software that is widely commercially
available.
"Ordinary Course of Business" means the ordinary course of business of
the Company and the Subsidiaries consistent with past custom and practice
(including with respect to quantity and frequency) as it has been conducted
since the Last Fiscal Year End.
"Organizational Documents" means (i) the articles or certificate of
incorporation and the bylaws of a corporation, (ii) the partnership agreement
and any statement of partnership of a general partnership, (iii) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership, (iv) the limited liability company agreement and articles or
certificate of formation of a limited liability company, (v) any charter or
similar document adopted or filed in connection with the creation, formation or
organization of a Person and (vi) any amendment to any of the foregoing.
"Owned Intellectual Property Rights" means Intellectual Property Rights
owned by the Company or any Subsidiary.
"Owned Real Property" has the meaning set forth in Section 4.10(b).
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Common Stock" has the meaning set forth in Section 2.2.
"Parent Common Stock Price" means the average closing price of Parent
Common Stock on the NASDAQ Global Market for the ten trading days ending on the
third trading day immediately preceding the Closing Date.
"Pay-Off Letters" has the meaning set forth in Section 2.6.
6
"Permitted Encumbrances" means (i) Encumbrances for Taxes and other
governmental charges and assessments (except assessments for public improvements
levied, pending or deferred against the Owned Real Property) that are not yet
due and payable or which are being contested in good faith by appropriate
proceedings (provided required payments have been made in connection with any
such contest), (ii) Encumbrances of carriers, warehousemen, mechanics' and
materialmen and other like Encumbrances arising in the Ordinary Course of
Business (provided lien statements have not been filed as of the Closing Date),
(iii) easements, rights of way and restrictions, zoning ordinances and other
similar Encumbrances affecting the Real Property and which do not unreasonably
restrict the use thereof or Buyer's proposed use thereof in the Ordinary Course
of Business, (iv) statutory Encumbrances in favor of lessors arising in
connection with any property leased to the Company or any Subsidiary, (v)
Encumbrances reflected in the Latest Financial Statements or arising under
Material Contracts and (vi) Encumbrances that will be removed prior to or in
connection with the Closing.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, Governmental
Entity or other entity.
"Plan" means every plan, fund, contract, program and arrangement
(whether written or not) for the benefit of present or former employees,
including those intended to provide (i) medical, surgical, health care,
hospitalization, dental, vision, workers' compensation, life insurance, death,
disability, legal services, severance, sickness or accident benefits (whether or
not defined in Section 3(1) of ERISA), (ii) pension, profit sharing, stock
bonus, retirement, supplemental retirement or deferred compensation benefits
(whether or not tax qualified and whether or not defined in Section 3(2) of
ERISA) or (iii) salary continuation, unemployment, supplemental unemployment,
severance, termination pay, change-in-control, vacation or holiday benefits
(whether or not defined in Section 3(3) of ERISA), (w) that is maintained or
contributed to by the Company, any Subsidiary or a Professional Corporation, (x)
that the Company, any Subsidiary or a Professional Corporation has committed to
implement, establish, adopt or contribute to in the future, (y) for which the
Company, any Subsidiary or a Professional Corporation is or may be financially
liable as a result of the direct sponsor's affiliation with the Company, its
Subsidiaries, a Professional Corporation or the Company's shareholders (whether
or not such affiliation exists at the date of this Agreement and notwithstanding
that the Plan is not maintained by the Company, any Subsidiary or any
Professional Corporation for the benefit of its employees or former employees)
or (z) for or with respect to which the Company, any Subsidiary or any
Professional Corporation is or may become liable under any common law successor
doctrine, express successor liability provisions of Law, provisions of a
collective bargaining agreement, labor or employment Law or agreement with a
predecessor employer. Plan does not include any arrangement that has been
terminated and completely wound up prior to the date of this Agreement and for
which neither the Company, any Subsidiary or any Professional Corporation has
any present or potential liability.
"Pre-Closing Tax Period" has the meaning set forth in Section 7.1(d).
"Professional Corporation" means an entity organized to practice
medicine as a professional corporation and whose shareholders are physicians
7
licensed to practice in the jurisdiction where the entity is organized and such
entity is either (i) under contract with the Company for management services or
is (ii) owned by the Company.
"Proposed Closing Statement" has the meaning set forth in Section 2.5.
"Purchase Price" has the meaning set forth in Section 2.2.
"Real Property" has the meaning set forth in Section 4.10(c).
"Registered Intellectual Property Rights" means Intellectual Property
Rights that are the subject of a pending application or an issued patent,
trademark, copyright, design right or other similar registration formalizing
exclusive rights.
"Remedies Exception," when used with respect to any Person, means
except to the extent enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally and by general equitable principles.
"Repaid Closing Indebtedness" has the meaning set forth in Section 2.6.
"Return" means any return, declaration, report, estimate, information
return or statement, and any attachments or schedules thereto, pertaining to any
Taxes.
"SEC" means the United States Securities and Exchange Commission.
"Seller" has the meaning set forth in the first paragraph of this
Agreement.
"Sellers Percentage Interest" shall mean the relative ownership
interest of each Seller in the Company as shown on Schedule 2.4(c).
"Sellers' Representative" has the meaning set forth in the first
paragraph of this Agreement.
"Shares" has the meaning set forth in Section 2.1.
"Software" means computer programs or data in computerized form,
whether in object code, source code or other form.
"Stock Amount" has the meaning set forth in Section 2.2.
"Straddle Period" has the meaning set forth in Section 7.1(c).
"Subsidiary" means any Person in which any ownership interest is owned,
directly or indirectly, by another Person. When used without reference to a
particular entity, Subsidiary means a Subsidiary of the Company.
"Tax Affiliate" means each of the Company and the Subsidiaries, any
other Person that is or was a member of an affiliated, combined or unitary group
of which the Company or any Subsidiary is or was a member, and any such
affiliated, combined or unitary group.
8
"Tax Claim" has the meaning set forth in Section 7.1(d).
"Taxes" means all taxes, charges, fees, levies or other assessments,
including all net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment, social
security, unemployment, excise, estimated, severance, stamp, occupation,
property or other taxes, customs duties, fees, assessments or charges of any
kind whatsoever, including all interest and penalties thereon, and additions to
tax or additional amounts imposed by any Governmental Entity upon the Company or
any Tax Affiliate.
"Third-Party Action" has the meaning set forth in Section 9.2.
"Third-Party Intellectual Property Rights" means Intellectual Property
Rights in which a Person other than the Company or a Subsidiary has any
ownership interest.
"Transfer Taxes" has the meaning set forth in Section 7.2.
"Treasury Regulations" means the rules and regulations under the Code.
"WARN Act" means the Worker Adjustment and Retraining Notification Act
of 1988, as amended.
"Work Permits" has the meaning set forth in Section 4.21(c).
II. Purchase of Shares and Closing
2.1 Purchase and Sale. At the Closing and on the terms and subject to
the conditions set forth in this Agreement, Sellers agree to sell to Buyer, and
Buyer agrees to purchase from Sellers, all of the issued and outstanding shares
(the "Shares") of common stock, no par value of the Company ("Company Common
Stock").
2.2 Purchase Price. The aggregate consideration for the Shares (the
"Purchase Price") is (a) TWENTY-EIGHT MILLION DOLLARS ($28,000,000), plus (b)
the Earn-Out Payments, if any, minus (c) the Closing Working Capital Adjustment,
if any, plus (d) the difference, if any, between the Stock Amount and the value
of the Parent Common Stock issued pursuant to the next sentence. The Purchase
Price shall consist of TWENTY-FOUR MILLION DOLLARS ($24,000,000) in cash (the
"Cash Amount) and that number of shares of common stock, par value $.01 per
share, of Parent ("Parent Common Stock"), rounded to the nearest whole share,
having an aggregate value, based on the Parent Common Stock Price, equal to FOUR
MILLION DOLLARS ($4,000,000) (the "Stock Amount").
2.3 Escrow Funds. At the Closing, Buyer, Sellers' Representative and
▇▇▇▇▇ Fargo Bank, National Association, the ("Escrow Agent") shall enter into an
escrow agreement, substantially in the form of Exhibit A hereto (the "Escrow
Agreement"), pursuant to which TWO MILLION FIVE HUNDRED THOUSAND Dollars
($2,500,000) (the "Escrow Funds") shall be deposited into escrow for the purpose
of providing funds for any payments due to Buyer after the Closing pursuant to
Section 2.5, Article VII or Article IX.
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2.4 The Closing.
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(a) The closing of the transactions contemplated by this Agreement (the
"Closing") will take place on the date of this Agreement (the "Closing Date") at
the offices of IntegraMed America, Inc. at Two ▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ at 2:00 p.m. New York City time, or at such other place and on
such other date as may be mutually agreed by Sellers' Representative and Buyer,
in which case Closing Date means the date so agreed.
(b) Subject to the conditions set forth in this Agreement, on the
Closing Date:
(i) Sellers will deliver to Buyer:
(A) certificates representing all of the Shares, free and
clear of all Encumbrances, duly endorsed or accompanied by duly
executed stock powers;
(B) a certificate of Sellers dated the Closing Date stating
that the conditions set forth in Sections 8.1(a) through 8.1(k)
have been satisfied;
(C) a copy of the text of the resolutions adopted by the
board of directors of the Company authorizing the execution,
delivery and performance of this Agreement, certified by an
appropriate officer of the Company;
(D) the minute books, stock transfer records, corporate seal
and other materials related to the corporate administration of
the Company and any Subsidiary;
(E) resignations in writing (effective as of the Closing
Date) from such of the officers and directors of each of the
Company and the Subsidiaries as Buyer may have requested prior
to the Closing Date;
(F) duly executed copies of all Required Consents;
(G) a copy, duly executed by each Seller of a Voting
Agreement in the form of Exhibit B;
(H) evidence of payment or cancellation of indebtedness of
the Company that is to be canceled prior to the Closing Date, as
well as duly executed copies of all agreements, instruments,
certificates and other documents necessary or appropriate, in
the opinion of Buyer's counsel, to release any and all
Encumbrances against the assets of the Company, other than
Permitted Encumbrances;
(I) a duly executed FIRPTA Statement;
(J) long-form certificates dated as of a date not earlier
than the second business day prior to the Closing as to the good
standing of the Company executed by the appropriate officials of
10
the State of Delaware and each jurisdiction in which the Company
is licensed or qualified to do business as a foreign corporation
as specified in Schedule 4.1;
(K) the Escrow Agreement, duly executed by Sellers'
Representative;
(L) an opinion of ▇▇▇▇▇▇▇▇▇ Will & ▇▇▇▇▇ LLP, addressed to
Buyer and Parent, substantially in the form of Exhibit C hereto;
(M) such other certificates, documents and instruments that
Buyer reasonably requests for the purpose of (1) evidencing the
accuracy of the Sellers' representations and warranties, (2)
evidencing the performance and compliance by Sellers with
agreements contained in this Agreement, (3) evidencing the
satisfaction of any condition referred to in Section 8.1 or (4)
otherwise facilitating the consummation of the transactions
contemplated by this Agreement;
(ii) Buyer and Parent will deliver to Sellers' Representative:
(A) a certificate of Buyer dated the Closing Date stating
that the conditions set forth in Section 8.2(a) through 8.2(e)
have been satisfied;
(B) a copy of the texts of the resolutions adopted by the
boards of directors of each of Buyer and Parent authorizing the
execution, delivery and performance of this Agreement, certified
by an appropriate officer of Buyer and Parent, respectively;
(C) a copy of the text of resolutions adopted by the sole
shareholder of Buyer approving the purchase of the Shares,
certified by an appropriate officer of Buyer;
(D) the Escrow Agreement, duly executed by Buyer;
(E) the Voting Agreement, duly executed by Parent; and
(F) such other certificates, documents and instruments that
the Company reasonably requests for the purpose of (1)
evidencing the accuracy of Buyer's and Parent's representations
and warranties, (2) evidencing the performance and compliance by
Buyer and Parent with agreements contained in this Agreement,
(3) evidencing the satisfaction of any condition referred to in
Section 8.2 or (4) otherwise facilitating the consummation of
the transactions contemplated by this Agreement.
(c) Subject to the conditions set forth in this Agreement, on the
Closing Date Buyer shall (i) pay and deliver the Cash Amount less the Escrow
Funds to the Sellers in accordance with their Stockholders Percentage Interest
by means of a wire transfer of immediately available cash funds to such accounts
as are directed by Sellers' Representative prior to the Closing and (ii) shall
deliver the Stock Amount to the Sellers in accordance with their Sellers
Percentage Interest, in each case, upon surrender to the Buyer of stock
11
certificates, representing all of the outstanding capital stock of the Company
duly endorsed in blank or accompanied by a stock transfer power duly endorsed in
blank.
Each certificate representing Parent Common Stock issued pursuant to
this Agreement will be imprinted with legends substantially in the following
form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE
RESTRICTIONS CONTAINED IN THAT CERTAIN VOTING AGREEMENT, DATED AS OF [AUGUST 8],
2007, BY AND AMONG THE STOCKHOLDERS NAMED THEREIN AND INTEGRAMED AMERICA, INC.
(d) All items delivered by the parties at the Closing will be deemed to
have been delivered simultaneously, and no items will be deemed delivered or
waived until all have been delivered.
2.5 Determination of Post-Closing Adjustments. (a) Within 90 days after
the Closing Date, Buyer shall prepare and deliver to Sellers' Representative a
statement setting forth its determination of the Closing Working Capital, the
Closing Long-Term Liabilities and the New Office Expenditures (the "Proposed
Closing Statement"). During the 15 days immediately following delivery of the
Proposed Closing Statement, Sellers' Representative shall be entitled to review
the Proposed Closing Statement and any working papers, trial balances and
similar materials relating to the Proposed Closing Statement prepared by Buyer,
and Buyer shall provide Sellers' Representative with access at the Company's
principal office, during normal business hours, to the Company's personnel,
properties, books and records. The Proposed Closing Statement shall become final
and binding (the "Agreed Closing Statement") upon the parties hereto on the
sixteenth day following receipt thereof by Sellers' Representative, unless
Sellers' Representative gives written notice to Buyer of its objection to the
Proposed Closing Statement (a "Notice of Objection") prior to such sixteenth
day. Any Notice of Objection shall specify in reasonable detail the nature of
any objection so asserted.
(b) During the 15 days immediately following the delivery of any Notice
of Objection, Buyer and Sellers' Representative shall seek in good faith to
resolve in writing any differences which they may have with respect to any
matter specified in such Notice of Objection. During such period, Buyer and
Sellers' Representative shall each have access to the other party's working
papers, trial balances and similar materials prepared in connection with the
other party's preparation of the Proposed Closing Statement and the Notice of
Objection, as the case may be. The matters set forth in any such written
resolution shall be final and binding on the parties hereto on the date of such
written resolution.
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At the end of the fifteen day period referred to in this Section
2.5(b), the parties shall mutually engage and submit such dispute to, and the
same shall be finally resolved in accordance with the provisions of this
Agreement by, the New York, New York office of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, or such other
accounting firm of national reputation as shall be mutually acceptable to Buyer
and Sellers' Representative (the "Independent Accountants"). The Independent
Accountants shall determine and report in writing to Buyer and Sellers'
Representative as to the resolution of all disputed matters submitted to the
Independent Accountants and the effect of such determinations on the Proposed
Closing Statement within 20 days after such submission or such longer period as
the Independent Accountants may reasonably require, and such determinations
shall be final, binding and conclusive as to Buyer, Parent, Sellers, Sellers'
Representative and their respective Affiliates. The statements setting forth
such final and binding determinations as of the Closing Date are hereinafter
referred to as the "Final Closing Statement". The fees and disbursements of the
Independent Accountants shall be payable one-half by Buyer, on the one hand, and
one-half by Sellers' Representative, on the other hand.
