EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 30, 2000
AMONG
LITMUS CONCEPTS, INC.,
QUIDEL CORPORATION
AND
LITMUS ACQUISITION CORPORATION
TABLE OF CONTENTS
PAGE
ARTICLE 1 THE MERGER............................................................................................1
SECTION 1.1. THE MERGER.....................................................................................1
SECTION 1.2. EFFECTIVE TIME.................................................................................1
SECTION 1.3. CLOSING OF THE MERGER..........................................................................2
SECTION 1.4. EFFECTS OF THE MERGER..........................................................................2
SECTION 1.5. ARTICLES OF INCORPORATION AND BYLAWS...........................................................2
SECTION 1.6. DIRECTORS......................................................................................2
SECTION 1.7. OFFICERS.......................................................................................2
SECTION 1.8. CONVERSION OF SHARES...........................................................................2
SECTION 1.9. DISSENTERS' AND APPRAISAL RIGHTS...............................................................4
SECTION 1.10. EXCHANGE OF CERTIFICATES.......................................................................4
SECTION 1.11. STOCK OPTIONS..................................................................................6
SECTION 1.12. ESCROW AGREEMENT...............................................................................6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................7
SECTION 2.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES; INVESTMENTS......................................7
SECTION 2.2. CAPITALIZATION OF THE COMPANY..................................................................7
SECTION 2.3. AUTHORITY RELATIVE TO THIS AGREEMENT; RECOMMENDATION...........................................8
SECTION 2.4. FINANCIAL STATEMENTS...........................................................................8
SECTION 2.5. INFORMATION SUPPLIED...........................................................................8
SECTION 2.6. CONSENTS AND APPROVALS; NO VIOLATIONS..........................................................8
SECTION 2.7. NO DEFAULT.....................................................................................9
SECTION 2.8. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES.................................................9
SECTION 2.9. LITIGATION....................................................................................10
SECTION 2.10. COMPLIANCE WITH APPLICABLE LAW................................................................10
SECTION 2.11. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.........................................................10
SECTION 2.12. ENVIRONMENTAL LAWS AND REGULATIONS............................................................12
SECTION 2.13. TAXES.........................................................................................13
SECTION 2.14. INTELLECTUAL PROPERTY.........................................................................13
SECTION 2.15. MATERIAL CONTRACTS............................................................................16
SECTION 2.16. TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES........................................17
SECTION 2.17. INSURANCE.....................................................................................18
SECTION 2.18. CERTAIN BUSINESS PRACTICES....................................................................18
SECTION 2.19. PRODUCT WARRANTIES............................................................................18
SECTION 2.20. DISTRIBUTORS AND CUSTOMERS....................................................................18
SECTION 2.21. VOTE REQUIRED.................................................................................18
SECTION 2.22. TAX TREATMENT.................................................................................18
SECTION 2.23. AFFILIATES....................................................................................19
SECTION 2.24. BROKERS.......................................................................................19
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION.............................................19
SECTION 3.1. ORGANIZATION..................................................................................19
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SECTION 3.2. CAPITALIZATION OF PARENT AND ITS SUBSIDIARIES.................................................20
SECTION 3.3. AUTHORITY RELATIVE TO THIS AGREEMENT..........................................................20
SECTION 3.4. SEC REPORTS; FINANCIAL STATEMENTS.............................................................20
SECTION 3.5. INFORMATION SUPPLIED..........................................................................21
SECTION 3.6. CONSENTS AND APPROVALS; NO VIOLATIONS.........................................................21
SECTION 3.7. NO DEFAULT....................................................................................21
SECTION 3.8. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES................................................21
SECTION 3.9. OPINION OF FINANCIAL ADVISER..................................................................21
SECTION 3.10. NO PRIOR ACTIVITIES OF ACQUISITION............................................................21
ARTICLE 4 COVENANTS............................................................................................22
SECTION 4.1. CONDUCT OF BUSINESS OF THE COMPANY............................................................22
SECTION 4.2. APPROVAL OF SHAREHOLDERS......................................................................24
SECTION 4.3. NOTICE TO COMPANY WARRANT HOLDERS.............................................................25
SECTION 4.4. COMPANY STOCK OPTIONS.........................................................................25
SECTION 4.5. REGISTRATION RIGHTS AGREEMENT.................................................................25
SECTION 4.6. SHAREHOLDERS' AGREEMENT.......................................................................25
SECTION 4.7. EMPLOYEE MATTERS..............................................................................25
SECTION 4.8. NO SOLICITATION OR NEGOTIATION................................................................26
SECTION 4.9. NASDAQ LISTING................................................................................27
SECTION 4.10. ACCESS TO INFORMATION.........................................................................27
SECTION 4.11. CERTAIN FILINGS; REASONABLE EFFORTS...........................................................28
SECTION 4.12. PUBLIC ANNOUNCEMENTS..........................................................................28
SECTION 4.13. NOTIFICATION OF CERTAIN MATTERS...............................................................28
SECTION 4.14. ADDITIONS TO AND MODIFICATION OF COMPANY DISCLOSURE SCHEDULE..................................28
SECTION 4.15. COMPENSATION-RELATED PAYMENTS.................................................................29
SECTION 4.16. LOCK-UP AGREEMENTS............................................................................29
SECTION 4.17. COOPER LICENSE ARRANGEMENT....................................................................29
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER.............................................................29
SECTION 5.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER...................................29
SECTION 5.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY..................................................29
SECTION 5.3. CONDITIONS TO THE OBLIGATIONS OF PARENT AND ACQUISITION.......................................30
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER.......................................................................32
SECTION 6.1. TERMINATION...................................................................................32
SECTION 6.2. EFFECT OF TERMINATION.........................................................................32
SECTION 6.3. FEES AND EXPENSES.............................................................................32
SECTION 6.4. AMENDMENT.....................................................................................33
SECTION 6.5. EXTENSION; WAIVER.............................................................................33
ARTICLE 7 INDEMNIFICATION......................................................................................34
SECTION 7.1. GENERAL SURVIVAL..............................................................................34
SECTION 7.2. INDEMNIFICATION PROVISIONS IN GENERAL.........................................................34
SECTION 7.3. MANNER OF INDEMNIFICATION.....................................................................35
SECTION 7.4. SECURITYHOLDER AGENT..........................................................................36
SECTION 7.5. THIRD-PARTY CLAIMS............................................................................36
SECTION 7.6. EXCLUSIVE REMEDY..............................................................................37
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ARTICLE 8 MISCELLANEOUS........................................................................................37
SECTION 8.1. ENTIRE AGREEMENT; ASSIGNMENT..................................................................37
SECTION 8.2. SEVERABILITY..................................................................................37
SECTION 8.3. NOTICES.......................................................................................37
SECTION 8.4. GOVERNING LAW.................................................................................38
SECTION 8.5. DESCRIPTIVE HEADINGS; SECTION REFERENCES......................................................38
SECTION 8.6. PARTIES IN INTEREST...........................................................................38
SECTION 8.7. CERTAIN DEFINITIONS...........................................................................38
SECTION 8.8. PERSONAL LIABILITY............................................................................39
SECTION 8.9. SPECIFIC PERFORMANCE..........................................................................39
SECTION 8.10. FURTHER ASSURANCES............................................................................39
SECTION 8.11. CONSTRUCTION/INTERPRETATION...................................................................39
SECTION 8.12. COUNTERPARTS..................................................................................39
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TABLE OF EXHIBITS
Exhibit A.........................Escrow Agreement
Exhibit B.........................Registration Rights Agreement
Exhibit C.........................Shareholders' Agreement
Exhibit D.........................Severance/Bonus Packages
Exhibit E.........................Compensation-Related Payments
Exhibit F.........................List of Shareholders
Exhibit G.........................Lock-Up Agreement
Exhibit H.........................Conversion Formulas
TABLE OF CONTENTS
TO
COMPANY DISCLOSURE SCHEDULE
Section 2.2.......................Capitalization
Section 2.4.......................Financial Statements
Section 2.6.......................Consents and Approvals; Violations
Section 2.8.......................Liabilities
Section 2.9.......................Litigation
Section 2.11(a)...................Employee Benefit Plans
Section 2.11(b)...................Employment Agreements
Section 2.11(c)...................Benefits Payable Upon Effectiveness of Merger
Section 2.12......................Environmental Laws and Regulations
Section 2.13(b)...................Delinquent Tax Returns
Section 2.14(a)...................Intellectual Property
Section 2.14(f)...................License Agreements
Section 2.14(h)...................Protection of Intellectual Property
Section 2.15......................Material Contracts
Section 2.16......................Title to Properties
Section 2.17......................Insurance
Section 2.19......................Product Warranties
Section 2.23......................Affiliates
Section 2.24......................Broker
Section 4.1.......................Conduct of Business
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TABLE OF DEFINED TERMS
CROSS REFERENCE
TERM IN AGREEMENT PAGE
30-day Price ..........................................................Section 1.8(a)....................3
Acquisition ...........................................................Preamble..........................1
Affiliate .............................................................Section 8.7(a)...................47