(c) If the Closing Working Capital Adjustment as of the Closing Date
set forth in the Agreed Closing Statement or the Final Closing Statement, as the
case may be, is a negative number, then Sellers' Representative and Buyer shall
direct the escrow agent under the Escrow Agreement to distribute to Buyer an
amount equal to the positive of such negative number from the Escrow Account. If
either the Closing Working Capital Adjustment, the Long-Term Liabilities
Adjustment or the New Office Expenditures Adjustment as of the Closing Date set
forth in the Agreed Closing Statement or the Final Closing Statement, as the
case may be, is a positive number, then Buyer shall pay the Sellers such amount
(pro rata according to their respective Sellers Percentage Interest).
2.6 Payment of Indebtedness. Buyer will pay, or cause to be paid, in
full at or immediately following the Closing, the Indebtedness of the Company
and its Subsidiaries identified on Schedule 2.6, including any legal fees and
prepayment penalties associated with such Indebtedness, (collectively, the
"Repaid Closing Indebtedness"), with the result that immediately following the
Closing there will be no further obligations (monetary or otherwise) of the
Company and its Subsidiaries with respect to any such Repaid Closing
Indebtedness outstanding immediately prior to the Closing. In order to
facilitate such repayment, as soon as practicable before the Closing, Sellers'
Representative shall cause the Company and its Subsidiaries to obtain customary
payoff letters for the repayment of such Indebtedness and such other documents
reasonably requested by Buyer, including recordable form lien releases, which
payoff letters will be in a commercially reasonable form and shall indicate that
such lenders have agreed to release immediately all applicable Liens relating to
the assets and properties of the Company and its Subsidiaries, including the
redelivery of all stock certificates held pursuant to any such terminated stock
pledge agreements (collectively, the "Pay-Off Letters").
2.7 Earn-Out Payments. Parent will make the Earn-Out Payments, if any,
pursuant to the terms and conditions set forth in Exhibit D.
2.8 Sellers' Representative.
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(a) Sellers appoint Kush ▇. ▇▇▇▇▇▇▇ (or any Person appointed as a
successor Sellers' Representative pursuant to Section 2.8) as their
representative and agent under this Agreement and the Escrow Agreements.
(b) Until all obligations under this Agreement have been discharged
(including all indemnification obligations under Article IX), Sellers who are
entitled to receive more than 50% of the Purchase Price, may, from time to time
upon written notice to Sellers' Representative and Buyer, remove Sellers'
Representative or appoint a new Sellers' Representative upon the death,
incapacity, resignation or removal of Sellers' Representative. If, after the
death, incapacity, resignation or removal of Sellers' Representative, a
successor Sellers' Representative has not been appointed by Sellers within 15
business days after a request by Buyer, Buyer will have the right to appoint a
Sellers' Representative to fill any vacancy so created by written notice of such
appointment to Sellers.
(c) Sellers authorize Sellers' Representative to take any action and to
make and deliver any certificate, notice, consent or instrument required or
permitted to be made or delivered under this Agreement or under the documents
referred to in this Agreement, to waive any requirements of this Agreement or to
enter into one or more amendments or supplements to this Agreement that Sellers'
Representative determines in Sellers' Representative's sole and absolute
discretion to be necessary, appropriate or advisable, which authority includes
the execution and delivery of the Escrow Agreements on behalf of Sellers and any
amendments or supplements thereto and the performance of all obligations
thereunder, including authority to collect and pay funds and dispute, settle,
compromise and make all claims. The authority of Sellers' Representative
includes the right to hire or retain, at the sole expense of Sellers, such
counsel, investment bankers, accountants, representatives and other professional
advisors as Sellers' Representative determines in Sellers' Representative sole
and absolute discretion to be necessary, appropriate or advisable in order to
perform this Agreement and the Escrow Agreement. Any party will have the right
to rely upon any action taken by Sellers' Representative, and to act in
accordance with such action without independent investigation.
(d) Buyer will have no liability to any Seller arising out of the acts
or omissions of Sellers' Representative or any disputes among Sellers or with
Sellers' Representative. Buyer may rely entirely on its dealings with, and
notices to and from, Sellers' Representative to satisfy any obligations it might
have under this Agreement, the Escrow Agreement or any other agreement referred
to in this Agreement or otherwise to Sellers.
Sellers' Representative accepts the appointment made by this Section
2.8 and agrees to abide by the provisions of this Section 2.8.
2.9 Further Assurances
(a) On and after the Closing Date, Sellers will take all appropriate
action and execute any documents, instruments or conveyances of any kind that
may be reasonably requested by Buyer to carry out any of the provisions of this
Agreement.
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III. Representations and Warranties of Sellers
Each Seller, jointly and severally, represents and warrants to Buyer
and Parent that, except as described in the Disclosure Schedule, as of the date
of this Agreement and as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement):
3.1 Title to Shares. Sellers own, of record and beneficially, all of
the Shares, free and clear of any Encumbrance. Such Shares constitute all of the
issued and outstanding capital stock of the Company. At Closing, Buyer will
obtain good and valid title to the Shares, of record and beneficially, free and
clear of any Encumbrance.
3.2 Incorporation; Power and Authority. If such Seller is not a natural
Person, it is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization. Such Seller has all necessary
power and authority to execute, deliver and perform this Agreement, the Escrow
Agreement and the Voting Agreement.
3.3 Valid and Binding Agreements. If such Seller is not a natural
Person, the execution, delivery and performance of this Agreement and the Escrow
Agreement by such Seller has been duly and validly authorized by all necessary
corporate or equivalent action. Each of this Agreement and the Escrow Agreement
has been duly executed and delivered by each Seller and constitutes the valid
and binding obligation of each Seller, enforceable against each Seller in
accordance with its terms, subject to the Remedies Exception. This Agreement has
been duly executed and delivered by each Guarantor and constitutes the valid and
binding obligation of each Guarantor, enforceable against each Guarantor in
accordance with its terms, subject to the Remedies Exception.
3.4 No Claims. As of the date hereof, no claim, suit, action,
proceeding or governmental investigation is pending or, to the Knowledge of
Sellers, threatened, against any Seller or any of its Affiliates relating to
this Agreement.
3.5 No Breach; Consents. The execution, delivery and performance of
this Agreement and the Escrow Agreement by Sellers will not (a) violate or
conflict with any Law, Governmental Order or Governmental Authorization; (b)
conflict with, result in any breach of any of the provisions of, constitute a
default (or any event that would, with the passage of time or the giving of
notice or both, constitute a default) under, result in a violation of, increase
the burdens under, result in the termination, amendment, suspension,
modification, abandonment or acceleration of payment (or any right to terminate)
or require a Consent under any Contract or Governmental Authorization that is
either binding upon or enforceable against any Seller or any Governmental
Authorization that is held by the Company; (c) result in the creation of any
Encumbrance upon the Shares; (d) require any Governmental Authorization; (e)
give any Governmental Entity or other Person the right to challenge any of the
contemplated transactions or to exercise any remedy or obtain any relief under
any Law, Governmental Order or Governmental Authorization; (f) cause Buyer or
Parent to become subject to, or to become liable for the payment of, any Tax.
15
3.6 Brokerage. Except as listed on Schedule 4.27, no Person will be
entitled to receive any brokerage commission, finder's fee, fee for financial
advisory services or similar compensation in connection with the transactions
contemplated by this Agreement based on any Contract made by or on behalf of
Sellers for which Buyer or the Company is or could become liable or obligated.
3.7 Investment Intent. Each Seller (a) understands that the Parent
Common Stock has not been, and will not be, registered under the Securities Act
or under any state securities laws, are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering
and will contain a legend restricting transfer; (b) is acquiring shares of
Parent Common Stock solely for such Seller's own account for investment
purposes, and not with a view to the distribution thereof; (c) is a
sophisticated investor with knowledge and experience in business and financial
matters; (d) has received certain information concerning Buyer and has had the
opportunity to obtain additional information as desired in order to evaluate the
merits and the risks inherent in holding the Parent Common Stock; (e) is able to
bear the economic risk and lack of liquidity inherent in holding the Parent
Common Stock; and (f) is an "Accredited Investor" as that term is defined under
Rule 501 of the Securities Act of 1933.
IV. Representations and Warranties Regarding the Company
Each Seller, jointly and severally, represents and warrants to Buyer
and Parent that, except as described in the Disclosure Schedule, as of the date
of this Agreement and as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement):
4.1 Incorporation; Power and Authority.
(a) Each of the Company and the Subsidiaries is a legal entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and has all necessary power and authority
necessary to own, lease and operate its assets and to carry on its business as
conducted. Each of the Company and the Subsidiaries is duly qualified to do
business as a foreign corporation in each jurisdiction in which the nature of
its business or its ownership of property requires it to be so qualified.
Schedule 4.1 lists, for each of the Company and the Subsidiaries, the
jurisdiction of its organization, its form as a legal entity and each
jurisdiction in which it is so qualified.
(b) Each of the Company and the Subsidiaries is in full compliance with
all provisions of its Organizational Documents.
4.2 Valid and Binding Agreement. The execution, delivery and
performance of this
Agreement by the Company has been duly and validly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable against it in accordance with its terms, subject to the Remedies
Exception.
4.3 No Breach; Consents. The execution, delivery and performance of
this Agreement by the Company will not (a) contravene any provision of the
Organizational Documents of the Company or any Subsidiary; (b) violate or
16
conflict with any Law, Governmental Order or Governmental Authorization; (c)
conflict with, result in any breach of any of the provisions of, constitute a
default (or any event that would, with the passage of time or the giving of
notice or both, constitute a default) under, result in a violation of, increase
the burdens under, result in the termination, amendment, suspension,
modification, abandonment or acceleration of payment (or any right to terminate)
or require a Consent under any Contract that is either binding upon or
enforceable against the Company or any Subsidiary or any Governmental
Authorization that is held by the Company or any Subsidiary; (d) result in the
creation of any Encumbrance upon the Company or any Subsidiary or any of the
assets of the Company or any Subsidiary; (e) require any Governmental
Authorization; (f) give any Governmental Entity or other Person the right to
challenge any of the contemplated transactions or to exercise any remedy or
obtain any relief under any Law, Governmental Order or Governmental
Authorization; or (g) cause Buyer to become subject to, or to become liable for
the payment of, any Tax.
4.4 Capitalization.
The authorized capital stock of the Company consists solely of 50
Common Voting Shares and 4,950 Common Non-Voting Shares of the Company of which
24.52 Common Voting Shares and 2,427.48 Common Non-Voting Shares are issued and
outstanding, none of which are held in treasury. Schedule 4.4 lists the share
certificate numbers, repurchase or redemption rights for the Shares in favor of
the Company, the vesting schedule and forfeiture provisions for any of such
shares that are "restricted stock," and the extent to which vesting will or may
be accelerated by the transactions contemplated by this Agreement and any
limitations on the ability of the holder of such capital stock to vote or
dispose of such shares. All of the Shares are duly authorized, validly issued,
fully paid and nonassessable, free of preemptive rights or any other third-party
rights and in certificated form, and have been offered, sold and issued by the
Company in compliance with applicable securities and corporate Laws, Contracts
applicable to the Company and the Company's Organizational Documents and in
compliance with any preemptive rights, rights of first refusal or similar
rights. The rights and privileges of the Company Common Stock are set forth in
the Company's Organizational Documents or otherwise provided by Law. Except as
listed on Schedule 4.4, there is no option, warrant, call, subscription,
convertible security, right (including preemptive right) or Contracts of any
character to which the Company is a party or by which it is bound obligating the
Company to issue, exchange, transfer, sell, repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or obligating the Company to
grant, extend, accelerate the vesting of or enter into any such option, warrant,
call, subscription, convertible security, right or Contract. Except as listed on
Schedule 4.4, there are no outstanding or authorized stock appreciation, phantom
stock or similar rights with respect to the Company. Except as listed on
Schedule 4.4, there are no registration rights agreements, no voting trust,
proxy or other Contract and no restrictions on transfer with respect to any
capital stock of the Company.
4.5 Subsidiaries. Except as listed on Schedule 4.5, neither the Company
nor any Subsidiary owns any Subsidiary. For each of the Company's Subsidiaries,
Schedule 4.5 shows the equity interests owned by the Company or any Subsidiary,
the names of the Persons owning such equity interests and the percentage of the
outstanding equity interests so owned. All issued and outstanding equity
interests of each Subsidiary of the Company are duly authorized, validly issued,
17
fully paid and nonassessable, free of preemptive rights or any other third-party
right, free and clear of all Encumbrances, and in certificated form and have
been offered, sold and issued by such Subsidiary in compliance with applicable
securities and corporate Laws, Contracts applicable to such Subsidiary and such
Subsidiary's Organizational Documents and in compliance with any preemptive
rights, rights of first refusal or similar rights. There is no option, warrant,
call, subscription, convertible security, right (including preemptive rights) or
Contract of any character to which the Company or any Subsidiary is a party or
by which it is bound obligating any Subsidiary of the Company or the Company to
issue, exchange, transfer, sell, repurchase, redeem or otherwise acquire any
equity interest of such Subsidiary or obligating the Company or such Subsidiary
to grant, extend, accelerate the vesting of or enter into any such option,
warrant, call, subscription, convertible security, right or Contract.
4.6 Financial Statements. The unaudited consolidated balance sheet as
of June 30, 2007 ("Latest Balance Sheet Date") of the Company and its
consolidated Subsidiaries and Affiliates (the "Latest Balance Sheet") and the
unaudited consolidated statements of income, changes in shareholders' equity and
cash flows of the Company and its consolidated Subsidiaries and Affiliates for
the quarterly period ended June 30, 2007 and the six-month period then ended
(such statements and the Latest Balance Sheet, the "Latest Financial
Statements") and the audited consolidated balance sheet, as of December 31, 2006
(the "Last Fiscal Year End") and for the each of the prior fiscal year ends, of
the Company and its consolidated Subsidiaries and Affiliates and the audited
consolidated statements of income, changes in shareholders' equity and cash
flows, including the notes, of the Company and its consolidated Subsidiaries and
Affiliates for each of the three years ended on the Last Fiscal Year End
(collectively, the "Annual Financial Statements") are based upon the books and
records of the Company and the Subsidiaries and Affiliates have been prepared in
accordance with GAAP consistently applied during the periods indicated and
present fairly the financial position, results of operations and cash flows of
the Company and its consolidated Subsidiaries and Affiliates on a consolidated
basis at the respective dates and for the respective periods indicated, except
that the Latest Financial Statements may not contain all notes and are subject
to year-end adjustments, none of which are material.
4.7 Absence of Undisclosed Liabilities. Except as reflected or
expressly reserved against in the Latest Balance Sheet, neither the Company nor
any Subsidiary has any Liability, and there is no known basis for any present or
future Litigation, charge, complaint, claim or demand against any of them giving
rise to any Liability, except (a) a Liability that has arisen after the date of
the Latest Balance Sheet in the Ordinary Course of Business and that is not a
Liability for breach of Contract, breach of warranty, tort, infringement,
Litigation or violation of Governmental Order, Governmental Authorization or Law
or (b) obligations under any Contract listed on a Schedule to this Agreement or
under a Contract not required to be listed on such a Schedule.
4.8 Books and Records. The books of account of the Company and the
Subsidiaries are complete and correct and have been maintained in accordance
with sound business practices. Each transaction is properly and accurately
recorded on the books and records of the Company or a Subsidiary, and each
document upon which entries in the Company's or a Subsidiary's books and records
are based is complete and accurate in all respects. The Company maintains a
system of internal accounting controls adequate to insure that it maintains no
off-the-books accounts and that its assets are used only in accordance with its
management directives. The minute books and stock or equity records of each of
the Company and the Subsidiaries, all of which have been made available to
Buyer, are complete and correct. The minute books of each of the Company and the
18
Subsidiaries contain accurate records of all meetings held and actions taken by
the holders of stock or equity interests, the boards of directors and committees
of the boards of directors or other governing body of each of the Company and
the Subsidiaries, and no meeting of any such holders, boards of directors or
other governing body or committees has been held for which minutes are not
contained in such minute books. At the Closing, all such books and records will
be in the possession of the Company.
4.9 Absence of Certain Developments. Except as listed on Schedule 4.9,
since the Last Fiscal Year End:
(a) there has not been any Material Adverse Effect;
(b) neither the Company nor any Subsidiary has sold, leased, licensed,
transferred or assigned any of its assets, tangible or intangible, other than
for a fair consideration in the Ordinary Course of Business;
(c) neither the Company nor any Subsidiary has entered into any
Contract (or series of related Contracts) either involving more than $15,000 or
outside the Ordinary Course of Business;
(d) no party (including the Company or any Subsidiary) has accelerated,
suspended, terminated, modified or canceled any Contract to which the Company or
any Subsidiary is a party or by which any of them is bound that would have been
a Material Contract at the time of any such action;
(e) no Encumbrance has been imposed on any assets of the Company or any
Subsidiary except Permitted Encumbrances;
(f) neither the Company nor any Subsidiary has made any capital
expenditure (or series of related capital expenditures) either involving more
than $15,000 or outside the Ordinary Course of Business;
(g) neither the Company nor any Subsidiary has made any capital
investment in, any loan to, or any acquisition of the securities or assets of,
any other Person (or series of related capital investments, loans and
acquisitions) outside the Ordinary Course of Business or acquired (by merger,
exchange, consolidation, acquisition of stock or assets or otherwise) any
Person;
(h) neither the Company nor any Subsidiary has issued any note, bond or
other debt security or created, incurred, assumed or guaranteed any indebtedness
for borrowed money (including advances on existing credit facilities) or Capital
Lease;
(i) neither the Company nor any Subsidiary has delayed, postponed or
accelerated the payment of accounts payable or other Liability or the receipt of
any accounts receivable, in each case outside the Ordinary Course of Business;
19
(j) neither the Company nor any Subsidiary has canceled, compromised,
waived or released any right or claim (or series of related rights or claims)
outside the Ordinary Course of Business; (k) except incidental to the sale of
products or services, neither the Company nor any Subsidiary has granted any
license or sublicense of any rights under or with respect to any Intellectual
Property Rights;
(l) there has been no change made or authorized in the Organizational
Documents of the Company or any Subsidiary;
(m) neither the Company nor any Subsidiary has issued, sold or
otherwise disposed of any of its capital stock or equity interests, or granted
any options, warrants or other rights to purchase or obtain (including upon
conversion, exchange or exercise) any of its capital stock;
(n) neither the Company nor any Subsidiary has declared, set aside or
paid any dividend or made any distribution with respect to its capital stock or
equity interests (whether in cash or in kind) or redeemed, purchased or
otherwise acquired any of its capital stock or split, combined or reclassified
any outstanding shares of its capital stock;
(o) neither the Company nor any Subsidiary has experienced any damage,
destruction or loss (whether or not covered by insurance) to its property;
(p) neither the Company nor any Subsidiary has entered into any
employment or collective bargaining agreement, written or oral, or modified the
terms of any such existing agreement;
(q) neither the Company nor any Subsidiary has granted any increase in
the base compensation or made any other change in employment terms of any of its
directors, officers or employees outside the Ordinary Course of Business;
(r) neither the Company nor any Subsidiary has adopted, amended,
modified or terminated any Plan (or taken any such action with respect to any
Plan);
(s) neither the Company nor any Subsidiary has discharged or satisfied
any Encumbrance or paid any liability, other than current liabilities paid in
the Ordinary Course of Business;
(t) neither the Company nor any Subsidiary has disclosed, to any Person
other than Buyer and authorized representatives of Buyer, any proprietary
confidential information, other than pursuant to a confidentiality agreement
prohibiting the use or further disclosure of such information, which agreement
is listed on Schedule 4.9 and is in full force and effect;
(u) neither the Company nor any Subsidiary has made any change in
accounting principles or practices from those utilized in the preparation of the
Annual Financial Statements; and
(v) neither the Company nor any Subsidiary has committed to take any of
the actions described in this Section 4.9.
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4.10 Property.
(a) The real properties owned by the Company or any Subsidiary or
demised by the leases listed on Schedule 4.10 constitute all of the real
property owned, leased (whether or not occupied and including any leases
assigned or leased premises sublet for which the Company remains liable), used
or occupied by the Company or any Subsidiary.
(b) The Company or a Subsidiary owns good and marketable title to each
parcel of real property identified on Schedule 4.10 as being owned by the
Company or a Subsidiary (the "Owned Real Property"), free and clear of all
Encumbrances, except for Permitted Encumbrances and Encumbrances listed on
Schedule 4.10.
(c) The leases of real property listed on Schedule 4.10 as being leased
by the Company or any Subsidiary (the "Leased Real Property" and together with
the Owned Real Property, the "Real Property") and are in full force and effect,
and the Company or a Subsidiary holds a valid and existing leasehold interest
under each of the leases for the term listed on Schedule 4.10. To the Knowledge
of Sellers, the Leased Real Property is subject to no ground lease, master
lease, mortgage, deed of trust or other Encumbrance or interests that would
entitle the holder thereof to interfere with or disturb use or enjoyment of the
Leased Real Property or the exercise by the lessee of its rights under such
lease so long as the lessee is not in default under such lease.
(d) To the Knowledge of Sellers, each parcel of Real Property has
access sufficient for the conduct of the business as conducted or as proposed to
be conducted by the Company or any Subsidiary on such parcel of Real Property to
public roads and to all utilities, including electricity, sanitary and storm
sewer, potable water, natural gas, telephone, fiberoptic, cable television, and
other utilities used in the operation of the business at that location. To the
Knowledge of Sellers, the zoning for each parcel of Real Property permits the
existing improvements and the continuation of the business being conducted
thereon as a conforming use. To the Knowledge of Sellers, neither the Company
nor any Subsidiary is in violation of any applicable zoning ordinance or other
Law relating to the Real Property, and neither the Company nor any Subsidiary
has received any notice of any such violation or the existence of any
condemnation or other proceeding with respect to any of the Real Property. To
the Knowledge of Sellers, the buildings and other improvements are located
within the boundary lines of each parcel of Real Property and do not encroach
over applicable setback lines.
(e) To the Knowledge of Sellers, there are no improvements made or
contemplated to be made by any Governmental Entity, the costs of which are to be
assessed as assessments, special assessments, special Taxes or charges against
any of the Real Property, and there are no present assessments, special
assessments, special Taxes or charges.
(f) Each of the Company and the Subsidiaries has good and marketable
title to, or a valid leasehold interest in, the buildings, machinery, equipment
and other tangible assets and properties used by it, located on its premises or
shown in the Latest Balance Sheet or acquired after the date thereof, free and
clear of all Encumbrances, except for Permitted Encumbrances and Encumbrances
listed on Schedule 4.10 and properties and assets disposed of in the Ordinary
Course of Business since the date of the Latest Balance Sheet.
21
(g) The buildings, improvements, building systems, machinery, equipment
and other tangible assets and properties used in the conduct of the business of
each of the Company and the Subsidiaries are in good condition and repair,
ordinary wear and tear excepted, and are usable in the Ordinary Course of
Business. Each such asset is suitable for the purposes for which it is used and
is proposed to be used, is free from defects (patent and latent), and has been
maintained in accordance with normal industry practices. Each of the Company and
the Subsidiaries owns, or leases under valid leases, all buildings, machinery,
equipment and other tangible assets and properties necessary for the conduct of
its respective business as conducted and as proposed to be conducted.
(h) The fixed asset listing attached as Schedule 4.10(h) includes all
buildings, machinery, equipment and other tangible assets and properties of the
Company and its Subsidiaries as of the date of the Latest Balance Sheet.
(i) The Company owns or leases all of the assets, tangible and
intangible, of any nature whatsoever, necessary to operate the Company's
business in the manner operated by the Company.
4.11 Accounts Receivable.
All notes and accounts receivable of each of the Company and the
Subsidiaries are reflected properly on their books of account, are valid, have
arisen from bona fide transactions in the Ordinary Course of Business, are
subject to no setoff or counterclaim, and are current and collectible. Such
notes and accounts receivable will be collected in accordance with their terms
(none of which is beyond 180 days) at their recorded amounts, subject only to
the reserve for bad debts and contractual allowances on the face of the Latest
Balance Sheet as adjusted in the Company's books of account for the passage of
time through the Closing Date in the Ordinary Course of Business.
4.12 Inventory.
The inventory of the Company and the Subsidiaries is of such quality
and quantity as necessary to conduct the Company's business in the Ordinary
Course of Business.
4.13 Tax Matters.
(a) Each of the Company and any Tax Affiliate has (i) timely filed (or
has had timely filed on its behalf) each Return required to be filed or sent by
it, each of which was correctly completed and accurately reflected any liability
for Taxes of the Company and any Tax Affiliate covered by such Return, (ii)
timely and properly paid (or had paid on its behalf) all Taxes due and payable
for all Tax periods or portions thereof whether or not shown on such Returns,
(iii) established in the Company's books of account, in accordance with GAAP and
consistent with past practices, adequate reserves for the payment of any Taxes
not then due and payable and (iv) complied with all applicable Laws relating to
the withholding of Taxes and the payment thereof.
(b) There are no Encumbrances for Taxes upon any assets of the Company
or any Tax Affiliate, except Encumbrances for Taxes not yet due.
22
(c) Except as listed on Schedule 4.13, neither the Company nor any Tax
Affiliate has requested any extension of time within which to file any Return,
which Return has not since been filed.
(d) No deficiency for any Taxes has been proposed, asserted or assessed
against the Company or any Tax Affiliate that has not been resolved and paid in
full. No waiver, extension or comparable consent given by the Company or any Tax
Affiliate regarding the application of the statute of limitations with respect
to any Taxes or any Return is outstanding, nor is any request for any such
waiver or consent pending. Except as listed on Schedule 4.13, there has been no
Tax audit or other administrative proceeding or court proceeding with regard to
any Taxes or any Return for any Tax year subsequent to the year ended December
31, 2002, nor is any such Tax audit or other proceeding pending, nor has there
been any notice to the Company or any Tax Affiliate by any Governmental Entity
regarding any such Tax, audit or other proceeding, or, to the Knowledge of
Sellers, is any such Tax audit or other proceeding threatened with regard to any
Taxes or Returns. There are no outstanding subpoenas or requests for information
with respect to any of the Returns of the Company or any Tax Affiliate. Neither
the Company nor any Tax Affiliate has entered into a closing agreement pursuant
to Section 7121 of the Code or any similar provision under any other Law.
(e) To the Knowledge of Sellers, no additional Taxes will be assessed
against the Company or any Tax Affiliate for any Tax period or portion thereof
ending on or prior to the Closing Date, and there are no unresolved questions,
claims or disputes concerning the liability for Taxes of the Company or any Tax
Affiliate that would exceed the estimated reserves established on its books of
account.
(f) Neither the Company nor any Tax Affiliate has any liability for
Taxes in a jurisdiction where it does not file a Return, nor has the Company or
any Tax Affiliate received notice from a taxing authority in such a jurisdiction
that it is or may be subject to taxation by that jurisdiction.
(g) No current or former director, officer, employee or consultant of
the Company or any of its Subsidiaries is entitled to any gross-up, make-whole
or other additional payment from the Company or any of its Subsidiaries in
respect of any tax (including Federal, state, local and foreign income, excise
and other taxes (including taxes imposed under sections 4999(a) or 409A of the
Code)) or interest or penalty related thereto.
(h) No property of the Company or any Tax Affiliate is (i) property
that the Company or any Tax Affiliate is or will be required to treat as being
owned by another Person under the provisions of Section 168(f)(8) of the Code
(as in effect prior to amendment by the Tax Reform Act of 1986), (ii)"tax-exempt
use property" within the meaning of Section 168(h) of the Code or (iii)
"tax-exempt bond financed property" within the meaning of Section 168(g)(5) of
the Code.
(i) Neither the Company nor any Tax Affiliate is required to include in
income any adjustment under either Section 481(a) or Section 482 of the Code (or
an analogous provision of Law) by reason of a voluntary change in accounting
method or otherwise, and the IRS has not proposed any such adjustment or change
in accounting method.
23
(j) Neither the Company nor any Tax Affiliate is a party to any Tax
allocation or sharing agreement.
(k) Neither the Company nor any Subsidiary (i) has been a member of an
affiliated group filing a consolidated Return (other than a group the common
parent of which was the Company) or (ii) has any liability for the Taxes of any
Person (other than the Company or any Subsidiary) under Treasury Regulations
Section 1.1502-6 (or any similar provision of Law), as a transferee or
successor, by Contract, or otherwise.
(l) Neither the Company nor any Subsidiary constitutes either a
"distributing corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of shares qualifying for
tax-free treatment under Section 355 of the Code (i) that took place during the
two-year period ending on the date of this Agreement or (ii) that could
otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
purchase of the Shares.
(m) None of the indebtedness of the Company or any Tax Affiliate
constitutes (i) "corporate acquisition indebtedness" (as defined in Section
279(b) of the Code) with respect to which any interest deductions may be
disallowed under Section 279 of the Code or (ii) an "applicable high yield
discount obligation" under Section 163(i) of the Code, and none of the interest
on any such indebtedness will be disallowed as a deduction under any other
provision of the Code.
(n) Neither the Company nor any Tax Affiliate has engaged in any
transaction that is subject to disclosure under present or former Treasury
Regulations Sections 1.6011-4 or 1.6011-4T, as applicable.
(o) Neither the Company nor any Tax Affiliate has been a member of any
partnership or joint venture or the holder of a beneficial interest in any trust
for any period for which the statute of limitations for any Taxes potentially
applicable as a result of such membership or holding has not expired.
(p) The Company validly elected to be an "S corporation" within the
meaning of Sections 1361 and 1362 of the Code for all periods since June 1,
2001, and has maintained its status as an "S corporation" at all times since
such date. The Company has also validly elected to be an "S corporation" in all
state and local jurisdictions which recognize such status and in which it would,
absent such an election, be subject to corporate income Tax, and has maintained
its status as an "S corporation" in each such jurisdiction at all times since
the date of such election. No facts exist, or have existed, which would cause,
or would have caused, the status of the Company as an "S corporation" under
federal, state or local law to be subject to termination or revocation.
(q) Schedule 4.13(q) identifies each Subsidiary that is a "qualified
subchapter S subsidiary" within the meaning of Section 1361(b)(3)(B) of the
Code. Each Subsidiary so identified has been a qualified subchapter S subsidiary
at all times since the date shown on such schedule up to an including the day
prior to the Closing Date.