Agreement .............................................................Preamble..........................1
Business day ..........................................................Section 8.7(b)...................47
Capital stock .........................................................Section 8.7(c)...................47
CCC ...................................................................Section 1.1.......................1
Certificates of Merger ................................................Section 1.2.......................2
Certificates ..........................................................Section 1.8(a)....................4
Closing Date ..........................................................Section 1.3.......................2
Closing ...............................................................Section 1.3.......................2
Code ..................................................................Preamble..........................1
Company ...............................................................Preamble..........................1
Company Affiliates ....................................................Section 2.23.....................24
Company Balance Sheet Date ............................................Section 2.4......................10
Company Balance Sheet .................................................Section 2.4......................10
Company Board .........................................................Section 2.3(a)....................9
Company Disclosure Schedule ...........................................Article 2.........................8
Company Indemnitee(s)..................................................Section 7.2(b)...................13
Company Permits .......................................................Section 2.10.....................13
Company Plans .........................................................Section 1.11(a)...................7
Company Securities ....................................................Section 2.2.......................9
Company Stock Option or Options .......................................Section 1.11(a)...................7
Continuing Employees ..................................................Section 4.7(a)...................32
Contract ..............................................................Section 2.15(a)..................21
Copyrights ............................................................Section 2.14(a)..................18
DGCL ..................................................................Section 1.1.......................1
Dissenting Shares .....................................................Section 1.9.......................5
Effective Time ........................................................Section 1.2.......................2
Employee Non-Disclosure Agreement .....................................Section 4.7(a)...................32
Employee Plans ........................................................Section 2.11(a)..................13
Environmental Laws ....................................................Section 2.12(a)..................15
ERISA Affiliate .......................................................Section 2.11(a)..................13
ERISA .................................................................Section 2.11(a)..................13
Escrow Agent ..........................................................Section 1.12......................8
Escrow Agreement ......................................................Section 1.12......................8
Escrow Amount .........................................................Section 1.12......................8
Exchange Act ..........................................................Section 3.4(a)...................26
Exchange Agent ........................................................Section 1.10(a)...................5
Exchange Fund .........................................................Section 1.10(a)...................5
Excluded Shares .......................................................Section 1.8(a)....................3
Execution Date ........................................................Preamble..........................1
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Financial Statements ..................................................Section 2.4......................10
Floor .................................................................Section 7.2(d)...................44
Government Entity .....................................................Section 2.6......................11
Hazardous Substance ...................................................Section 2.12(d)..................16
Include (including) ...................................................Section 8.7(d)...................48
Indemnification Claim .................................................Section 7.2(c)...................43
Indemnitor.............................................................Section 7.2(c)...................43
Information Statement .................................................Section 2.5......................10
Insurance Policies ....................................................Section 2.17.....................23
Intellectual Property .................................................Section 2.14(a)..................17
IRS ...................................................................Section 2.11(a)..................13
Knowledge ............................................................Section 8.7(e)...................48
Known ................................................................Section 8.7(e)...................48
License Agreements ....................................................Section 2.14(f)..................20
Lien ..................................................................Section 2.6......................11
Losses ................................................................Section 7.2......................43
Material Adverse Effect on Parent .....................................Section 3.1(b)...................24
Material Adverse Effect on the Company ................................Section 2.1(b)....................8
Material Contract(s) ..................................................Section 2.15(a)..................21
Merger Consideration ..................................................Section 1.8(a)....................3
Merger ................................................................Section 1.1.......................1
Multiemployer Plan ....................................................Section 2.11(f)..................15
Multiple Employer Plan ................................................Section 2.11(f)..................15
Nasdaq ................................................................Section 1.8(a)....................3
Notice of Superior Proposal ...........................................Section 4.8(b)...................34
Other Interests .......................................................Section 2.1(c)....................9
Owned Copyrights ......................................................Section 2.14(d)(i)...............19
Parent Common Stock ...................................................Section 1.8(a)....................3
Parent Financial Adviser ..............................................Section 3.9......................27
Parent Indemnitees ....................................................Section 7.2(a)...................43
Parent Plans ..........................................................Section 4.7(b)...................32
Parent ................................................................Preamble..........................1
Parent SEC Reports ....................................................Section 3.4(a)...................26
Parent Securities .....................................................Section 3.2......................25
Patent Applications ..................................................Section 2.14(a)..................18
Patents ...............................................................Section 2.14(a)..................17
Person ................................................................Section 8.7(f)...................48
Pro Rata Ratio.........................................................Section 1.12......................8
Registered Copyrights .................................................Section 2.14(d)(i)...............19
Registration Rights Agreement .........................................Section 4.5......................32
Securities Act ........................................................Section 3.4(a)...................26
Securityholder Agent ..................................................Section 7.4......................45
Share(s) .............................................................Section 1.8(a)....................3
Share Value ..........................................................Section 1.8(a)....................3
Shareholder Proceedings ...............................................Section 4.2......................31
Shareholders' Agreement ...............................................Section 4.6......................32
Stock Option Plan .....................................................Section 1.11(a)...................7
Subsidiary(ies) .......................................................Section 8.7(g)...................48
vi
Superior Proposal .....................................................Section 4.8(c)...................34
Survival Period .......................................................Section 7.1......................42
Surviving Corporation .................................................Section 1.1.......................1
Tax or Taxes ..........................................................Section 2.13(a)(i)...............16
Tax Return ............................................................Section 2.13(a)(ii)..............16
Third Party Acquisition ...............................................Section 4.8(c)...................34
Third Party ...........................................................Section 4.8(c)...................34
Trade Secrets .........................................................Section 2.14(a)..................18
Trademarks ............................................................Section 2.14(a)..................17
Voting Agreements .....................................................Preamble..........................1
Warrants ..............................................................Section 1.8(b)....................4
vii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October
30, 2000 (the "Execution Date"), is by and among LITMUS CONCEPTS, INC., a
California corporation (the "Company"), QUIDEL CORPORATION, a Delaware
corporation ("Parent"), and LITMUS ACQUISITION CORPORATION, a Delaware
corporation and a wholly owned subsidiary of Parent ("Acquisition").
WHEREAS, the Boards of Directors of the Company, Parent and Acquisition
have each (i) determined that the Merger (as defined below) is advisable and
fair, and in the best interests of their respective stockholders, and (ii)
approved the Merger upon the terms and subject to the conditions set forth in
this Agreement;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
qualify as a reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code");
WHEREAS, certain employees of the Company will enter into employment
agreements and noncompetition/nonsolicitation agreements, effective upon
consummation of the Merger, as an inducement to Parent to enter into this
Agreement; and
WHEREAS, at least a majority of the shareholders of the Company's common
stock and each series of preferred stock have entered into irrevocable proxy and
voting agreements or have signed a shareholder action by written consent,
pursuant to which such shareholders have voted or agreed to vote in favor of the
Merger and the other transactions contemplated by this Agreement (the "Voting
Agreements"), as an inducement to Parent to enter into this Agreement; and
WHEREAS, simultaneous with the execution of this Agreement, the Company and
Parent are entering into an Operating Agreement and a Working Capital Promissory
Note, pursuant to which Parent has provided funding to the Company to continue
to operate the business of the Company between the Execution Date and the
Closing Date (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows:
ARTICLE 1
THE MERGER
Section 1.1. THE MERGER. At the Effective Time (as defined below) and upon
the terms and subject to the conditions of this Agreement and in accordance with
the Delaware General Corporation Law (the "DGCL") and the California
Corporations Code (the "CCC"), Acquisition shall be merged with and into the
Company (the "Merger"). Following the Merger, the Company shall continue as the
surviving corporation (the "Surviving Corporation") and the separate corporate
existence of Acquisition shall cease. The Merger is intended to qualify as a
tax-free reorganization under Section 368(a) of the Code. Parent, as the sole
stockholder of Acquisition, hereby approves the Merger and this Agreement.
Section 1.2. EFFECTIVE TIME. Subject to the terms and conditions set forth
in this Agreement, on the Closing Date (as defined in Section 1.3), Certificates
of Merger (the "Certificates of Merger") shall be duly executed and acknowledged
by Acquisition and the Company and thereafter delivered to the Secretary of
State of the State of Delaware for filing pursuant to Section 252 of the DGCL
and the Secretary of State of the State of California for filing pursuant to
Section 1103 of the CCC. In addition, the parties hereto shall take all such
further actions and file such other documents as may be required by law to make
the Merger effective. The Merger shall
become effective at such time as properly executed copies of the Certificates of
Merger are duly filed with the Secretaries of State of the States of Delaware
and California in accordance with the DGCL and the CCC, respectively, or such
later time as Parent and the Company may agree upon and as set forth in the
Certificates of Merger (the time the Merger becomes effective being referred to
herein as the "Effective Time").
Section 1.3. CLOSING OF THE MERGER. The closing of the Merger (the
"Closing") will take place at a time and on a date (the "Closing Date") to be
specified by the parties, which shall be no later than the second business day
after satisfaction of the last to be satisfied of the conditions set forth in
Article 5 (other than those conditions that, by their terms, are to be satisfied
at the Closing), at the offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza,
Irvine, California 92614, unless another time, date or place is agreed to in
writing by the parties hereto.
Section 1.4. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL and the CCC. Without limiting the generality of the foregoing
and subject thereto, at the Effective Time all the properties, rights,
privileges, powers and franchises of the Company and Acquisition shall vest in
the Surviving Corporation, and all debts, liabilities and obligations of the
Company and Acquisition shall become the debts, liabilities and obligations of
the Surviving Corporation.
Section 1.5. ARTICLES OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Acquisition in effect at the Effective Time shall be
substantially the form of the Articles of Incorporation of the Surviving
Corporation until amended in accordance with applicable law. The Bylaws of
Acquisition in effect at the Effective Time shall be the Bylaws of the Surviving
Corporation until amended in accordance with applicable law.
Section 1.6. DIRECTORS. The directors of Acquisition at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
Section 1.7. OFFICERS. The officers of Acquisition at the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified.
Section 1.8. CONVERSION OF SHARES.
(a) At the Effective Time, each share of preferred stock and common stock,
both at no par value per share, of the Company (individually, a "Share" and
collectively, the "Shares") issued and outstanding immediately prior to the
Effective Time (other than (i) Shares held in the Company's treasury or by any
of the Company's subsidiaries, (ii) Shares held by Parent, Acquisition or any
other subsidiary of Parent, and (iii) Dissenting Shares (as defined in Section
1.9 below) as to which appraisal rights have been or may be perfected under the
CCC; such (i), (ii) and (iii) collectively referred to as "Excluded Shares")
shall, by virtue of the Merger and without any action on the part of Parent,
Acquisition, the Company or the holder thereof, be converted into the "Merger
Consideration" as follows and issued in accordance with Section 1.10 below:
(i) each share of series a preferred stock of the company will be
converted into the right to receive .297654 shares of parent common stock;
(ii) each share of series b preferred stock of the company will be
converted into the right to receive .744185 shares of parent common stock;
(iii) each share of series c preferred stock of the company will be
converted into the right to receive .744185 shares of parent common stock;
(iv) each share of series d preferred stock of the company will be
converted into the right to receive 1.1907 shares of parent common stock;
2
(v) each share of series e preferred stock of the company will be
converted into the right to receive 3.5588473 shares of parent common
stock; and
(vi) each share of common stock of the company will be converted into the
right to receive the number of shares of parent common stock equal to (a)
1,055,817 shares of parent common stock, minus (b) such number of shares of
parent common stock as are issuable in the aggregate pursuant to section
1.11(b), minus (c) the number of shares of parent common stock equal to the
quotient of (x) the share value (defined below), multiplied by (y) the
dissenting shares, divided by (z) $5.375 or the 30-day price, as
applicable, the net result of (a), (b) and (c) then divided by 2,932,423
(shares of common stock of the company calculated on a fully-diluted basis
immediately prior to the effective time).
For purposes hereof, "Parent Common Stock" means the common stock, par
value $0.001 per share, of Parent. "Share Value" shall mean (A) the total number
of shares of Parent Common Stock issued under Section 1.8(a)(vi) above,
multiplied by (B) $5.375 or the 30-day Price, if applicable, divided by (C)
2,932,423 (Shares of common stock of the Company calculated on a fully-diluted
basis immediately prior to the Effective Time). The total number of shares of
Parent Common Stock to be issued as Merger Consideration under this Agreement
shall be 3,250,000 and shall be allocated as specified in this Section 1.8(a)
and Section 1.11(b) below, unless the arithmetic average of the Nasdaq National
Market ("Nasdaq") closing sale prices for Parent Common Stock (as reported in
the WALL STREET JOURNAL or, in the absence thereof, by another authoritative
source) for the thirty (30) consecutive day period ending on the business day
immediately preceding the Closing Date is greater than $6.41 per share (the
"30-day Price"). If, on the business day immediately preceding the Closing Date,
the price per share of Parent Common Stock exceeds the 30-day Price, as
described in the immediately preceding sentence, then the total number of shares
of Parent Common Stock to be issued under this Agreement shall be adjusted
downward as follows: the value of the Merger Consideration based on $6.41 per
share ($20,832,500) would be divided by the 30-day Price, and the resulting
quotient would be the total number of shares of Parent Common Stock required to
be issued under this Agreement, which would then be allocated according to the
same formulas used to determine the allocation specified above in this Section
1.8(a) and in Section 1.11(b), as described generally in Exhibit H.
Each Share issued and outstanding immediately prior to the Effective Time
(excluding the Excluded Shares) shall at the Effective Time no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each certificate previously evidencing any such Shares
("Certificates") shall thereafter represent the right to receive only the Merger
Consideration. The holders of Certificates shall cease to have any rights with
respect to the Shares previously represented thereby, except as otherwise
provided herein or by law. Notwithstanding the foregoing, if, between the date
of this Agreement and the Effective Time, the outstanding shares of Parent
Common Stock or the Shares shall have been changed into a different number of
shares or a different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
then the Merger Consideration shall be correspondingly adjusted to reflect such
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares.
(b) Immediately prior to the Effective Time, each outstanding warrant of
the Company ("Warrants") shall be exercised in accordance with their terms into
Shares of Company common stock. At the Effective Time, such Shares of common
stock shall be converted to shares of Parent Common Stock in accordance with
Section 1.8(a)(vi) above, and all unexercised Warrants shall be canceled,
retired and cease to exist. The Company shall take all action, including
delivery of, not less than fifteen (15) days prior to the Closing Date, notice
of the Merger and acknowledgment of cancellation of each unexercised Warrant to
each holder of such Warrant.
(c) At the Effective Time, each outstanding share of the common stock, par
value $0.001 per share, of Acquisition shall be converted into one share of
common stock, no par value per share, of the Surviving Corporation.
3
(d) At the Effective Time, each Share held in the treasury of the Company
and each Share held by Parent, Acquisition or any other subsidiary of Parent, or
the Company immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of Acquisition, the Company or the
holder thereof, be canceled, retired and cease to exist and no shares of Parent
Common Stock shall be payable or delivered with respect thereto.
(e) Merger Consideration otherwise payable pursuant to Section 1.8(a)
hereof shall be deferred as further provided in Section 1.12.