(r) Neither the Company nor any Subsidiary has, in the past ten (10)
years, (i) acquired assets from another corporation in a transaction in which
24
Company's Tax basis for the acquired assets were 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 (ii) acquired the stock of any
corporation which is a qualified subchapter S subsidiary.
4.14 Intellectual Property Rights.
(a) Schedule 4.14(a)(i) lists and describes all Owned Intellectual
Property Rights that are Registered Intellectual Property Rights and all other
material Owned Intellectual Property Rights. Schedule 4.14(a)(ii) lists all
Contracts relating to Licensed-In Intellectual Property Rights other than
Software and describes the Intellectual Property Rights covered by such
Contracts; to the extent there is no written Contract covering a Licensed-In
Intellectual Property Right, Schedule 4.14(a)(ii) lists the licensor and
describes the Intellectual Property Rights so licensed. Schedule 4.14(a)(iii)
lists all Contracts relating to Licensed-In Intellectual Property Rights that
are Software other than Off-the-Shelf Software and describes the Intellectual
Property Rights covered thereby; to the extent there is no written Contract
covering any Software, Schedule 4.14(a)(iii) lists the licensor and describes
the Software so licensed. Schedule 4.14(a)(iv) lists and describes all materials
otherwise protectable under Intellectual Property Rights used in the business of
the Company or any Subsidiary as now conducted or presently proposed to be
conducted that are in the public domain. The Owned Intellectual Property Rights
and the Licensed-In Intellectual Property Rights constitute all Intellectual
Property Rights necessary for the business of the Company and its Subsidiaries
as conducted or proposed to be conducted.
(b) The Company owns all right, title and interest in the Owned
Intellectual Property Rights free and clear of all Encumbrances (including
royalty or other payments), except for those licenses of the Owned Intellectual
Property Rights to Persons, payments for use of the Owned Intellectual Property
Rights and other Encumbrances listed on Schedule 4.14(b). The Company is the
official and sole owner of record of all Registered Intellectual Property
Rights. No Owned Intellectual Property Right has been infringed by any Person.
The Company or a Subsidiary owns all Intellectual Property Rights developed by
its current and former employees and independent contractors during the period
of their employment or within the scope of their contracting or consulting
relationship, as the case may be, with the Company or any Subsidiary. No
employee or former employee or independent contractor of the Company or any
Subsidiary has any claim with respect to any Intellectual Property Right of the
Company.
(c) All Owned Intellectual Property Rights are valid and enforceable,
and no Person has asserted that any Owned Intellectual Property Right is invalid
or not enforceable. All Owned Intellectual Property Rights that are Registered
Intellectual Property Rights are in full force and effect, and all actions
required to keep such rights pending or in effect or to provide full available
protection, including payment of filing, examination, annuity, and maintenance
fees and filing of renewals, statements of use or working, affidavits of
incontestability and other similar actions, have been taken, and no such
Registered Intellectual Property Right is the subject of any interference,
opposition, cancellation, nullity, re-examination or other proceeding placing in
question the validity or scope of such rights. All products covered by Owned
Intellectual Property Rights or Licensed-In Intellectual Property Rights that
are Registered Intellectual Property Rights and all usages of Owned Intellectual
Property Rights or Licensed-In Intellectual Property Rights that are Registered
25
Intellectual Property Rights have been marked with the appropriate patent,
trademark or other marking required or desirable to maximize available damage
awards.
(d) The documentation relating to all trade secrets listed on Schedule
4.14(a)(i) is current, accurate and sufficient in detail and content to identify
and explain such trade secrets and to allow their full and proper use without
reliance on the knowledge or memory of any individual. All reasonable
precautions have been taken to protect the secrecy, confidentiality and value of
the trade secrets and all other proprietary information used by the Company or
any Subsidiary including the implementation and enforcement of policies
requiring each employee or independent contractor who has access to trade
secrets to execute proprietary information and confidentiality agreements
substantially in a standard form, and each current and former employee and
independent contractor of the Company or any Subsidiary has executed such an
agreement. There has been no breach or other violation of such agreements. Each
of the Company and its Subsidiaries has an unqualified right to use all trade
secrets and other proprietary information currently used in its business,
subject to any Contract relating to Licensed-In Intellectual Property Rights. No
such trade secret or other proprietary information is part of the public
knowledge or literature, and no trade secret or other proprietary information
has been used, divulged or appropriated either for the benefit of any Person
other than the Company or a Subsidiary or to the detriment of the Company or any
Subsidiary.
(e) Neither the Company nor any Subsidiary has taken action, or failed
to take an action, that might have the effect of estopping or otherwise limiting
its right to enforce Owned Intellectual Property Rights against any Person.
(f) Neither the Company nor any Subsidiary has any present expectation
or intention of not fully performing any obligation pursuant to any license, and
there is no breach, anticipated breach or default by any other party to any
license. There are no renegotiations of, attempts to renegotiate, demands for or
outstanding rights to renegotiate any license. All rights under each license
will be fully available to the Company or a Subsidiary after the Closing.
(g) Each Licensed-in Intellectual Property Right for which the Company
or any Subsidiary has an exclusive right is in full force and effect, all
actions required to keep such right pending or in effect or to provide full
protection, including payment of filing, examination, annuity, and maintenance
fees and filing of renewals, statements of use or working, affidavits of
incontestability and other similar actions, have been taken. No Licensed-in
Intellectual Property Right that is a Registered Intellectual Property Right and
for which the Company or any Subsidiary has an exclusive right is the subject of
any interference, opposition, cancellation, nullity, re-examination or other
proceeding placing in question the validity or scope of such right.
(h) Neither the Company nor any Subsidiary has infringed,
misappropriated or otherwise violated any Third-Party Intellectual Property
Right, and neither the Company nor any Subsidiary has received any notice of any
infringement, misappropriation or violation by the Company or any Subsidiary of
any Third-Party Intellectual Property Right. No infringement, misappropriation
or violation of any Third-Party Intellectual Property Right has occurred or will
occur with respect to products or services sold by the Company or any Subsidiary
26
or with respect to the products or services under development or with respect to
the conduct of the business of the Company or any Subsidiary as conducted or
proposed to be conducted.
(i) All Software that is used by the Company or any Subsidiary or is
present at any facility or on any equipment of the Company or any Subsidiary is
owned by the Company or a Subsidiary or is subject to a current license
agreement that covers all use of the Software in the business of the Company or
any Subsidiary, as conducted or as proposed to be conducted. Each of the Company
and the Subsidiaries has the right to use the Software used in its business as
it is being used, without any conflict with the rights of others. Neither the
Company nor any Subsidiary is in breach of any license to, or license of, any
Software. The Company and its Subsidiaries do not use, rely on or contract with
any Person to provide service bureau, outsourcing or other computer processing
services to the Company or any Subsidiary, in lieu of or in addition to their
respective use of the Software. Following the Closing, each of the Company and
the Subsidiaries will have sufficient rights to all necessary Software to
operate its business as it is conducted or as proposed to be conducted.
4.15 Material Contracts.
(a) Schedule 4.15 lists the following Contracts to which the Company or
any Subsidiary is a party or subject or by which it is bound (with the Contracts
required to be listed on Schedule 4.15, the "Material Contracts"):
(i) each employment, agency, collective bargaining or consulting
Contract;
(ii) each Contract (A) with any Insider or (B) between or among
any Insiders relating in any way to the Company or any Subsidiary;
(iii) each distributor, reseller, OEM, dealer, manufacturer's
representative, broker, sales agency, advertising agency, finder's,
manufacturing or assembly Contract;
(iv) each franchise agreement;
(v) each Contract or group of related Contracts with the same
party for the purchase of products or services with a undelivered
balance in excess of $15,000;
(vi) each Contract or group of related Contracts with the same
party for the sale of products or services with an undelivered balance
in excess of $15,000;
(vii) each lease of real or personal property with aggregate
annual payments in excess of $15,000;
(viii) each Contract for the sale of any capital assets;
(ix) each Contract for capital expenditures in excess of
$15,000;
(x) each Contract relating to the borrowing of money or to mortgaging,
pledging or otherwise placing an Encumbrance on any of the assets of
the Company or any Subsidiary;
27
(xi) each written warranty, guaranty or other similar
undertaking with respect to contractual performance extended by the
Company or any Subsidiary other than in the Ordinary Course of
Business;
(xii) each Contract relating to any surety bond or letter of
credit required to be maintained by the Company or any Subsidiary;
(xiii) each Contract that contains or provides for an express
undertaking by the Company or any Subsidiary to be responsible for
consequential damages;
(xiv) each Contract concerning a partnership or joint venture;
(xv) each Contract providing for the development of any
products, Software or Intellectual Property Rights or the delivery of
any services by, for or with any third party;
(xvi) each Contract containing exclusivity, noncompetition or
nonsolicitation provisions or that would otherwise prohibit the Company
or any Subsidiary from freely engaging in business anywhere in the
world or prohibiting the solicitation of the employees or contractors
of any other entity;
(xvii) each Contract pertaining to confidentiality or
non-disclosure;
(xviii) each Capital Lease;
(xix) each Contract terminable by any other party upon a change
of control of the Company or any Subsidiary or upon the failure of the
Company or any Subsidiary to satisfy financial or performance criteria
specified in such Contract;
(xx) each power of attorney that is currently in effect; and
(xxi) each other Contract of the Company or any Subsidiary not
entered into in the Ordinary Course of Business or that is material to
the business, financial condition, results of operations or prospects
of the Company and the Subsidiaries taken as a whole.
(b) Each Material Contract is valid and binding, currently in force and
enforceable in accordance with its terms, subject to the Remedies Exception.
Each of the Company and the Subsidiaries has performed all obligations required
to be performed by it in connection with each Material Contract. Neither the
Company nor any Subsidiary has received any notice of any claim of default by it
under or termination of any Material Contract. Neither the Company nor any
Subsidiary has any present expectation or intention of not fully performing any
obligation pursuant to any Material Contract, and there is no breach,
anticipated breach or default by the Company or a Subsidiary or any other party
to any Material Contract. There is no renegotiation of, attempt to renegotiate
or outstanding right to renegotiate any material terms of any Material Contract
and no Person has made written demand for such renegotiation. Each of the
Company and the Subsidiaries can perform each Material Contract for the sale of
products or services on time, at a profit and without unusual expenditures of
time and money. Neither the Company nor any Subsidiary has any obligation to
28
refund payments received for work not yet performed under a Material Contract
where the percentage of work completed is less than the percentage of revenues
received to date.
4.16 Litigation. Except as set forth on Schedule 4.16, no Litigation is
pending or, to the Knowledge of Sellers, threatened against the Company or any
Subsidiary and there is no reasonable basis for Litigation against the Company
or any Subsidiary. Neither the Company nor any Subsidiary is subject to any
outstanding Governmental Order.
4.17 Insurance.
(a) Except as set forth on Schedule 4.17, each of the Company and the
Subsidiaries has at all times maintained insurance relating to its business and
covering property, fire, casualty, liability, workers' compensation, malpractice
and all other forms of insurance customarily obtained by businesses in the same
industry. Such insurance (i) is in full force and effect, (ii) is sufficient for
compliance with all requirements of applicable Law and of any Contract to which
the Company or any Subsidiary is subject, (iii) is valid and enforceable, (iv)
insures against risks of the kind customarily insured against and in amounts
customarily carried by businesses similarly situated and (v) to the Knowledge of
Sellers, provides adequate insurance coverage for the activities of each of the
Company and the Subsidiaries. Schedule 4.17 lists each policy of insurance in
effect.
(b) Schedule 4.17 lists by year for the current policy year and each of
the five preceding policy years a summary of the loss experience under each
policy involving any claim in excess of $15,000, setting forth (i) the name of
the claimant, (ii) a description of the policy by insurer, type of insurance and
period of coverage and (iii) the amount and a brief description of the claim.
Schedule 4.17 also describes the loss experience for all claims in excess of
$15,000 that were self-insured, including the aggregate cost of such claims.
4.18 Compliance with Laws; Governmental Authorizations.
(a) Except as set forth on Schedule 4.18, each of the Company and the
Subsidiaries has complied with all applicable Laws and Governmental Orders.
Except as set forth on Schedule 4.18, neither the Company nor any Subsidiary is
relying on any exemption from or deferral of any Law, Governmental Order or
Governmental Authorization that would not be available to it after the Closing.
(b) Each of the Company and the Subsidiaries has in full force and
effect all Governmental Authorizations necessary to conduct its business and own
and operate its properties. Schedule 4.18(b) lists each Governmental
Authorization held by the Company or any Subsidiary. Each of the Company and the
Subsidiaries has complied with all Governmental Authorizations applicable to it.
(c) Neither the Company nor any Subsidiary has offered, authorized,
promised, made or agreed to make any gifts, payments or transfers of property of
any kind (other than incidental gifts of nominal value) in connection with any
actual or proposed transaction, except as required or permitted by the Laws of
each applicable jurisdiction and in each such case has complied with the U.S.
Foreign Corrupt Practices Act.
29
(d) Each transaction was properly and accurately recorded on the books
and records of the Company or a Subsidiary, and each document upon which entries
in the books and records of the Company or a Subsidiary were based was complete
and accurate in all respects. Each of the Company and the Subsidiaries maintains
a system of internal accounting controls adequate to ensure that it maintains no
off-the-books accounts and that its assets are used only in accordance with its
management directives.
(e) Each of the Company and the Subsidiaries has complied with all
applicable export control and trade embargo Laws in connection with any actual
or proposed transaction.
(f) Each of the Company and the Subsidiaries has complied with all
applicable antiboycott Laws in connection with any actual or proposed
transaction.
(g) Neither the Company nor any Subsidiary has ever had a legal
obligation to file any form, report, schedule, proxy statement or other document
with the SEC, and neither the Company nor any Subsidiary has filed with the SEC
any such form, report, schedule, proxy statement or other document.
4.19 Environmental Matters.
(a) (a) Each of the Company and its Subsidiaries is, and has been,
in compliance with all Environmental Laws, and neither the Company nor any of
its Subsidiaries has received any written, or to the knowledge of the Company,
oral communication alleging that the Company or such Subsidiary is in violation
of, or may have liability under, any Environmental Law.
(b) Each of the Company and its Subsidiaries possesses and is in
compliance in all material respects with all Permits required under
Environmental Laws for the conduct of their respective operations and neither
the Company nor any of its Subsidiaries has been advised by any Governmental
Entity of any actual or potential change in the status or terms and conditions
of any such Permit.
(c) There are no Environmental Claims pending or, to the Knowledge of
Sellers, threatened against the Company or any of its Subsidiaries.
(d) There has been no Leak of any Hazardous Substance that could
reasonably be expected to form the basis of any Environmental Claim against the
Company or any of its Subsidiaries or against any person whose liabilities for
such Environmental Claims the Company or any of its Subsidiaries has, or may
have, retained or assumed, either contractually or by operation of Law.
(e) There are no aboveground or underground storage tanks or known or
suspected asbestos-containing materials on, under or about property owned,
operated or leased by the Company or any of its Subsidiaries, nor, to the
Knowledge of Sellers, were there any underground storage tanks on, under or
about any such property in the past.
30
(f) There are no past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans that could reasonably be
expected to form the basis of an Environmental Claim against the Company or any
of its Subsidiaries.
4.20 Warranties. Schedule 4.20 lists all claims pending or, to the
Knowledge of Sellers, threatened for product liability or breach of any warranty
relating to any products sold or services performed by the Company or any
Subsidiary. Such claims in the aggregate are not in excess of the reserve for
product warranty claims set forth on the face of the Latest Balance Sheet.