Section 1.9. DISSENTERS' AND APPRAISAL RIGHTS. Notwithstanding anything in
this Agreement to the contrary, each Share that is issued and outstanding
immediately prior to the Effective Time and that is held by a shareholder who
may properly demand and perfect such shareholder's rights to dissent from the
Merger and to be paid the fair value of such Shares in accordance with Chapter
13 of the CCC (the "Dissenting Shares"), shall not be converted into or
exchangeable for the right to receive the Merger Consideration until such rights
to dissent shall have expired or been waived, in which case such shares of
Parent Common Stock shall be distributed as calculated in accordance with
Section 1.8(a)(vi) and Section 1.11(b), but if such rights are demanded and
perfected then, the holder thereof shall be entitled to such rights as are
granted by the CCC, and the Surviving Corporation shall make all payments to the
holders of such Shares with respect to such demands in accordance with the CCC;
PROVIDED, HOWEVER, that if such holder shall have failed to perfect or shall
have lost the right to dissent and receive payment under the CCC, each Share
held by such holder shall thereupon be deemed to have been converted into and to
have become exchangeable for, as of the Effective Time, solely the right to
receive the Merger Consideration to which such shareholder is entitled pursuant
to Section 1.8. The Company shall give reasonably prompt notice to Acquisition
and Parent of any demands received by the Company for payment under Chapter 13
of the CCC, and Acquisition and Parent shall have the right to participate in
all negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Acquisition and Parent, make any
payment with respect to, or settle or offer to settle, such demands.
Section 1.10. EXCHANGE OF CERTIFICATES.
(a) From time to time following the Effective Time, as required by
subsections (b) and (c) below, Parent shall deliver to its transfer agent, or a
depository or trust institution of recognized standing selected by Parent and
Acquisition (the "Exchange Agent"), for the benefit of the holders of Shares for
exchange in accordance with this Article 1 (i) certificates representing the
appropriate number of shares of Parent Common Stock issuable pursuant to Section
1.8(a) and Section 1.11(b) (less the Escrow Amount as defined in Section 1.12
below), and (ii) cash to be paid in lieu of fractional shares of Parent Common
Stock (such shares of Parent Common Stock and such cash are hereinafter referred
to as the "Exchange Fund"), in exchange for outstanding Shares. Notwithstanding
the foregoing, Parent may at Parent's election assume and perform the
responsibilities of the Exchange Agent hereunder, in which event references to
the Exchange Agent hereafter shall be deemed references to Parent as the context
so permits.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a Certificate or
Certificates that immediately prior to the Effective Time represented
outstanding Shares and whose Shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 1.8 (i) a letter of
transmittal (which shall specify that delivery shall be effected and risk of
loss and title to the Certificates shall pass only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent and the Company may reasonably specify), and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock and, if applicable, a check representing the cash
consideration to which such holder may be entitled on account of a fractional
share of Parent Common Stock that such holder has the right to receive pursuant
to this Article 1, and the Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, a certificate representing
the proper number of shares of Parent Common Stock may be issued to a transferee
if the Certificate representing such Shares is presented to the Exchange Agent
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes
4
have been paid. Until surrendered as contemplated by this Section 1.10, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the certificate representing
shares of Parent Common Stock and cash in lieu of any fractional shares of
Parent Common Stock as contemplated by this Section 1.10.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 1.10(f), until the holder of record of such Certificate shall
surrender to the Exchange Agent such Certificate. Subject to the effect of
applicable law, following surrender of any such Certificate there shall be paid
to the record holder of the certificates representing whole shares of Parent
Common Stock issued in exchange therefor without interest (i) the amount of any
cash payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 1.10(f) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such number of whole shares of Parent Common Stock, and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to such whole shares of Parent
Common Stock.
(d) If any Certificate for Shares shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange therefor, upon the making
of an affidavit of that fact by the record holder thereof, such shares of Parent
Common Stock and cash in lieu of fractional shares, if any, as may be required
pursuant to this Agreement; PROVIDED, HOWEVER, that Parent or the Exchange Agent
may, in its sole discretion, require the delivery of a suitable bond or
indemnity.
(e) All shares of Parent Common Stock issued upon the surrender for
exchange of Shares in accordance with the terms hereof (including any cash paid
pursuant to Section 1.10(c) or 1.10(f)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such Shares. From and after the
Effective Time, there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the Shares that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article 1.
(f) No fractions of a share of Parent Common Stock shall be issued in the
Merger, but in lieu thereof each holder of Shares otherwise entitled to a
fraction of a share of Parent Common Stock shall, upon surrender of his, her or
its Certificate or Certificates, be entitled to receive an amount of cash
(without interest) determined by multiplying $5.375 or the 30-day Price, if
applicable, by the fractional share interest to which such holder would
otherwise be entitled. The parties acknowledge that payment of the cash
consideration in lieu of issuing fractional shares was not separately bargained
for consideration, but merely represents a mechanical rounding off for purposes
of simplifying the corporate and accounting complexities that would otherwise be
caused by the issuance of fractional shares.
(g) Any portion of the Exchange Fund that remains undistributed to holders
of Shares upon the expiration of six (6) months after the Effective Time shall
be delivered to Parent upon demand, and any holders of Shares who have not
theretofore complied with this Article 1 shall thereafter look only to Parent
for payment of their claim for Parent Common Stock and cash in lieu of
fractional shares, as the case may be, and any applicable dividends or
distributions with respect to Parent Common Stock.
(h) Neither Parent nor the Surviving Corporation shall be liable to any
holder of Shares for shares of Parent Common Stock constituting Merger
Consideration (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
5
Section 1.11. STOCK OPTIONS.
(a) At the Effective Time, each outstanding option to purchase Shares (a
"Company Stock Option" and, collectively, the "Company Stock Options") issued
pursuant to the Litmus Concepts, Inc. 1992 Stock Option Plan, as amended (the
"Stock Option Plan"), or any other similar agreement or arrangement (including
Warrants), which is unvested or which is vested but has an exercise price above
the Share Value as of the Effective Time, shall terminate and cease to represent
a right to acquire Shares. All plans or other similar agreements and
arrangements, including the Stock Option Plan, pursuant to which any Company
Stock Option has been issued or may be issued are referred to herein
collectively as the "Company Plans." The Company shall take all action,
including delivery of, not less than 10 days prior to the Closing Date, notice
of the Merger and cancellation of each outstanding Company Stock Option to each
holder of Company Stock Options.
(b) Immediately prior to the Effective Time, all outstanding Company Stock
Options which are vested and have an exercise price at or below the Share Value
as of the Effective Time shall have the right to receive the number of shares of
Parent Common Stock equal to (i) the number of Shares issuable upon exercise of
the Company Stock Option multiplied by the Share Value, minus (ii) the number of
Shares issuable upon exercise of the Company Stock Option multiplied by the
exercise price of such Company Stock Option, the net result of (i) and (ii) then
divided by $5.375 or the 30-day Price, if applicable. Shares of Parent Common
Stock otherwise payable pursuant to this Section 1.11(b) shall be deferred as
further provided in Section 1.12.
(c) At or before the Effective Time, the Company shall cause to be
effected any amendments to the Company Plans and the Company's Board of
Directors shall adopt any resolutions necessary to give effect to the foregoing
provisions of this Section 1.11. The Company shall use its reasonable best
efforts to obtain the consent of each holder of Company Stock Options to the
foregoing treatment of such Company Stock Options to the extent required under
the Company Plans.
Section 1.12. ESCROW AGREEMENT. Notwithstanding anything to the contrary
contained in this Agreement, promptly after the Effective Time, Parent shall
deposit that number of shares of Parent Common Stock equal to the sum of: (i)
twenty percent (20%) of the Shares of Parent Common Stock otherwise payable as
Merger Consideration pursuant to Section 1.8(a) and Section 1.11(b) plus (ii)
that number of shares of Parent Common Stock valued at $5.375 or the 30-day
Price, as applicable, having the aggregate dollar value of Six Hundred Ten
Thousand Dollars ($610,000) ((i) and (ii) collectively, the "Escrow Amount")
with an Escrow Agent (the "Escrow Agent") mutually satisfactory to Parent and
the Securityholder Agent (as defined in Section 7.4 below) to be administered
and distributed pursuant to the provisions of an escrow agreement in
substantially the form of EXHIBIT A (the "Escrow Agreement"), such number to be
deducted based on the "Pro Rata Ratio" (as defined herein) from the Merger
Consideration otherwise payable to each shareholder pursuant to Section 1.8(a)
and Section 1.11(b). Pro Rata Ratio, for purposes of this Agreement, is the
ratio of (x) the total number of shares of Parent Common Stock otherwise payable
as Merger Consideration to each shareholder pursuant to Section 1.8(a) and
Section 1.11(b) to (y) the total number of shares of Parent Common Stock issued
as Merger Consideration pursuant to this Agreement. The Escrow Amount shall be
applied for the payment of any obligations relating to or arising out of the
items specified in Section 7.2(a) below, pursuant to the provisions of Article 7
hereof and the Escrow Agreement.
6
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition, subject to the exceptions set forth in the Disclosure Schedule (the
"Company Disclosure Schedule") delivered by the Company to Parent and
Acquisition (which exceptions shall specifically identify a Section, subsection,
paragraph or clause of a single Section or subsection hereof, as applicable, to
which such exception relates) that:
Section 2.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES; INVESTMENTS.
(a) The Company has no directly or indirectly owned subsidiaries. The
Company is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has all requisite
power and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted. The Company has heretofore delivered to
Acquisition or Parent accurate and complete copies of the Articles of
Incorporation and Bylaws (or similar governing documents), as currently in full
force and effect, of the Company.
(b) The Company is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not, individually or in
the aggregate, have a Material Adverse Effect (as defined below) on the Company.
For purposes hereof, the term "Material Adverse Effect on the Company" means any
circumstance, change in, or effect on (or any circumstance, change or effect
involving a prospective change on) the Company (i) that is, or is reasonably
likely in the future to be, materially adverse to the operations, assets or
liabilities (including contingent liabilities), earnings or other results of
operations, or the condition (financial or otherwise) or prospects of the
Company, taken as a whole or (ii) that would reasonably be expected to prevent
or materially delay or impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
(c) The Company has made no cash equity investment in any person ("Other
Interests").
Section 2.2. CAPITALIZATION OF THE COMPANY. The authorized capital stock of
the Company consists of 10,000,000 Shares of Common Stock and 5,000,000 Shares
of Preferred Stock, of which, as of the date hereof, 2,330,136 Shares of Common
Stock, 497,075 Shares of Series A Preferred Stock, 150,000 Shares of Series B
Preferred Stock, 200,000 Shares of Series C Preferred Stock, 249,750 Shares of
Series D Preferred Stock and 418,218 Shares of Series E Preferred Stock were
issued and outstanding. All of the outstanding Shares have been validly issued
and are fully paid and nonassessable and are, other than the Series E Preferred
Stock, free of preemptive rights. As of the date hereof, 1,375,000 Shares were
reserved for issuance and 447,465 Shares were issuable upon or otherwise
deliverable in connection with the exercise of outstanding Company Stock Options
issued pursuant to the Company Plans. As of the date hereof, there were Warrants
to purchase 325,000 Shares of common stock outstanding and 325,000 Shares
reserved for issuance in connection with the exercise of such Warrants. Except
as set forth above, as of the date hereof, there are outstanding (i) no shares
of capital stock or other voting securities of the Company, (ii) no securities
of the Company convertible into, or exchangeable or exercisable for, shares of
capital stock or voting securities of the Company, (iii) no options, warrants or
other rights to acquire from the Company and no obligations of the Company to
issue any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of the
Company, and (iv) no equity equivalent interests in the ownership or earnings of
the Company or other similar rights (the securities described in the foregoing
clauses (i) through (iv) hereafter collectively referred to as "Company
Securities"). As of the date hereof, there are no outstanding rights or
obligations of the Company to repurchase, redeem or otherwise acquire any
Company Securities. All Shares, Company Stock Options and Warrants have been
issued in compliance with all federal and state (including "blue sky") laws,
statutes, regulations and permits. Other than the Litmus Concepts, Inc.
Shareholders' Agreement dated as of February 15, 1998, the Fourth Amended and
Restated Registration Rights Agreement, dated as of February 25, 1998, and as
otherwise contemplated by this Agreement,
7
there are no shareholder agreements, voting trusts, rights agreements or other
agreements or understandings to which the Company or its shareholders are
parties or by which they are bound relating to the voting or registration of or
rights associated with any shares of capital stock or other voting securities of
the Company. The holders of Shares of Preferred Stock of the Company are not
entitled to and do not have dissenter's rights under Chapter 13 of the CCC.
Section 2.2 of the Company Disclosure Schedule sets forth a true and complete
list as of the date hereof of all holders of outstanding Company Stock Options,
the exercise or vesting schedule, the exercise price per share, the term of each
such Company Stock Option, whether such option is a nonqualified stock option or
incentive stock option and any restrictions on exercise or sale of the option or
underlying shares. No Company Stock Option shall accelerate solely as a
consequence of the Merger or any of the other transactions contemplated by this
Agreement.
Section 2.3. AUTHORITY RELATIVE TO THIS AGREEMENT; RECOMMENDATION.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations under this Agreement and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of the Company
(the "Company Board"), and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby, except the approval and adoption of this
Agreement by a majority of the holders of the common stock and each series of
preferred stock of the Company. This Agreement has been duly and validly
executed and delivered by the Company and constitutes, assuming the due
authorization, execution and delivery hereof by Parent and Acquisition, a valid,
legal and binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally or to general principles of equity.
(b) The Company Board has unanimously resolved to recommend that the
shareholders of the Company approve and adopt this Agreement and the
transactions contemplated hereby.
Section 2.4. FINANCIAL STATEMENTS. The Company has delivered to Parent
copies of financial statements (hereinafter collectively called the "Financial
Statements"), as set forth in Section 2.4 of the Company Disclosure Schedule, as
follows: (i) audited financial statements of the Company for the fiscal year
ended June 30, 2000 and (ii) unaudited financial statements of the Company for
the two months ended August 31, 2000. The balance sheet of the Company at August
31, 2000 is referred to herein as the "Company Balance Sheet" and the date
thereof is referred to herein as the "Company Balance Sheet Date." Except as set
forth in the Financial Statements, such statements of income do not contain any
items of special or nonrecurring revenue or any other income not earned in the
ordinary course of business except as expressly specified therein, and such
Financial Statements include all adjustments, which consist only of normal
recurring accruals, necessary for a fair presentation. The Financial Statements
have been prepared in accordance with United States generally accepted
accounting principles consistently applied and maintained throughout the periods
indicated and fairly present the consolidated financial condition of the Company
at their respective dates and the results of its operations for the periods
covered thereby.
Section 2.5. INFORMATION SUPPLIED. None of the information supplied or to
be supplied by the Company for inclusion in the Information Statement used or
delivered to Company shareholders in connection with the approval of the Merger
and the adoption of this Agreement and the other Transaction Documents (the
"Information Statement") will, at the date mailed to shareholders of the Company
and at the time used in connection with obtaining the approval of the Merger and
the adoption of this Agreement and the other Transaction Documents, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein in
light of the circumstances under which they are made not misleading. The
foregoing representation shall not apply to information furnished in writing to
the Company by or on behalf of Parent or Acquisition for inclusion in the
Information Statement. The Information Statement, insofar as it relates to the
meeting of the Company's shareholders to vote on or a solicitation of written
consents from Company shareholders for approval of, the Merger will comply as to
form in all material respects with the provisions of the CCC and the rules and
regulations thereunder.
Section 2.6. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under
applicable requirements of the Securities Act, the Exchange Act,
8
state securities or blue sky laws, any filings under similar merger notification
laws or regulations of foreign Governmental Entities (as defined below) and the
filing and recordation of the Certificates of Merger as required by the DGCL and
the CCC, no filing with or notice to, and no permit, authorization, consent or
approval of, any United States or foreign court or tribunal, governmental or
regulatory body, or administrative agency or authority (in each case, a
"Governmental Entity") is necessary for the execution and delivery by the
Company of this Agreement or the consummation by the Company of the transactions
contemplated hereby, except where the failure to obtain any such permit,
authorization, consent or approval or to make any such filing or give any such
notice would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation by the Company of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or Bylaws (or similar governing
documents) of the Company, (ii) except as set forth in Section 2.6 of the
Company Disclosure Schedule, result in a violation or breach of or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration or Lien) under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company is a party or by which any of them or any of their
respective properties or assets may be bound, or (iii) except as set forth in
Section 2.6 of the Company Disclosure Schedule, violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to the Company,
or any of its properties or assets, except, in the case of clause (ii) or (iii),
for violations, breaches or defaults that would not, individually or in the
aggregate, result in any loss, expenses, charges, assessments, levies, fine or
other liabilities being imposed upon or incurred by the Company exceeding Five
Thousand Dollars ($5,000). For purposes of this Agreement, "Lien" means, with
respect to any asset, any security, mortgage, lien, pledge, charge, security
interest, conditional sale agreements, title retention agreements, claims,
charges, easements, licenses, rights-of-way, covenants, conditions,
restrictions, options, adverse or equitable claims, or encumbrance of any kind
in respect of such asset.