Schedule 4.20 describes the warranties for products sold or services performed
by each of the Company and the Subsidiaries. No product or service manufactured,
sold, leased or delivered by the Company or any Subsidiary is subject to any
guaranty, warranty or other indemnity other than such warranties. Except as
listed on Schedule 4.20, none of the products manufactured, sold, leased or
delivered by the Company or any Subsidiary has been the subject of any product
recall or return (whether voluntary or involuntary) during the past five years.
4.21 Employees.
(a) Schedule 4.21(a) lists each employee of the Company, any Subsidiary
and any Professional Corporation as of the date of this Agreement, states the
total number of employees and indicates for each such employee, and in the
aggregate, full-time, part-time and temporary status.
(b) Schedule 4.21(b) lists each salaried employee of the Company, any
Subsidiary and any Professional Corporation as of the date of this Agreement and
shows for each such employee annual salary, any other compensation payable
(including compensation payable pursuant to bonus, incentive, deferred
compensation or commission arrangements), date of employment and position. To
the Knowledge of Sellers, no executive employee of the Company and no group of
employees of the Company, any Subsidiary or any Professional Corporation has any
plans to terminate his, her or their employment. Each of the Company, the
Subsidiaries and the Professional Corporations has complied at all times with
all applicable Laws relating to employment and employment practices and those
relating to the calculation and payment of wages (including overtime pay,
maximum hours of work and child labor restrictions), equal employment
opportunity (including Laws prohibiting discrimination and/or harassment or
requiring accommodation on the basis of race, color, national origin, religion,
gender, disability, age, sexual orientation or otherwise), affirmative action
and other hiring practices, occupational safety and health, workers
compensation, unemployment, the payment of social security and other Taxes, and
unfair labor practices under the National Labor Relations Act or applicable
state law. Neither the Company, any Subsidiary or any Professional Corporation
has any labor relations problem pending or, to the Knowledge of Sellers,
threatened and its labor relations are satisfactory. There are no workers'
compensation claims pending against the Company, any Subsidiary or any
Professional Corporation or, to the Knowledge of Sellers, any facts that would
give rise to such a claim. No employee of the Company, any Subsidiary or any
Professional Corporation is subject to any secrecy or noncompetition agreement
or any other agreement or restriction of any kind that would impede in any way
the ability of such employee to carry out fully all activities of such employee
in furtherance of the business of the Company.
31
(c) Schedule 4.21(c) lists each employee of the Company, any Subsidiary
and any Professional Corporation as of the date of this Agreement who holds a
temporary work authorization, including ▇-▇▇, ▇-▇, ▇-▇ or J-1 visas or work
authorizations (the "Work Permits"), and shows for each such employee the type
of Work Permit and the length of time remaining on such Work Permit. With
respect to each Work Permit, all of the information that the Company, any
Subsidiary or a Professional Corporation provided to the Department of Labor and
the Immigration and Naturalization Service or the Department of Homeland
Security (collectively, the "Department") in the application for such Work
Permit was true and complete. The Company or a Subsidiary or a Professional
Corporation received the appropriate notice of approval from the Department with
respect to each such Work Permit. Neither the Company, any Subsidiary or any
Professional Corporation has received any notice from the Department that any
Work Permit has been revoked. There is no action pending or, to the Knowledge of
Sellers, threatened to revoke or adversely modify the terms of any of the Work
Permits. Except as set disclosed in Schedule 4.21(c), no employee of the
Company, any Subsidiary or any Professional Corporation is (a) a non-immigrant
employee whose status would terminate or otherwise be affected by the
transactions contemplated by this Agreement, or (b) an alien who is authorized
to work in the United States in non-immigrant status. For each employee of the
Company, any Subsidiary or any Professional Corporation hired after November 6,
1986, the Company, such Subsidiary or such Professional Corporation has retained
an Immigration and Naturalization Service Form I-9, completed in accordance with
applicable Law.
(d) The employment of any terminated former employee of the Company,
any Subsidiary or any Professional Corporation has been terminated in accordance
with any applicable Contract terms and applicable Law, and neither the Company,
any Subsidiary or any Professional Corporation has any liability under any
Contract or applicable Law toward any such terminated employee. The transactions
contemplated by this Agreement will not cause the Company, any Subsidiary or any
Professional Corporation to incur or suffer any liability relating to, or
obligation to pay, severance, termination or other payment to any Person. Since
the Last Fiscal Year End no employee of the Company, any Subsidiary or any
Professional Corporation has had its employment terminated or provided notice
that such employee intends to terminate its employment.
(e) Neither the Company, any Subsidiary or any Professional Corporation
has made any loans (except advances for business travel, lodging or other
expenses in the Ordinary Course of Business) to any employee of the Company, any
Subsidiary or any Professional Corporation.
(f) Except as disclosed in Schedule 4.21(f), within the last five
years, neither the Company, any Subsidiary or any Professional Corporation has
experienced and, to the Knowledge of Sellers, there has not been threatened, any
strike, work stoppage, slowdown, lockout, picketing, leafleting, boycott, other
labor dispute, union organization attempt, demand for recognition from a labor
organization or petition for representation under the National Labor Relations
Act or applicable state law. Except as disclosed in Schedule 4.21(f), no
grievance, demand for arbitration or arbitration proceeding arising out of or
under any collective bargaining agreement is pending or, to the Knowledge of
Sellers, threatened. Except as disclosed in Schedule 4.21(f), no Litigation is
pending or, to the Knowledge of Sellers, threatened respecting or involving any
applicant for employment, any current employee or any former employee, or any
class of the foregoing, including:
32
(i) the Equal Employment Opportunity Commission or any other
corresponding state or local fair employment practices agency relating
to any claim or charge of discrimination or harassment in employment;
(ii) the United States Department of Labor or any other
corresponding state or local agency relating to any claim or charge
concerning hours of work, wages or employment practices;
(iii) the Occupational Safety and Health Administration or any
other corresponding state or local agency relating to any claim or
charge concerning employee safety or health;
(iv) the Office of Federal Contract Compliance or any
corresponding state agency; and
(v) the National Labor Relations Board or any corresponding
state agency, whether relating to any unfair labor practice or any
question concerning representation,
and there is no reasonable basis for any such Litigation.
(g) No employee of the Company, any Subsidiary or any Professional
Corporation is covered by any collective bargaining agreement, and no collective
bargaining agreement is being negotiated.
(h) Each of the Company, the Subsidiaries and the Professional
Corporations has paid in full to all employees all wages, salaries, bonuses and
commissions due and payable to such employees and has fully reserved in its
books of account all amounts for wages, salaries, bonuses and commissions due
but not yet payable to such employees.
(i) There has been no lay-off of employees or work reduction program
undertaken by or on behalf of the Company, any Subsidiary or any Professional
Corporation in the past two years, and no such program has been adopted by the
Company, any Subsidiary or any Professional Corporation or publicly announced.
4.22 Employee Benefits.
(a) Schedule 4.22 lists all Plans by name and provides a brief description
identifying (i) the type of Plan, (ii) the funding arrangements for the Plan,
(iii) the sponsorship of the Plan, (iv) the participating employers in the Plan
and (v) any one or more of the following characteristics that may apply to such
Plan: (A) defined contribution plan as defined in Section 3(34) of ERISA or
Section 414(i) of the Code, (B) defined benefit plan as defined in Section 3(35)
of ERISA or Section 414(j) of the Code, (C) plan that is or is intended to be
tax qualified under Section 401(a) or 403(a) of the Code, (D) plan that is or is
intended to be an employee stock ownership plan as defined in Section 4975(e)(7)
of the Code (and whether or not such plan has entered into an exempt loan), (E)
nonqualified deferred compensation arrangement, (F) employee welfare benefit
plan as defined in Section 3(1) of ERISA, (G) multiemployer plan as defined in
Section 3(37) of ERISA or Section 414(f) of the Code, (H) multiple employer plan
maintained by more than one employer as defined in Section 413(c) of the Code,
33
(I) plan providing benefits after separation from service or termination of
employment, (J) plan that owns any Company or other employer securities as an
investment, (K) plan that provides benefits (or provides increased benefits or
vesting) as a result of a change in control of the Company, (L) plan that is
maintained pursuant to collective bargaining and (M) plan that is funded, in
whole or in part, through a voluntary employees' beneficiary association exempt
from Tax under Section 501(c)(9) of the Code.
(b) Schedule 4.22 lists each corporation, trade or business (separately
for each category below that applies): (i) that is (or was during the preceding
five years) under common control with the Company within the meaning of Section
414(b) or (c) of the Code, (ii) that is (or was during the preceding five years)
in an affiliated service group with the Company within the meaning of Section
414(m) of the Code, (iii) that is (or was during the preceding five years) the
legal employer of Persons providing services to the Company as leased employees
within the meaning of Section 414(n) of the Code and (iv) with respect to which
the Company, any Subsidiary or any Professional Corporation is a successor
employer for purposes of group health or other welfare plan continuation rights
(including Section 601 et seq. of ERISA) or the Family and Medical Leave Act.
(c) Schedule 4.22 lists (i) the most recent determination letter
received by the Company from the IRS regarding each Plan, (ii) the most recent
determination or opinion letter ruling from the IRS that each trust established
in connection with Plans that are intended to be tax exempt under Section 501(a)
or (c) of the Code are so tax exempt, (iii) all pending applications for
rulings, determinations, opinions, no action letters and the like filed with any
governmental agency (including the Department of Labor, IRS, Pension Benefit
Guaranty Corporation and the SEC), (iv) the financial statements for each Plan
for the three most recent fiscal or plan years (in audited form if required by
ERISA) and, where applicable, Annual Report/Return (Form 5500) with disclosure
schedules, if any, and attachments for each Plan, (v) the most recently prepared
actuarial valuation report for each Plan (including reports prepared for
funding, deduction and financial accounting purposes), (vi) plan documents,
trust agreements, insurance contracts, service agreements and all related
contracts and documents (including any employee summaries and material employee
communications) with respect to each Plan and (vii) collective bargaining
agreements (including side agreements and letter agreements) relating to the
establishment, maintenance, funding and operation of any Plan.
(d) Schedule 4.22 lists each employee of the Company, any Subsidiary or
any Professional Corporation who is (i) absent from active employment due to
short or long term disability, (ii) absent from active employment on a leave
pursuant to the Family and Medical Leave Act or a comparable state Law, (iii)
absent from active employment on any other leave or approved absence (together
with the reason for each leave or absence) or (iv) absent from active employment
due to military service (under conditions that give the employee rights to
re-employment).
(e) With respect to continuation rights arising under federal or state
Law as applied to Plans that are group health plans (as defined in Section 601
et seq. of ERISA), Schedule 4.22 lists (i) each employee, former employee or
qualifying beneficiary who has elected continuation and (ii) each employee,
former employee or qualifying beneficiary who has not elected continuation
coverage but is still within the period in which such election may be made.
34
(f) (i) All Plans intended to be Tax qualified under Section 401(a) or
Section 403(a) of the Code are so qualified, (ii) all trusts established in
connection with Plans intended to be Tax exempt under Section 501(a) or (c) of
the Code are so Tax exempt, (iii) to the extent required either as a matter of
Law or to obtain the intended Tax treatment and Tax benefits, all Plans comply
in all respects with the requirements of ERISA and the Code, (iv) all Plans have
been administered in accordance with the documents and instruments governing the
Plans, (v) all reports and filings with Governmental Entities (including the
Department of Labor, the IRS, Pension Benefit Guaranty Corporation and the SEC)
required in connection with each Plan have been timely made, (vi) all
disclosures and notices required by Law or Plan provisions to be given to
participants and beneficiaries in connection with each Plan have been properly
and timely made and (vii) each of the Company and the Subsidiaries has made a
good faith effort to comply with the reporting and taxation requirements for
FICA taxes with respect to any deferred compensation arrangements under Section
3121(v) of the Code.
(g) (i) All contributions, premium payments and other payments required
to be made in connection with the Plans have been made, (ii) a proper accrual
has been made on the books of account of the Company or applicable Professional
Corporation for all contributions, premium payments and other payments due in
the current fiscal year, (iii) no contribution, premium payment or other payment
has been made in support of any Plan that is in excess of the allowable
deduction for federal income Tax purposes for the year with respect to which the
contribution was made (whether under Section 162, Section 280G, Section 404,
Section 419, Section 419A of the Code or otherwise) and (iv) with respect to
each Plan that is subject to Section 301 et seq. of ERISA or Section 412 of the
Code, the Company is not liable for any "accumulated funding deficiency" as that
term is defined in Section 412 of the Code and the projected benefit obligations
do not exceed the assets of the Plan.
(h) The consummation of the transactions contemplated by this Agreement
will not (i) cause any Plan to increase benefits payable to any participant or
beneficiary, (ii) entitle any current or former employee of the Company, any
Subsidiary or any Professional Corporation to severance pay, unemployment
compensation or any other payment, benefit or award or (iii) accelerate or
modify the time of payment or vesting, or increase the amount of any benefit,
award or compensation due any such employee.
(i) (i) No Litigation is pending with regard to any Plan other than
routine
uncontested claims for benefits, (ii) no Plan is currently under examination or
audit by the Department of Labor, the IRS or the Pension Benefit Guaranty
Corporation, (iii) neither the Company nor any Professional Corporation has any
actual or potential liability arising under Title IV of ERISA as a result of any
Plan that has terminated or is in the process of terminating, (iv) neither the
Company nor any Professional Corporation has any actual or potential liability
under Section 4201 et seq. of ERISA for either a complete withdrawal or a
partial withdrawal from a multiemployer plan and (v) with respect to the Plans,
neither the Company nor any Professional Corporation has any liability (either
directly or as a result of indemnification) for (and the transactions
contemplated by this Agreement will not cause any liability for): (A) any excise
Taxes under Section 4971 through Section 4980B, Section 4999, Section 5000 or
any other Section of the Code, (B) any penalty under Section 502(i), Section
502(l), Part 6 of Title I or any other provision of ERISA or (C) any excise
35
Taxes, penalties, damages or equitable relief as a result of any prohibited
transaction, breach of fiduciary duty or other violation under ERISA or any
other applicable Law; (vi) all accruals required under FAS 106 and FAS 112 have
been properly accrued on the Latest Financial Statements, (vii) no condition,
agreement or Plan provision limits the right of the Company to amend, cut back
or terminate any Plan (except to the extent such limitation arises under ERISA)
and (viii) neither the Company nor any Professional Corporation has any
liability for life insurance, death or medical benefits after separation from
employment other than (A) death benefits under the Plans and (B) health care
continuation benefits described in Section 4980B of the Code.
4.23 Third-Party Payors.
(a) Schedule 4.23(i) lists all material third-party payors of the
Company, the Subsidiaries and the Professional Corporations for each of the last
two fiscal years and for the interim period ended on the Latest Balance Sheet
Date. No third-party payor listed on Schedule 4.23(i) has indicated that it will
stop or decrease the rate of business done with the Company, any Subsidiary or
any Professional Corporation.
(b) All claims for reimbursement by the Company to third party payors,
including but not limited to claims to the Medicare program or any Medicare
fiscal intermediary or carrier, various state Medicaid programs, any other
federal or state health care programs, and private insurance companies, are true
and correct in all material respects and in compliance in all material respects
with all applicable laws and regulations and the policies of such third party
payors. The Company has received no notice from any Medicare or Medicaid
program, other federal health care program, or private insurance company of any
overpayments to the Company, and the Company is not aware of any grounds for any
such notice, other than overpayments made from time to time in the ordinary
course of business by private payors.