Section 2.7. NO DEFAULT. The Company is not in breach, default or violation
(and no event has occurred that with notice or the lapse of time or both would
constitute a breach, default or violation) of any term, condition or provision
of (i) its Articles of Incorporation or Bylaws (or similar governing documents),
(ii) any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which the Company is now a party or by which
it or any of its properties or assets may be bound, or (iii) any order, writ,
injunction or decree of any Governmental Entity applicable to the Company or any
of its properties or assets, except, in the case of clause (ii) or (iii), for
violations, breaches or defaults that would not, individually or in the
aggregate, result in any loss, expenses, charges, assessments, levies, fine or
other liabilities being imposed upon or incurred by the Company or any of its
subsidiaries exceeding Five Thousand Dollars ($5,000).
Section 2.8. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES. Except as set
forth in Section 2.8 of the Company Disclosure Schedule, the Company has no
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, that would be required by generally accepted accounting principles to
be reflected on a consolidated balance sheet of the Company (including the notes
thereto), other than liabilities and obligations reflected on the Company
Balance Sheet or incurred in the ordinary course of business consistent with
past practices after such date. Except as set forth in Section 2.8 of the
Company Disclosure Schedule, since June 30, 2000, there have been no events,
changes or effects with respect to the Company or any of its subsidiaries that
have had or reasonably would be expected to have a Material Adverse Effect on
the Company. Without limiting the generality of the foregoing, except as set
forth in Section 2.8 of the Company Disclosure Schedule, since June 30, 2000,
the Company has conducted its business in all material respects only in, and
have not engaged in any transaction other than in accordance with, the ordinary
and usual course of such business consistent with past practices, and there has
not been any:
(a) circumstance, change in or effect on the operations, assets or
liabilities (including contingent liabilities), earnings or other results of
operations or the condition (financial or otherwise) of the Company, except for
continuing losses and those other circumstances, changes and effects that,
individually or in the aggregate, have not had and are not reasonably likely to
have a Material Adverse Effect on the Company;
(b) damage, destruction or other casualty loss with respect to any
material asset or property owned, leased or otherwise used by the Company,
whether or not covered by insurance;
9
(c) split, combination, reclassification, declaration, setting aside or
payment of any dividend or other distribution in respect of the capital stock of
the Company or any repurchase, redemption or other acquisition by the Company of
any outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company;
(d) amendment of any term of any outstanding security of the Company;
(e) incurrence, assumption or guarantee by the Company of any indebtedness
for borrowed money other than in the ordinary course of business and in amounts
and on terms consistent with past practices;
(f) creation or assumption by the Company of any Lien on any asset other
than in the ordinary course of business consistent with past practices;
(g) loan, advance or capital contribution made by the Company to, or
investment in, any person;
(h) transaction or commitment made, or any contract or agreement entered
into, by the Company relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by the Company
of any contract, agreement or other right, in either case, material to the
Company, taken as a whole;
(i) change by the Company in its accounting principles, practices or
methods;
(j) revaluation of any of the Company's assets, including writing-down the
value of inventory and equipment or writing-off notes or accounts receivable,
other than in the ordinary course of business; or
(k) increase in the compensation payable or that could become payable by
the Company to (i) officers of the Company or (ii) any employee of the Company
whose annual cash compensation is Twenty-Five Thousand Dollars ($25,000) or
more.
Section 2.9. LITIGATION. Except as set forth in Section 2.9 of the Company
Disclosure Schedule, there are no suits, claims, actions, proceedings or
investigations pending or, to the knowledge of the Company, threatened against
the Company or any of its properties or assets before any Governmental Entity.
Except as set forth in Section 2.9 of the Company Disclosure Schedule, the
Company is not subject to any outstanding order, writ, injunction or decree of
any Governmental Entity that would reasonably be expected to result in any loss,
expenses, charges, assessments, levies, fines or other liabilities being imposed
upon or incurred by the Company or would reasonably be expected to prevent or
materially delay the consummation of the transactions contemplated hereby.
Section 2.10. COMPLIANCE WITH APPLICABLE LAW. The Company holds and is in
compliance with all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of its
business (collectively, the "Company Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals that would not,
individually or in the aggregate, result in any charges, assessments, levies,
fines or other liabilities being imposed upon or incurred by the Company
exceeding Five Thousand Dollars ($5,000). The business of the Company has not
been and is not being conducted in violation of any law, ordinance or regulation
of the United States or any foreign country or any political subdivision thereof
or of any Governmental Entity. No investigation or review by any Governmental
Entity with respect to the Company is pending or, to the knowledge of the
Company, threatened, nor, to the knowledge of the Company, has any Governmental
Entity indicated an intention to conduct the same.
Section 2.11. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Section 2.11(a) of the Company Disclosure Schedule lists as of the
date hereof all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and all
bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental
10
retirement, health, life, or disability insurance, dependent care, severance and
other similar fringe or employee benefit plans, programs or arrangements and any
current or former employment or executive compensation or severance agreements
written or otherwise maintained or contributed to for the benefit of or relating
to any employee or former employee of the Company, any trade or business
(whether or not incorporated) that is a member of a controlled group including
the Company or that is under common control with the Company within the meaning
of Section 414 of the Code (an "ERISA Affiliate"), as well as each plan with
respect to which the Company or an ERISA Affiliate could incur liability under
Section 4069 (if such plan has been or were terminated) or Section 4212(c) of
ERISA (together the "Employee Plans"), excluding Employee Plans under which the
Company has no remaining obligations and any of the foregoing that are required
to be maintained by the Company under the laws of any foreign jurisdiction. The
Company has made available to Parent a copy of (i) the most recent annual report
on Form 5500 filed with the Internal Revenue Service (the "IRS") for each
disclosed Employee Plan where such report is required and (ii) the documents and
instruments governing each such Employee Plan (other than those referred to in
Section 4(b)(4) of ERISA). Each Employee Plan has been maintained in all
respects, by its terms and in operation, in accordance with ERISA and the Code,
and there has been no violation of any reporting or disclosure requirement
imposed by ERISA or the Code. Each Employee Plan intended to be qualified under
Section 401(a) of the Code, and each trust intended to be exempt under Section
501(a) of the Code, has been determined to be so qualified or exempt by the IRS,
and since the date of each most recent determination, there has been no event,
condition or circumstance that has adversely affected or is likely to adversely
affect such qualified status. No Employee Plan has participated in, engaged in
or been a party to any transaction that is prohibited under Section 4975 of the
Code or Section 406 of ERISA and not exempt under Section 4975 of the Code or
Section 408 of ERISA, respectively. With respect to any Employee Plan, (i)
neither the Company, nor any of its ERISA Affiliates has had asserted against it
any claim for taxes under Chapter 43 of Subtitle D of the Code and Section 5000
of the Code, or for penalties under ERISA Section 502(c), (i) or (l), nor, to
the knowledge of the Company, is there a basis for any such claim, and (ii) no
officer, director or employee of the Company has committed a material breach of
any fiduciary responsibility or obligation imposed by Title I of ERISA. Other
than routine claims for benefits, there is no claim or proceeding pending or, to
the knowledge of the Company, threatened, involving any Benefit Plan by any
Person, or by the IRS, the United States Department of Labor or any other
Governmental Entity against such Benefit Plan or the Company or any ERISA
Affiliate.
(b) Section 2.11(b) of the Company Disclosure Schedule sets forth, as of
the date hereof, a list of, including amounts owed under, all (i) employment
agreements with officers of the Company, (ii) agreements with consultants who
are individuals obligating the Company to make annual cash payments in an amount
exceeding Five Thousand Dollars ($5,000), (iii) severance agreements, programs
and policies of the Company with or relating to its employees, except such
programs and policies required to be maintained by law, and (iv) plans,
programs, agreements and other arrangements of the Company with or relating to
its employees that contain change in control provisions whether or not listed in
other parts of the Company Disclosure Schedule. The Company has made available
to Parent copies (or descriptions in detail reasonably satisfactory to Parent)
of all such agreements, plans, programs and other arrangements. The Company has
no obligations to make any deferred compensation payments except in such amounts
set forth in Section 2.11(b) of the Company Disclosure Schedule.
(c) Except as set forth in Section 2.11(c) of the Company Disclosure
Schedule, there will be no payment, accrual of additional benefits, acceleration
of payments or vesting of any benefit under any Employee Plan or any agreement
or arrangement disclosed under this Section 2.11 solely by reason of entering
into or in connection with the transactions contemplated by this Agreement.
(d) No Employee Plan that is a welfare benefit plan within the meaning of
Section 3(1) of ERISA provides benefits to former employees of the Company or
its ERISA Affiliates other than pursuant to Section 4980B of the Code or similar
state laws. The Company and its ERISA Affiliates have complied in all material
respects with the provisions of Part 6 of Title I of ERISA and Sections 4980B,
9801 and 9802 of the Code.
(e) There are no controversies relating to any Employee Plan or other
labor matters pending or, to the knowledge of the Company, threatened between
the Company and any of its employees, which controversies, individually or in
the aggregate, have resulted, or would reasonably be expected to result, in any
loss or expense exceeding Five Thousand Dollars ($5,000). The Company is not a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by the Company, nor does the Company know of any
activities or proceedings of any labor union to organize any such employees.
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(f) Neither the Company nor any of its ERISA Affiliates sponsors or has
ever sponsored, maintained, contributed to, or incurred an obligation to
contribute to any Multiemployer Plan or to a Multiple Employer Plan. For these
purposes, "Multiemployer Plan" means a multiemployer plan, as defined in Section
3(37) and 4001(a)(3) of ERISA, and "Multiple Employer Plan" means any Employee
Benefit Plan sponsored by more than one employer, within the meaning of Sections
4063 or 4064 of ERISA or Section 413(c) of the Code.
(g) No individual shall accrue or receive additional benefits, service or
accelerated rights to payments of benefits under any Employee Plan, including
the right to receive any parachute payment, as defined in Section 280G of the
Code, or become entitled to severance, termination allowance or similar payments
as a result of the transactions contemplated by this Agreement.
(h) In accordance with applicable law, each Employee Plan can be amended
or terminated at any time, without consent from any other party and without
liability other than for benefits accrued as of the date of such amendment or
termination. The Company and its ERISA Affiliates have made full and timely
payment of all amounts required to be contributed or paid as expenses under the
terms of each Employee Plan and applicable law, and the Company and its ERISA
Affiliates shall continue to do so through the Closing.
Section 2.12. ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth in
Section 2.12 of the Company Disclosure Schedule:
(a) the Company has been in compliance with all applicable federal, state,
local and foreign laws and regulations relating to pollution or protection of
human health or the environment (including ambient air, surface water, ground
water, land surface or subsurface strata) (collectively "Environmental Laws")
except for non-compliances that, individually or in the aggregate, would not
reasonably be expected to result in any loss, expenses, charges, assessments,
levies, fines or other liabilities being imposed upon or incurred by the Company
that would have a Material Adverse Effect on the Company, which compliance
includes the possession by the Company of all Company Permits required under
applicable Environmental Laws and compliance with the terms and conditions
thereof;
(b) there are no existing facts that are reasonably likely to prevent or
interfere with such compliance in the future;
(c) there are no circumstances or conditions involving the Company that
could reasonably be expected to result in any claims, liabilities,
investigations, costs or restrictions on the ownership, use or transfer of any
real property of which the Company is or was the owner or operator pursuant to
any Environmental Law;
(d) there has been no disposal, release or threatened release of any
substance, material or waste that is listed, classified or regulated in any
concentration pursuant to any Environmental Law or which may be the subject of
regulatory action by any Governmental Entity pursuant to any Environmental Law
(a "Hazardous Substance") on, under, in, from or about any property currently or
formerly owned or operated by the Company, or otherwise related to the
operations of the Company, that has resulted or may result in any loss,
expenses, charges, assessments, levies, fines or other liabilities being imposed
upon or incurred by the Company;
(e) the Company has not received any notice, demand, letter, claim or
request for information alleging violation of or liability under any
Environmental Law, and there are no proceedings, actions, orders, decrees,
injunctions or other claims or, to the knowledge of the Company, any threatened
actions or claims, relating to or otherwise alleging liability under any
Environmental Law;
(f) except with respect to such matters as have been fully and finally
resolved and as to which there are no remaining obligations, the Company has not
entered into or agreed to or is subject to any consent decree, order or
settlement or other agreement in any judicial, administrative, arbitral or other
similar forum relating to its compliance with or liability under any
Environmental Law;
(g) the Company has not assumed or retained by contract any material
liabilities of any kind, fixed or contingent, known or unknown, under any
applicable Environmental Law; and
12
(h) the Company is not required to make any expenditures, individually or
in the aggregate, to comply with any Environmental Law, nor is there any
reasonable basis on which any Governmental Entity or other person could take any
action that would require any such expenditure.
Section 2.13. TAXES.
(a) DEFINITIONS. For purposes of this Agreement:
(i) "Tax" (including "Taxes") means (A) all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (C) any
liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and
(ii) "Tax Return" means any return, declaration, report, statement,
information statement and other document required to be filed with respect to
Taxes.
(b) Except as set forth in Section 2.13(b) of the Company Disclosure
Schedule, the Company has timely filed all Tax Returns it is required to have
filed; and such Tax Returns are accurate and correct in all respects and do not
contain a disclosure statement under Section 6662 of the Code (or any
predecessor provision or comparable provision of state, local or foreign law).
(c) The Company has paid or adequately provided for all Taxes (whether or
not shown on any Tax Return) it is required to have paid or to pay.
(d) No claim for assessment or collection of Taxes is presently being
asserted against the Company, and the Company is not a party to any pending
action, proceeding, or investigation by any governmental taxing authority nor
does the Company have knowledge of any such threatened action, proceeding or
investigation.
(e) The Company is not a party to any agreement, contract, arrangement or
plan that has resulted or would result, individually or in the aggregate, in
connection with this Agreement or any change of control of the Company, in the
payment of any "excess parachute payments" within the meaning of Section 28OG of
the Code.
(f) The Company has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii).
(g) The Company has not been a member of any affiliated group filing a
consolidated federal income Tax Return (other than a group the common parent of
which is the Company) or has any liability for the Taxes of any other person
(other than an entity that is a member of the consolidated group of corporations
that has the Company as its common parent) under Treas. Reg. Section 1.1502-6
(or any similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(h) The Company has not agreed to and is not required to make any
adjustment pursuant to Section 481(a) of the Code by reason of a change in
accounting method initiated by the Company and the Company has no knowledge that
the IRS has proposed any such adjustment or change in accounting method.
Section 2.14. INTELLECTUAL PROPERTY.
(a) Section 2.14(a) of the Company Disclosure Schedule sets forth, for the
Intellectual Property owned, in whole or in part, including jointly with others
by specifically identifying the manner of
13
ownership, by the Company, a complete and accurate list of all United States and
foreign (i) Patents and patent applications, (ii) Trademark registrations and
applications and material unregistered Trademarks, and (iii) Copyright
registrations and applications, indicating for each the applicable jurisdiction,
registration number (or application number), and date issued (or date filed).
For purposes of this Agreement, "Intellectual Property" means: trademarks and
service marks (whether registered or unregistered), trade names, designs and
general intangibles of like nature, together with all goodwill related to the
foregoing (collectively, "Trademarks"); patents (including any continuations,
continuations in part, renewals and applications for any of the foregoing)
(collectively, "Patents and Patent Applications"); copyrights (including any
registrations and applications therefor and whether registered or unregistered)
(collectively, "Copyrights"); computer software; databases; works of authorship;
mask works; technology; trade secrets and other confidential information;
know-how; proprietary processes; formulae; algorithms; models; user interfaces;
customer lists; inventions; discoveries; concepts; ideas; techniques; methods;
source codes; object codes; methodologies; and, with respect to all of the
foregoing, related confidential data or information (collectively, "Trade
Secrets").
(b) TRADEMARKS.
(i) All Trademark registrations of the Company are currently in
compliance in all material respects with all legal requirements (including the
timely post-registration filing of affidavits of use and incontestability and
renewal applications) other than any requirement that, if not satisfied, would
not result in a cancellation of any such registration or otherwise materially
affect the priority and enforceability of the Trademark in question.