(c) Neither the Company nor any of its respective officers, directors,
employees or agents, on behalf of or for the benefit of the Company, has,
directly or indirectly, (i) offered or paid any amount to, or made any financial
arrangement with, any of the Company's past or present customers or potential
customers in order to obtain business from such customers, other than standard
pricing or discount arrangements consistent with proper business practices, (ii)
given, or agreed to give, or is aware that there has been made, or that there is
an agreement to make, any gift or gratuitous payment of any kind, nature or
description (whether in money, property or services) to any past or present
customer, supplier, source of financing, landlord, subtenant, licensee or other
person or entity, (iii) made, or agreed to make, or is aware that there is any
agreement to make, any political contribution or any contributions, payments or
gifts of their respective funds or property to or for the private use of any
governmental official, employee or agent where either the payment or the purpose
of such contribution, payment or gift relates to the Company's business and is
illegal under any Law or (iv) made, or agreed to make, or is aware that there
have been, or that there is any agreement to make, any payments to any person
with the intention or understanding that any part of such payment was to be
used, directly or indirectly, for the benefit of any past or present customer,
employee, supplier or landlord of the Company, or for any purpose other than
that reflected in the documents supporting the payments.
4.24 Suppliers. Schedule 4.24 lists the 10 largest suppliers of the
Company and the Subsidiaries on a consolidated basis for each of the last two
fiscal years and for the interim period ended on the Latest Balance Sheet Date
and sets forth opposite the name of each such supplier the approximate
36
percentage of purchases by the Company and the Subsidiaries attributable to such
supplier for each such period. Except as listed on Schedule 4.24, no supplier
listed on Schedule 4.24 is a sole source of supply for the Company and the
Subsidiaries. No supplier listed on Schedule 4.24 has indicated that it will
stop or decrease the rate of business done with the Company or any Subsidiary.
4.25 Affiliate Transactions. No Insider has any Contract with the
Company or any Subsidiary (other than employment not represented by a written
Contract and terminable at will), any loan to or from the Company or any
interest in any assets (whether real, personal or mixed, tangible or intangible)
used in or pertaining to the business of the Company or any Subsidiary (other
than ownership of capital stock of the Company). No Insider has any direct or
indirect interest in any competitor, supplier or customer of the Company or any
Subsidiary or in any Person from whom or to whom the Company or any Subsidiary
leases any property, or in any other Person with whom the Company or any
Subsidiary otherwise transacts business of any nature. Schedule 4.25 lists all
transactions between the Company or any Subsidiary and each Insider for each of
the last three fiscal years and since the Last Fiscal Year End.
4.26 Indebtedness. Schedule 4.26 sets forth a listing of all
Indebtedness of the Company and its Subsidiaries as of the date of this
Agreement.
4.27 Brokerage. Except as listed on Schedule 4.27, no Person will be
entitled to receive any brokerage commission, finder's fee, fee for financial
advisory services or similar compensation in connection with the transactions
contemplated by this Agreement based on any Contract made by or on behalf of the
Company for which Buyer or the Company is or could become liable or obligated.
4.28 Availability of Documents. Seller has made available to Buyer
correct and complete copies of the items referred to in the Disclosure Schedule
or in this Agreement (and in the case of any items not in written form, a
written description thereof).
4.29 Disclosure. This Agreement, the exhibits, the Disclosure Schedule,
the Annual Financial Statements or the Latest Financial Statements do not
contain any untrue statement or omit any material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they were made, not misleading.
V. Representations and Warranties of Buyer
Parent and Buyer, jointly and severally, represent and warrant to
Sellers that as of the date of this Agreement and as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement):
5.1 Incorporation; Power and Authority. Each of Buyer and Parent is a
corporation duly organized, validly existing and in good standing under the Laws
of its jurisdiction of organization, with all necessary power and authority to
execute, deliver and perform this Agreement.
5.2 Valid and Binding Agreement. The execution, delivery and
performance of this Agreement by Buyer and Parent have been duly and validly
authorized by all necessary corporate action. This Agreement has been duly
37
executed and delivered by Buyer and Parent and constitutes the valid and binding
obligation of Buyer and Parent, enforceable against them in accordance with its
terms, subject to the Remedies Exception.
5.3 No Breach; Consents. The execution, delivery and performance of
this Agreement by Buyer and Parent will not (a) contravene any provision of the
Organizational Documents of Buyer or Parent; (b) violate or conflict with any
Law, Governmental Order or Governmental Authority; (c) conflict with, result in
any breach of any of the provisions of, constitute a default (or any event that
would, with the passage of time or the giving of notice or both, constitute a
default) under, result in a violation of, increase the burdens under, result in
the termination, amendment, suspension, modification, abandonment or
acceleration of payment (or any right to terminate) or require a Consent,
including any Consent under any Contract or Governmental Authorization that is
either binding upon or enforceable against Buyer or Parent; or (d) require any
Governmental Authorization.
5.4 Brokerage. No Person will be entitled to receive any brokerage
commission, finder's fee, fee for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any Contract made by or on behalf of Buyer for which any Seller is or
could become liable or obligated.
5.5 Parent Common Stock. The shares of Parent Common Stock to be issued
pursuant to this Agreement will, when issued and delivered in accordance with
this Agreement, be duly authorized, validly issued, fully paid and
nonassessable.
VI. Agreements of Parent
6.1 Board of Directors.
(a) Parent will use its commercially reasonable efforts to appoint Kush
Agarwal to its board of directors as soon as practicable after the Closing Date.
(b) Parent will appoint D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as an Advisory Director as
soon as practicable after the Closing Date.
VII. Taxes
7.1 Tax Matters. The following provisions of this Section 7.1 shall
apply notwithstanding any other provision of this Agreement.
(a) Sellers shall severally, on a pro rata basis in relation to their
respective Sellers Percentage Interest, indemnify the Company, the Subsidiaries,
Buyer, Parent, and any Affiliate of Buyer or Parent and hold them harmless from
and against any loss, claim, liability, expense, or other damage attributable to
(i) all Taxes (or the non-payment thereof) of the Company and the Subsidiaries
for all taxable periods ending on or before the Closing Date and the portion
through the end of the Closing Date for any taxable period that includes (but
does not end on) the Closing Date; (ii) all Taxes of any member of member of an
affiliated, consolidated, combined or unitary group of which the Company or any
of the Subsidiaries (or any predecessor thereof) is or was a member on or prior
to the Closing Date, including pursuant to Treasury Regulations Section 1.1502-6
38
or any analogous or similar state, local, or foreign law or regulation; and
(iii) any and all Taxes of any Person (other than the Company and the
Subsidiaries) imposed on the Company or any of the Subsidiaries as a transferee
or successor, by contract or pursuant to any law, rule, or regulation, which
Taxes relate to an event or transaction occurring on or before the Closing Date.
(b) Sellers shall prepare and file (or cause to be prepared and filed)
all income and franchise Tax Returns and sales and use tax returns with respect
to the Company and the Subsidiaries for all periods ending on or prior to the
Closing Date which are filed after the Closing Date and shall timely pay all
Taxes shown as due on such Tax Returns. Sellers shall permit Parent and Buyer to
review and comment on the portions of each such Tax Return described in the
preceding sentence relating to the Company or any Subsidiary prior to filing.
Buyer or Parent shall prepare and file (or cause to be prepared and filed) all
other Tax Returns with respect to each of the Company and the Subsidiaries for
all periods ending on or prior to the Closing Date which are filed after the
Closing Date. Buyer shall permit Seller to review and comment on each such Tax
Return described in the preceding sentence prior to filing. All Tax Returns
described in this subsection (b) shall be prepared as required by applicable law
and in a manner consistent with past practices, except as otherwise required by
applicable law.
(c) Buyer shall prepare or cause to be prepared and file or cause to be
filed any and all Tax Returns of the Company and the Subsidiaries for all
periods beginning before the Closing Date and ending after the Closing Date. In
the case of any taxable period that includes (but does not end on) the Closing
Date (a "Straddle Period"), Buyer shall prepare or cause to be prepared and file
or cause to be filed any such Tax Returns as required by applicable law and in a
manner consistent with past practices employed by Sellers, the Company or the
Subsidiaries with respect to such Tax Returns (except as otherwise required by
applicable law). Sellers shall pay to Buyer within fifteen (15) days after the
date on which Taxes are paid with respect to such periods an amount equal to the
portion of such Taxes which relates to the portion of such Taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the reserve
for Tax liabilities (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) shown on the face of the
Latest Balance Sheet. In order to apportion appropriately any Taxes relating to
any taxable year or period that includes the Closing Date, the parties hereto
shall, to the extent permitted under applicable law, elect with the relevant
Taxing authority to treat for all purposes the Closing Date as the last day of
the taxable year or period of the Company or any Subsidiary. In any case where
applicable law does not permit the parties to treat the Closing Date as the last
day of the taxable year or period, any portion of any such Tax that is allocable
to the portion of the period ending on the Closing Date shall be:
(i) in the case of Taxes that are either (A) based upon or
related to income or receipts, or (B) imposed in connection with any
sale or other transfer or assignment of property (real or personal,
tangible or intangible), deemed equal to the amount which would be
payable if the taxable year or period ended on the Closing Date;
(ii) in the case of Taxes not described in subparagraph (i)
above that are imposed on a periodic basis and measured by the level of
any item, deemed to be the amount of such Taxes for the entire relevant
period (or, in the case of such Taxes determined on an arrears basis,
the amount of such Taxes for the immediate preceding period) multiplied
39
by a fraction the numerator of which is the number of calendar days in
the period ending on the Closing Date and the denominator of which is
the number of calendar days in the entire relevant period; and
(iii) for purposes of determining such Taxes, exemptions,
relief, allowances or deductions that are calculated on an annual
basis, such as the deduction for depreciation, shall be apportioned in
the manner specified in subparagraph (i) above. All determinations
necessary to give effect to the foregoing allocations shall be made in
a manner consistent with prior practice of the Company and the
Subsidiaries (except as otherwise required by applicable law).
(d) Sellers, on the one hand, and Parent and Buyer, on the other hand,
shall promptly notify the other parties upon receipt of any notice of any Tax
audit, assessment, claim or investigation (a "Tax Claim") that involves the Tax
liability of the Company or any of the Subsidiaries. The failure promptly to
give such notice shall not affect any Indemnified Party's ability to seek
indemnification hereunder unless such failure has materially and adversely
affected the right of Seller to participate in and contest the Tax Claim. With
respect to any Tax Claim relating to Taxes with respect solely to a Tax period
ending on or prior to the Closing Date (a "Pre-Closing Tax Period"), Sellers
shall control all proceedings, provided that Sellers will allow the Buyer,
Company, the Subsidiaries and their counsel to participate at their own expense
in any audits or administrative or court proceeding of Sellers consolidated
federal income Tax Returns to the extent that such returns relate to the Company
or a Subsidiary, and further provided that Sellers shall not enter into any
compromise or agree to settle any such Tax Claim to the extent that it relates
to the Company or a Subsidiary without prior written consent of Buyer or Parent,
which consent shall not be unreasonably withheld or delayed.
(e) Buyer, Parent, the Company, the Subsidiaries, and Seller shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns filed after the Closing Date and
any audit, litigation, or other proceeding with respect to Taxes; provided,
however, that Parent and Buyer shall have final authority with respect to any
such proceeding other than those described in Section 7.1(d). Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are relevant to any such audit, litigation, or
other proceeding and making employees available on a mutually convenient basis
to provide additional information and explanation of any material provided under
this Agreement. Notwithstanding the foregoing, with respect to any audit,
litigation, or other proceeding relating to a Straddle Period, to the extent
such proceeding relates to a Pre-Closing Tax Period, Buyer shall not enter into
any compromise or agree to settle any claim pursuant to such proceeding without
the written consent of Sellers, which consent shall not be unreasonably withheld
or delayed. Parent, Buyer, Sellers and the Company agree (i) to retain all books
and records with respect to Tax matters pertinent to the Company and the
Subsidiaries relating to any taxable period beginning before the Closing Date
until the expiration of the statute of limitations (and, to the extent notified
by Buyer, Parent or Sellers, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (ii) to give the other party reasonable written notice
prior to transferring, destroying, or discarding any such books and records and,
if the other party so requests, the Company, the Subsidiaries or the Sellers, as
the case may be, shall allow the other party to take possession of such books
and records.
40
(f) Buyer, Sellers and Parent further agree, upon request, to use their
commercially reasonable efforts to obtain any certificate or other document from
any governmental authority or any other person as may be necessary to mitigate,
reduce, or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
(g) All Tax sharing agreements or similar agreements with respect to or
involving the Company or the Subsidiaries shall be terminated as of the Closing
Date and, after the Closing Date, none of the Company or the Subsidiaries shall
be bound thereby or have any liability thereunder.
(h) The amount or economic benefit of any refunds, credits or offsets
of Taxes of the Company or any of the Subsidiaries for any Pre-Closing Tax
Period shall be for the account of Seller. The amount or economic benefit of any
refunds, credits or offsets of Taxes of the Company or any Subsidiary for any
taxable period beginning on or after the Closing Date shall be for the account
of Buyer. The amount or economic benefit of any refunds, credit or offset of
Taxes of the Company or any Subsidiary for any taxable period that begins before
and ends after the Closing Date shall be equitably apportioned between Sellers
and Buyer in accordance with the principles set forth in Section 7.1(c). Each
party shall forward, and shall cause its Affiliates to forward, to the party
entitled to receive the amount or economic benefit of a refund, credit or offset
to Tax pursuant to this Section 7.1(h) the amount of such refund or economic
benefit within 10 days after such refund is received or such credit or offset is
allowed or applied against another Tax liability, as the case may be.
7.2 Transfer and Sales Taxes. Sellers shall pay all applicable
documentary, sales, use, stamp, registration and such other Taxes, and all
conveyance fees, recording charges and other fees and charges (including any
penalties and interest) ("Transfer Taxes") incurred in connection with
consummation of the transaction contemplated by this Agreement. Sellers will, at
their own expense, file all necessary Tax Returns and other documentation with
respect to such Taxes, fees and charges, and, if required by applicable law,
Buyer will join in the execution of any such Tax Returns and other
documentation.
VIII. Conditions to Closing
8.1 Conditions to Obligations of Parent and Buyer. The obligation of
Parent and Buyer to take the actions required to be taken by each of them at the
Closing is subject to the satisfaction or waiver, in whole or in part, in
Buyer's sole discretion (but no such waiver will waive any rights or remedy
otherwise available to Parent or Buyer), of each of the following conditions at
or prior to the Closing:
(a) The representations and warranties set forth in Article III will be
true and correct in all material respects;
(b) Sellers will have performed and complied with each of their
agreements contained in this Agreement in all material respects;
(c) [Intentionally Omitted];
41
(d) Buyer will have received evidence satisfactory to it that no
Litigation is pending or threatened (i) challenging or seeking to prevent or
delay consummation of any of the transactions contemplated by this Agreement,
(ii) asserting the illegality of or seeking to render unenforceable any material
provision of this Agreement, (iii) seeking to prohibit direct or indirect
ownership, combination or operation by Buyer of any portion of the business or
assets of the Company or any Subsidiary, or to compel Buyer or any of its
Subsidiaries or the Company or any Subsidiary to dispose of, or to hold
separately, or to make any change in any portion of the business or assets of
Buyer or its Subsidiaries or of the Company or its Subsidiaries, as a result of
the transactions contemplated by this Agreement, or incur any burden, (iv)
seeking to require direct or indirect transfer or sale by Buyer of, or to impose
material limitations on the ability of Buyer to exercise full rights of
ownership of, any of the Shares or (v) imposing or seeking to impose material
damages or sanctions directly arising out of the transactions contemplated by
this Agreement on Parent, Buyer or the Company or any of their respective
officers or directors;
(e) No Law or Governmental Order will have been enacted, entered,
enforced, promulgated, issued or deemed applicable to the transactions
contemplated by this Agreement by any Governmental Entity that would reasonably
be expected to result, directly or indirectly, in any of the consequences
referred to in Section 8.1(d);
(f) No Person will have asserted or threatened that such Person (i) is
the owner of, or has the right to acquire or to obtain ownership of, any capital
stock of, or any other voting, equity or ownership interest in, the Company or
any Subsidiary or (ii) is entitled to all or any portion of the Purchase Price;
(g) Sellers will have delivered each of the agreements, certificates,
instruments and other documents that they are obligated to deliver pursuant to
Section 2.4(b)(i) and such agreements so delivered will be in full force and
effect;
(h) Buyer will have received releases of all material Encumbrances on
assets, other than Permitted Encumbrances;
(i) Buyer will have received the Pay-Off Letters;
(j) Each of the agreements set forth on Schedule 8.1(j) shall have been
terminated and be of no further force and effect;
(k) Closing-Long Term Liabilities shall not have exceeded $6,600,000;
and
(l) Buyer will have received long-form certificates dated as of a date
not earlier than the second business day prior to the Closing as to the good
standing of the Company, executed by the appropriate officials of the State of
Delaware and each jurisdiction in which the Company is licensed or qualified to
do business as a foreign corporation as specified in Schedule 4.1.
8.2 Conditions to Sellers' Obligations. The obligation of Sellers to
take the actions required to be taken by them at the Closing is subject to the
satisfaction or waiver, in whole or in part, in Sellers' sole discretion (but no
42
such waiver will waive any right or remedy otherwise available under this
Agreement), of each of the following conditions at or prior to the Closing:
(a) The representations and warranties set forth in Article IV will be
true and correct in all material respects;
(b) Buyer and Parent will have performed and complied with each of
their agreements contained in this Agreement in all material respects;
(c) No Law or Governmental Order will have been enacted, entered,
enforced, promulgated, issued or deemed applicable to the transactions
contemplated by this Agreement by any Governmental Entity that prohibits the
Closing;
(d) Parent and Kush Agarwal shall have entered into an employment
agreement in the form of Exhibit E; and
(e) Buyer will have delivered each of the certificates, instruments and
other documents that it is obligated to deliver pursuant to Section 2.4(b)(ii).
IX. Indemnification
9.1 Indemnification.
(a) Sellers will severally, on a pro rata basis in relation to their
respective Sellers Percentage Interest, indemnify Buyer, Parent, and their
officers, directors, Affiliates, employees, agents and representatives
(collectively the "Indemnified Parties"), in full and hold them harmless against
any Loss, whether or not actually incurred prior to Closing arising from,
relating to or constituting (i) any breach or inaccuracy in any of the
representations and warranties of Sellers contained in this Agreement or in the
Disclosure Schedule or any closing certificate delivered by or on behalf of
Sellers pursuant to this Agreement (any such breach or inaccuracy to be
determined without regard to any qualification for "materiality," "in all
material respects" or similar qualification); (ii) any breach of any of the
agreements of Seller contained in this Agreement; (iii) any liability under the
WARN Act or any similar state or local Law that may result from an "Employment
Loss," as defined by 29 U.S.C. 2101(a)(6), caused by any action of the Company
prior to the Closing or by Buyer's decision not to retain employees of the
Company; and (iv) any Plan established or maintained by the Company
(collectively, "Buyer Losses").
(b) If any Indemnified Party has a claim for indemnification under this
Section 9.1, that Indemnified Party will deliver to Sellers' Representative one
or more written notices of Buyer Losses (each an "Indemnified Party Claim"),
prior to the third anniversary of the Closing Date other than Indemnified Party
Claims relating to breaches or inaccuracies of the representations and
warranties contained in Section 3.1, the first sentence of Section 4.1 and
Section 4.4. Sellers will have no liability under this Section 9.1 unless the
written notices required by the preceding sentence are given by the date
specified. Any Indemnified Party Claim will state in reasonable detail the basis
for such Buyer Losses to the extent then known by the Indemnified Party and the
nature of the Buyer Loss for which indemnification is sought, and it may state
the amount of the Buyer Loss claimed. If such Indemnified Party Claim (or an
amended Indemnified Party Claim) states the amount of the Buyer Loss claimed and
Sellers' Representative notifies the Indemnified Party that Sellers do not
dispute the claim described in such notice or fails to notify the Indemnified
Party within 20 business days after delivery of such notice by the Indemnified
Party whether Sellers dispute the claim described in such notice, the Buyer Loss
in the amount specified in the notice will be admitted by Sellers (an "Admitted
Claim"). If Sellers have timely disputed their liability with respect to an
Indemnified Party Claim (or an amended Indemnified Party Claim) stating the
43
amount of a Buyer Loss claimed, Seller's Representative and the Indemnified
Party will proceed in good faith to negotiate a resolution of such dispute. If a
claim for indemnification has not been resolved within 30 days after delivery of
the notice, the Indemnified Party may seek judicial recourse. If an Indemnified
Party Claim does not state the amount of the Buyer Loss claimed, such omission
will not preclude the Indemnified Party from recovering from Sellers the amount
of the Buyer Loss described in such Indemnified Party Claim if any such amount
is subsequently provided in an amended Indemnified Party Claim. In order to
assert its right to indemnification under this Article IX, the Indemnified Party
will not be required to provide any notice except as provided in this Section
9.1(b).
(c) Sellers shall not have any obligation to indemnify an Indemnified
Party (other than with respect to (i) Buyer Losses caused by fraud or
intentional misrepresentation on the part of any Seller or any of their
respective Affiliates and (ii) breaches or inaccuracies of the representations
contained in Sections 4.4 and 4.5) unless and until, and only to the extent
that, the aggregate of all such Buyer Losses (other than with respect to (i)
Buyer Losses caused by fraud or intentional misrepresentation of the part of any
Seller or any of their respective Affiliates and (ii) breaches or inaccuracies
of the representations contained in Sections 4.4 and 4.5) exceeds $350,000, at
which time the Indemnified Parties shall be entitled to indemnity for the full
amount of Losses (and not just the amount in excess of $350,000). Sellers'
liability for Buyer Losses shall not exceed $14,000,000, (other than with
respect to (i) Buyer Losses caused by fraud or intentional misrepresentation of
the part of any Seller or any of their respective Affiliates and (ii) breaches
or inaccuracies of the representations contained in Sections 4.4 and 4.5).
(d) Any recovery pursuant to this Article IX shall be net of the amount
of any actual recoveries under any insurance policy that are available to
Company, Buyer or Parent in connection with the circumstances that give rise to
an Indemnified Party Claim.
9.2 Third-Party Actions
(a) An Indemnified Party will give Seller prompt written notice of the
commencement of any Litigation instituted by any third party arising out of the
actions or inactions of Seller (or allegations thereof) whether occurring prior
to, on or after the Closing Date (any such third party action or proceeding
being referred to as a "Third-Party Action"). The complaint or other papers
pursuant to which the third party commenced such Third-Party Action will be
attached to such written notice. The failure to give prompt written notice will
not affect any Indemnified Party's right to indemnification unless such failure
has materially and adversely affected Sellers' ability to defend successfully
such Third-Party Action.
(b) Sellers will contest and defend such Third-Party Action on behalf
of any Indemnified Party that requests that it does so. Notice of the intention
44
to so contest and defend will be given by Sellers to the requesting Indemnified
Party within 20 business days after the Indemnified Party's notice of such
Third-Party Action (but, in all events, at least 10 business days prior to the
date that a response to such Third-Party Action is due to be filed). Such
contest and defense will be conducted by reputable attorneys retained by
Sellers. An Indemnified Party will be entitled at any time, at its own cost and
expense, to participate in such contest and defense and to be represented by
attorneys of its own choosing. If the Indemnified Party elects to participate in
such defense, the Indemnified Party will cooperate with Sellers in the conduct
of such defense. An Indemnified Party will cooperate with Sellers to the extent
reasonably requested by Sellers in the contest and defense of such Third-Party
Action, including providing reasonable access (upon reasonable notice) to the
books, records and employees of the Indemnified Party if relevant to the defense
of such Third-Party Action; provided, that such cooperation will not unduly
disrupt the operations of the business of the Indemnified Party or cause the
Indemnified Party to waive any statutory or common law privileges, breach any
confidentiality obligations owed to third parties or otherwise cause any
confidential information of such Indemnified Party to become public.
(c) If any Indemnified Party does not request that Sellers contest and
defend a Third-Party Action, or if after such request Sellers do not contest and
defend a Third-Party Action or if any Indemnified Party reasonably determines
that Sellers are not adequately representing or, because of a conflict of
interest, may not adequately represent any interests of the Indemnified Party at
any time after requesting Sellers to do so, such Indemnified Party will be
entitled to conduct its own defense and to be represented by attorneys of its
own choosing, all at Sellers' cost and expense. Sellers will pay as incurred (no
later than 25 days after presentation) the fees and expenses of the counsel
retained by such Indemnified Party from the Indemnity Escrow Funds.
Neither an Indemnified Party nor Sellers may concede, settle or compromise any
Third-Party Action without the consent of the other party, which consents will
not be unreasonably withheld. Notwithstanding the foregoing, (i) if a
Third-Party Action seeks the issuance of an injunction, the specific election of
an obligation or similar remedy or (ii) if the subject matter of a Third-Party
Action relates to the ongoing business of any Indemnified Party, which
Third-Party Action, if decided against any Indemnified Party, would materially
adversely affect the ongoing business or reputation of any Indemnified Party,
the Indemnified Party alone will be entitled to settle such Third-Party Action
in the first instance and, if the Indemnified Party does not settle such
Third-Party Action, Sellers will then have the right to contest and defend (but
not settle) such Third-Party Action.
9.3 Tax Adjustment. Any payment to an Indemnified Party under this
Article IX will be, for Tax purposes, to the extent permitted by Law, an
adjustment to the Purchase Price. In calculating any Loss, the amount will be
increased to give effect to any Tax related to the receipt of any payment and
the amount will be decreased to give effect to any benefit related to the
increase of such Loss to the extent actually received by Parent or Buyer.
X. Guarantees
▇▇▇▇▇▇▇▇ Guarantor hereby fully and unconditionally guarantees the
performance of all of the obligations of ▇▇▇▇▇▇▇▇ Seller under this Agreement.
45
Agarwal Guarantor hereby fully and unconditionally guarantees the performance of
all of the obligations of Agarwal Seller under this Agreement.
XI. General
11.1 Press Releases and Announcements. Any public announcement,
including any announcement to employees, customers, suppliers or others having
dealings with the Company or any Subsidiary, or similar publicity with respect
to this Agreement or the transactions contemplated by this Agreement, will be
issued, if at all, at such time and in such manner as Buyer determines and
approves. Buyer will have the right to be present for any in-person announcement
by the Company. Unless consented to by Buyer or required by Law, Sellers will
keep, and will cause each of the Company and its Subsidiaries to keep, this
Agreement and the transactions contemplated by this Agreement confidential.
11.2 Expenses. Except as otherwise expressly provided for in this
Agreement, the Sellers, on the one hand, and Parent and Buyer, on the other
hand, will each pay all expenses incurred by each of them in connection with the
transactions contemplated by this Agreement, including legal, accounting,
investment banking and consulting fees and expenses incurred in negotiating,
executing and delivering this Agreement and the other agreements, exhibits,
documents and instruments contemplated by this Agreement (whether the
transactions contemplated by this Agreement are consummated or not).
11.3 Amendment and Waiver. This Agreement may not be amended, a
provision of this Agreement or any default, misrepresentation or breach of
warranty or agreement under this Agreement be waived, and a consent may not be
rendered, except in a writing executed by the party against which such action is
sought to be enforced. Neither the failure nor any delay by any Person in
exercising any right, power or privilege under this Agreement will operate as a
waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or further exercise
of such right, power or privilege or the exercise of any other right, power or
privilege. In addition, no course of dealing between or among any Persons having
any interest in this Agreement will be deemed effective to modify or amend any
part of this Agreement or any rights or obligations of any Person under or by
reason of this Agreement. The rights and remedies of the parties to this
Agreement are cumulative and not alternative.
11.4 Notices. All notices, demands and other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given (i) when delivered if personally
delivered by hand (with written confirmation of receipt), (ii) when received if
sent by a nationally recognized overnight courier service (receipt requested),
(iii) five business days after being mailed, if sent by first class mail, return
receipt requested, or (iv) when receipt is acknowledged by an affirmative act of
the party receiving notice, if sent by facsimile, telecopy or other electronic
transmission device (provided that such an acknowledgement does not include an
acknowledgment generated automatically by a facsimile or telecopy machine or
other electronic transmission device). Notices, demands and communications to
Buyer, Parent and Sellers will, unless another address is specified in writing,
be sent to the address indicated below:
46
If to Buyer or Parent:
IntegraMed America, Inc.
Two ▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ & Whitney LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile No.: 212-953-7201
If to Sellers:
Kush ▇. ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇▇ Will & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
11.5 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned by any party to
this Agreement without the prior written consent of the other parties to this
Agreement, except that Buyer may assign any of its rights under this Agreement
to one or more Subsidiaries of Buyer, so long as Buyer remains responsible for
the performance of all of its obligations under this Agreement. Subject to the
foregoing, this Agreement and all of the provisions of this Agreement will be
binding upon and inure to the benefit of the parties to this Agreement and their
respective successors and permitted assigns.
11.6 No Third Party Beneficiaries. Nothing expressed or referred to in
this Agreement confers any rights or remedies upon any Person that is not a
party or permitted assign of a party to this Agreement.
11.7 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
Law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable Law, such provision will be ineffective only to the
47
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
11.8 Complete Agreement. This Agreement contains the complete agreement
between the parties and supersede any prior understandings, agreements or
representations by or between the parties, written or oral. Sellers acknowledge
that Parent and Buyer have made no representations, warranties, agreements,
undertakings or promises except for those expressly set forth in this Agreement
or in agreements referred to herein that survive the execution and delivery of
this Agreement.
11.9 Schedules. The Disclosure Schedule contains a series of schedules
corresponding to the sections contained herein. Nothing in the Disclosure
Schedule is deemed adequate to disclose an exception to a representation or
warranty made in this Agreement unless the Disclosure Schedule identifies in the
corresponding schedule the exception with particularity. The schedules in the
Disclosure Schedule relate only to the representations and warranties in the
section and subsection of this Agreement to which they correspond and not to any
other representation or warranty in this Agreement. In the event of any
inconsistency between the statements in this Agreement and statements in the
Disclosure Schedule, the statements in this Agreement will control and the
statements in the Disclosure Schedule will be disregarded.
11.10 Signatures; Counterparts. This Agreement may be executed in one
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together will constitute one and
the same instrument. A facsimile signature will be considered an original
signature.
11.11 Governing Law. THE DOMESTIC LAW, WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES, OF THE STATE OF NEW YORK WILL GOVERN ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE
PERFORMANCE OF THE OBLIGATIONS IMPOSED BY THIS AGREEMENT.
11.12 Specific Performance. Each of the parties acknowledges and agrees
that the subject matter of this Agreement, including the business, assets and
properties of the Company and the Subsidiaries, is unique, that the other
parties would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached, and that the remedies at law would not be adequate to compensate
such other parties not in default or in breach. Accordingly, each of the parties
agrees that the other parties will be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions of this Agreement in
addition to any other remedy to which they may be entitled, at law or in equity
(without any requirement that Parent or Buyer provide any bond or other
security). The parties waive any defense that a remedy at law is adequate and
any requirement to post bond or provide similar security in connection with
actions instituted for injunctive relief or specific performance of this
Agreement.
11.13 Jurisdiction. Each of the parties hereto irrevocably and
unconditionally submits to the exclusive jurisdiction of (a) any New York State
court sitting in the County of New York and (b) the United States District Court
48
for the Southern District of New York, for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety
or other security that might be required of any other party with respect to any
such action or proceeding. The parties agree that either or both of them may
file a copy of this paragraph with any court as written evidence of the knowing,
voluntary and bargained agreement between the parties irrevocably to waive any
objections to venue or to convenience of forum. Nothing in this Section 11.13
will affect the right of any party to serve legal process in any other manner
permitted by law or in equity.
11.14 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED
AND DIFFICULT ISSUES, AND THEREFORE IT IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY
OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I)
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) IT UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (III) IT MAKES SUCH WAIVER
VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 11.14.
11.15 Construction. The parties and their respective counsel have
participated jointly in the negotiation and drafting of this Agreement. In
addition, each of the parties acknowledges that it is sophisticated and has been
advised by experienced counsel and, to the extent it deemed necessary, other
advisors in connection with the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the parties and no
presumption or burden of proof will arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. The parties
intend that each representation, warranty and agreement contained in this
Agreement will have independent significance. If any party has breached any
representation, warranty or agreement in any respect, the fact that there exists
another representation, warranty or agreement relating to the same subject
matter (regardless of the relative levels of specificity) that the party has not
breached will not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or agreement. Any reference to any Law
will be deemed to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The headings preceding the text of
articles and sections included in this Agreement and the headings to the
schedules and exhibits are for convenience only and are not be deemed part of
this Agreement or given effect in interpreting this Agreement. References to
sections, articles, schedules or exhibits are to the sections, articles,
schedules and exhibits contained in, referred to or attached to this Agreement,
49
unless otherwise specified. The word "including" means "including without
limitation." A statement that an action has not occurred in the past means that
it is also not presently occurring. When any party may take any permissive
action, including the granting of a consent, the waiver of any provision of this
Agreement or otherwise, whether to take such action is in its sole and absolute
discretion. The use of the masculine, feminine or neuter gender or the singular
or plural form of words will not limit any provisions of this Agreement. A
statement that an item is listed, set forth disclosed or described means that it
is correctly listed, set forth disclosed or described, and a statement that a
copy of an item has been delivered means a true and correct copy of the item has
been delivered.
11.16 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
50
IN WITNESS WHEREOF, Buyer, Parent, Sellers, Sellers' Representative and
the Company have executed this Agreement as of the date first above written.
PARENT: SELLERS:
INTEGRAMED AMERICA, INC. D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ , M.D.
TRUST DATED MAY 1, 2004
By:/s/▇▇▇ ▇▇▇▇▇▇
--------------------------
Name: ▇▇▇ ▇▇▇▇▇▇ By:/s/D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title:President and CEO ----------------------------
Name: D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as Trustee
KUSH ▇. ▇▇▇▇▇▇▇ LIVING TRUST
BUYER:
By:
IDVC ACQUISITION CO. Name: Kush ▇. ▇▇▇▇▇▇▇, as Trustee
By:/s/▇▇▇ ▇▇▇▇▇▇ GUARANTORS:
----------------------------
Name: ▇▇▇ ▇▇▇▇▇▇
Title: President D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------
/s/D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
KUSH ▇. ▇▇▇▇▇▇▇
/s/ Kush ▇. ▇▇▇▇▇▇▇
------------------------------------
COMPANY:
VEIN CLINICS OF AMERICA, INC.
By:/s/Kush ▇. ▇▇▇▇▇▇▇
--------------------------
Name:Kush ▇. ▇▇▇▇▇▇▇
Title: President
SELLERS' REPRESENTATIVE:
KUSH ▇. ▇▇▇▇▇▇▇
EXHIBIT D
TERMS OF EARN-OUT PAYMENTS
1. Definitions. In addition to those terms defined elsewhere in this
Agreement, the following definitions shall apply to this Exhibit D:
"Annual Period" means the 12 month period ending on December
31.
"Corporate" describes the business operations or expenses of
the Parent, exclusive of its subsidiaries.
"EBITDA" means the net income of the Company for the relevant
Annual Period, calculated in accordance with GAAP as consistently
applied by Parent, plus interest, income taxes, depreciation and
amortization expenses of the Company for such Annual Period, as
adjusted in accordance with Section 2 of this Exhibit D.
"Sellers' Accountants" means McGladrey & ▇▇▇▇▇▇ LLP.
2. Adjustments to EBITDA. EBITDA shall be adjusted as set forth herein:
(a) Expenses paid by the Corporate office on behalf of the Company that
are agreed to in advance between Sellers' Representative and Parent for goods
and services that (i) are provided directly to or solely for the benefit of the
Company or (ii) are necessary for the operation of the Company regardless of
whether it was a subsidiary of Parent, will be assigned to the Company for
purposes of calculating EBITDA. This assignment shall be made by the Chief
Accounting Officer of Parent based upon the actual costs of the given expense
items.
(b) Gains from the disposition of property, plant and equipment shall
not be included as revenue, expense or gain for purposes of calculating EBITDA.
(c) For purposes of calculating EBITDA, (i) all effects of purchase
accounting adjustments caused by the acquisition of the Company by Parent shall
be disregarded and (ii) legal, accounting, broker and advisory fees and other
expenses directly and exclusively related to the acquisition of the Company by
Parent (whether incurred by the Company, Buyer, Sellers, or Parent), the cost of
the ▇▇▇▇▇▇▇▇▇ dispute and settlement (including attorney fees), Escrow Agreement
expenses, any prepayment penalties and related expenses associated with the
Capital Source Credit Facility and reserves for incentive bonuses paid or to be
paid by the Company to certain members of management of the Company shall be
disregarded. For the avoidance of doubt, all costs and expenses associated with
any office moves and all repayments of amounts previously paid by Medicare shall
not be disregarded.
(d) For purposes of calculating First Earn-Out Year (as defined below)
EBITDA, net income of the Company will be reduced by the expenses pertaining to
corporate office and overhead headcount planned additions,as set forth on
Schedule I hereto to the extent such expenses have not been actually incurred by
the Company during the First Earn-Out Year.
(e) For purposes of calculating Second Earn-Out Year (as defined below)
EBITDA, net income of the Company will be reduced by the expenses pertaining to
corporate office and overhead headcount planned additions in the agreed upon
budget, to the extent such expenses have not been actually incurred by the
Company during the Second Earn-Out Year.
3. Procedures for calculating EBITDA.
(a) EBITDA shall be calculated by Parent at the end of each Annual
Period in cooperation with the Company. For purposes of this Section 3, any
reserves for contractual allowances and reserves for allowances for
uncollectible accounts receivables shall be calculated on a basis consistent
with the Company's audited financial statements for the Last Fiscal Year End
based upon the facts and circumstances existing at the time of the Earn-Out
calculation. Parent shall issue a report to Sellers' Representative containing
the EBITDA calculation within sixty (60) days of the end of each Annual Period.
(b) For a period of fifteen (15) days after receipt of the report,
Sellers shall have the right to request that Sellers' Accountants commence, and
complete as soon as reasonably possible thereafter, an audit of the books and
records of the Company and, limited to the extent necessary to verify whether
allocations have been made in accordance with Section 2(a) of this Exhibit D,
the books and records of Parent. Sellers shall be solely responsible for all
costs and expenses of the audit.
(c) If the report prepared by Sellers' Accountants contains a
calculation of EBITDA that is greater than EBITDA as calculated by Parent,
Parent and Sellers' Representative shall seek in good faith to resolve in
writing any differences which they may have. If the dispute is not resolved
within thirty (30) days of the issuance of the report by the Sellers'
Accountants, the parties shall mutually engage and submit such dispute to, and
the same shall be finally resolved in accordance with the provisions of the
Agreement by the Independent Accountants. The Independent Accountants shall
determine and report in writing to Parent and Sellers' Representative as to the
resolution of all disputed matters submitted to the Independent Accountants and
the effect of such determinations on the EBITDA calculation within twenty (20)
days after such submission or such longer period as the Independent Accountants
may reasonably require, and such determinations shall be final, binding and
conclusive as to Parent, Sellers, Sellers' Representative and their respective
Affiliates. The fees and disbursements of the Independent Accountants shall be
payable one-half by Parent, on the one hand, and one-half by Sellers'
Representative, on the other hand.
(d) The Earn-Out Payment shall be calculated based upon (i) the
calculation of EBITDA prepared by Parent in accordance with Section 3(a) of this
Exhibit D unless the matter has been resolved in accordance with Section 3(c) of
this Exhibit D; in which case, (ii) the determination of EBITDA determined in
accordance with Section 3(c) of this Exhibit D. Notwithstanding the above, the
Sellers' Representative and Parent may agree in writing that a different amount
for EBITDA be used for the calculation of the Earn-Out Payments.
4. Earn-Out Payments.
2
(a) For the Annual Period ending on December 31, 2007 (the "First
Earn-Out Year"), Parent shall pay the Sellers (pro rata according to their
respective Sellers Percentage Interest) an Earn-Out Payment equal to FOUR
HUNDRED PER CENT (400%) of that portion of EBITDA in excess of THREE MILLION
NINE HUNDRED THOUSAND DOLLARS ($3,900,000) (the "First Earn-Out Payment");
provided, however, that the Earn-Out Payment otherwise payable under this
Section 4(a) shall be reduced: (i) by one-third if the Company has not opened
three or more new clinics (net of any clinics closed during such period) during
the First Earn-Out Year; or (ii) by two-thirds if the Company has not opened at
least two new clinics (net of any clinics closed during such period) during the
First Earn-Out Year; or (iii) to zero if the Company has not opened any new
clinics (net of any clinics closed during such period) during the First Earn-Out
Year. For the avoidance of doubt, the clinic opened in St. Louis in 2007 prior
to the completion of the sale of the Company to Buyer shall qualify as a clinic
opened during the First Earn-Out Year.
(b) For the Annual Period ending on December 31, 2008 (the "Second
Earn-Out Year") Parent shall pay the Sellers (pro rata according to their
respective Sellers Percentage Interest) an Earn-Out Payment equal to FOUR
HUNDRED PER CENT (400%) of that portion of EBITDA in excess of FOUR MILLION
THREE HUNDRED THOUSAND DOLLARS ($4,300,000) (the "Second Earn-Out Payment");
provided, however that the Second Earn-Out Payment otherwise payable under this
Section 4(b) shall be reduced: (i) by one-fourth if the Company has not opened
eight or more new clinics (net of any clinics closed during such period) during
the Earn-Out Years; or (ii) by one-half if the Company has not opened at least
seven new clinics (net of any clinics closed during such period) during the
Earn-Out Years; or (iii) by three-fourths if the Company has not opened at least
six new clinics (net of any clinics closed during such period) during the
Earn-Out Years; or (iv) to zero if the Company has opened five or fewer clinics
(net of any clinics closed during such period) during the Earn-Out Years. The
Company's Chief Executive Officer shall prepare a detailed schedule and timeline
for the opening of new clinics in the Second Earn-Out Year which shall be
presented to Parent and updated regularly. Such schedule shall provide for at
least one new clinic to open in each quarter of the Second Earn-Out Year and the
Company and the Chief Executive Officer of the Company will use their best
efforts to cause such new clinics to open in accordance with such schedule. As
used herein, "Earn-Out Years" shall mean the First Earn-Out Year and the Second
Earn-Out Year together; and "Earn-Out Payments" shall mean the First
Earn-Out Payment and the Second Earn-Out Payment, together.
(c) A clinic shall be deemed to have been "opened" for purposes of this
Section 4 if (i) it is operational and has scheduled, and is actually seeing,
patients or (ii) a currently effective lease has been signed and exists for the
clinic space, a physician has been identified and assigned to the clinic and has
commenced training and the clinic would have been operational but for a natural
disaster, force majeure or similar cause.
5. Payment of Earn-Out Amount. An Earn-Out Payment shall be distributed
to Sellers within thirty (30) days after the Earn-Out Payment has been
calculated in accordance with Section 3(d) of this Exhibit D. Each Earn-Out
Payment shall be made one-half in cash and one-half in Parent Common Stock. For
purposes of this Section 5, the number of shares of Parent Common Stock to be
issued shall be determined based on the average closing price of Parent Common
3
Stock on the NASDAQ Global Market for the ten trading days ending on the third
trading day immediately preceding an Earn-Out Payment.
6. Operation of the Company during Earn-Out Period. Until the end of
the Second Earn-Out Year, the President and Chief Executive Officer of the
Company shall be Kush Agarwal or another person satisfactory to the Sellers'
Representative. The Company's President and Chief Executive Officer shall have
authority over the day-to-day operations of the Company and the Company's
business as is typical for such an officer, including without limitation, the
right to hire, fire and retain employees, formulate policies, determine and
implement clinic expansion/closing plans, prepare the Company's operating and
capital budgets, determine the Company's primary office location, and generally
operate and manage the business of the Company, all subject to the reasonable
approval of Parent. The Company's President and Chief Executive Officer shall
report directly to Parent's Chief Executive Officer. Until the completion of the
Second Earn-Out Year, the Company shall continue to exist and operate as a
separate business of Parent, in the business segment contemplated by its current
projections.
4
Schedule I
Infrastructure Expenses
2007
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May June July August September October November December Total
=== ==== ==== ====== ========= ======= ======== ======== =====
2007 2007 2007 2007 2007 2007 2007 2007
==== ==== ==== ==== ==== ==== ==== ====
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Home Office Infrastructure
VP New Clinic Development 12,917 12,917
========================= ====== ======
Regional Managers 7,500 7,500 7,500 7,500 7,500 7,500 45,000
================= ===== ===== ===== ===== ===== ===== ======
Accountants 4,583 4,583 4,583 4,583 4,583 4,583 4,583 32,081
=========== ===== ===== ===== ===== ===== ===== ===== ======
IT 8,000 8,000 8,000 8,000 8,000 8,000 48,000
== ===== ===== ===== ===== ===== ===== ======
Receptionist 2,917 2,917 2,917 2,917 2,917 2,917 17,500
============ ===== ===== ===== ===== ===== ===== ======
Accounting Administrative 2,917 2,917 2,917 2,917 2,917 2,917 17,500
========================= ===== ===== ===== ===== ===== ===== ======
Human Resources Asst (GK) 6,667 6,667 6,667 6,667 6,667 6,667 6,667 6,667 53,333
========================= ===== ===== ===== ===== ===== ===== ===== ===== ======
Administrative (TW) 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 26,667
=================== ===== ===== ===== ===== ===== ===== ===== ===== ======
Manager of MD Referral Marketing 2,500 2,500 2,500 2,500 2,500 2,500 2,500 17,500
================================ ===== ===== ===== ===== ===== ===== ===== ======
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Total Incremental 10,000 17,083 38,416 38,416 38,416 38,416 38,416 51,333 270,498
================= ====== ====== ====== ====== ====== ====== ====== ====== =======
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