(ii) No registered Trademark of the Company has been within the last
three (3) years or is now involved in any opposition or cancellation proceeding
in the United States Patent and Trademark Office, or in other Trademark Offices
where registration has been filed. No such action has been threatened in writing
or, to the Company's knowledge, orally within the two (2)-year period prior to
the date of this Agreement.
(iii) There has been no prior use of any material Trademark of the
Company by any third party which would confer upon said third party superior
rights in any such Trademark.
(iv) The Company has adequately policed its Trademarks against third
party infringement, and all material Trademarks of the Company registered in the
United States have been continuously used in the form appearing in, and in
connection with the goods and services listed in, its registration certificates.
(c) PATENTS.
(i) All Patents and Patent Applications of the Company are currently
in compliance with legal requirements, including payment of filing, examination,
and maintenance fees and proofs of working or use and disclosure to the United
States Patent and Trademark Office of all information material to examination in
accordance with 37 C.F.R. 1.56 and 37 C.F.R. 1.97, other than any requirement
that, if not satisfied, would not result in a revocation or otherwise materially
affect the enforceability of the Patent in question.
(ii) No Patent or Patent Application of the Company has been or is now
involved in any interference, reissue, or reexamination proceeding in the United
States Patent and Trademark Office, nor has there been nor are there any inter
partes procedures involving Patents or Patent Applications of the Company in
Patent Offices outside the United States. No such action has been threatened in
writing or, to the Company's knowledge, orally within the two (2)-year period
prior to the date of this Agreement.
(iii) To the Company's knowledge, there is no patent or patent
application of any person that conflicts in any material respect with any Patent
of the Company.
(iv) The Company is not aware of any prior art or other documentation
or circumstance that would render any claim of any Patent invalid or
unenforceable.
14
(d) COPYRIGHTS.
(i) The Company is the owner of all right, title and interest in and
to each Copyright registered or as to which a registration application has been
filed in the United States or any foreign jurisdiction by it (collectively,
"Registered Copyrights") and each of the other Copyrights used by the Company in
its business other than those as to which the rights being exercised by the
Company have been licensed from another person (collectively, "Owned
Copyrights"), free and clear of any and all Liens, covenants, conditions and
restrictions or other adverse claims or interests of any kind or nature, and the
Company has not received any notice or claim (whether written or oral)
challenging the Company's complete and exclusive ownership of the Owned
Copyrights or suggesting that any other person has any claim of legal or
beneficial ownership with respect thereto.
(ii) The Company has not received any notice or claim (whether written
or oral) challenging or questioning the validity or enforceability of any of the
Owned Copyrights or indicating an intention on the part of any person to bring a
claim that any Owned Copyright is invalid, is unenforceable or has been misused
and, to the Company's knowledge, no Owned Copyright otherwise has been
challenged or threatened in any way.
(iii) The Company has not taken any action or failed to take any
action (including a failure to disclose required information to the United
Stated Copyright Office in connection with any registration of a Registered
Copyright therewith), conducted its business, or used or enforced (or failed to
use or enforce) any of the Owned Copyrights, in each case in a manner that would
result in the unenforceability of such Owned Copyright.
(iv) The Company has taken all reasonable steps to protect its rights
in and to the Owned Copyrights, in each case in accordance with standard
industry practices.
(v) The Company has not granted to any unaffiliated person any right,
license or permission to exercise any rights under any Owned Copyright.
(e) TRADE SECRETS.
(i) The Company has taken all reasonable steps in accordance with
normal industry practices to protect the Company's rights in confidential
information and Trade Secrets of the Company.
(ii) Without limiting the generality of Section 2.14(e)(i), the
Company enforces a policy of requiring each of its employees, consultants and
contractors to execute proprietary information, confidentiality and assignment
agreements substantially in the Company's standard forms (which have previously
been provided to Parent) that assign to the Company all rights to any
Intellectual Property rights relating to the Company's business and that
otherwise appropriately protect the Intellectual Property of the Company, and,
except in compliance with confidentiality obligations, there has been no
disclosure by the Company of material confidential information or Trade Secrets.
(f) LICENSE AGREEMENTS.
Section 2.14(f) of the Company Disclosure Schedule sets forth a
complete and accurate list of all license agreements entered into by the Company
which grant any material right to use or practice any rights under any
Intellectual Property (collectively, the "License Agreements"), indicating for
each the title and the parties thereto and the amount of any royalty or license
fee payable thereunder. Also listed are all agreements entered into by the
Company which grant to the Company any rights in any intellectual property of a
third party indicating for each the title and the parties thereto and the amount
of any royalty or license fee payable thereunder. There is no outstanding or, to
the Company's knowledge, threatened dispute or disagreement with respect to any
License Agreement which is material to validity or scope of the agreement.
(g) OWNERSHIP; SUFFICIENCY OF IP ASSETS. The Company owns or possesses
adequate licenses or other rights to use, free and clear of Liens, orders and
arbitration awards, all of its Intellectual Property used in its business. The
Intellectual Property identified in Section 2.14(a) of the Company Disclosure
Schedule, together with the Company's unregistered Copyrights and the Company's
rights under the licenses granted to the Company under
15
the License Agreements, constitute all the material Intellectual Property rights
used in the operation of the Company's business as it is currently conducted and
are all the Intellectual Property rights necessary to operate such business
after the Effective Time in substantially the same manner as such business has
been operated by the Company prior thereto.
(h) PROTECTION OF IP. Except as set forth in Section 2.14(h) of the
Company Disclosure Schedule, the Company has taken all reasonable steps in
accordance with normal industry practices to protect the Intellectual Property
of the Company, and each of the products marketed or licensed to others or
currently under development by the Company is covered by at least one claim of
Patents or Patent Applications.
(i) NO INFRINGEMENT BY THE COMPANY. None of the products used,
manufactured, marketed, sold or licensed or under current development by the
Company, and none of the Intellectual Property used in the conduct of the
Company's business as currently conducted, infringes, violates or constitutes
the unauthorized use of any rights owned or controlled by any third party,
including without limitation, any Intellectual Property of any third party.
(j) NO PENDING OR THREATENED INFRINGEMENT CLAIMS. There is no litigation
pending now and no notice or other claim in writing has been received by the
Company and, to the Company's knowledge, no oral notice or other claim has been
received by the Company (A) alleging that the Company has engaged in any
activity or conduct that infringes, violates, or constitutes the unauthorized
use of the Intellectual Property rights of any third party or (B) challenging
the ownership, use, validity or enforceability of any Intellectual Property
owned or exclusively licensed by the Company. No Intellectual Property owned or
licensed by the Company is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by the Company or, in the
case of any Intellectual Property licensed to others, restricting the sale,
transfer, assignment or licensing thereof by the Company to any person.
(k) NO INFRINGEMENT BY THIRD PARTIES. To the Company's knowledge after
reasonable investigation, no third party is misappropriating, infringing,
diluting or violating any Intellectual Property owned or exclusively licensed to
the Company, and no such claims have been brought against any third party by the
Company.
Section 2.15. MATERIAL CONTRACTS.
(a) Section 2.15 of the Company Disclosure Schedule sets forth a complete
and accurate list of all written contracts, agreements, options, leases,
licenses, sales and purchase orders, warranties, commitments and other
instruments of any kind (each a "Contract"), to which the Company is a party or
to which the Company, or any of its properties, is otherwise bound, as follows
(each a "Material Contract" and, collectively, the "Material Contracts"):
(i) each Contract of the Company pursuant to which the Company
received (or was entitled to receive) or paid (or was purportedly obligated to
pay) in excess of Five Thousand Dollars ($5,000) in the 12-month period ended
September 30, 2000;
(ii) each Contract that requires payment by or to the Company after
the date of this Agreement of more than Five Thousand Dollars ($5,000);
(iii) each Contract that contains non-competition restrictions,
including restrictions relating to the conduct of the Company's business, the
sale of the Company's products or geographic restrictions, in any case that
would prohibit or restrict Parent or any of its subsidiaries from conducting the
business of the Company as presently conducted or that require any consent or
other action by any person for, or will be subject to default, termination,
repricing or other renegotiation, or cancellation because of, the transactions
contemplated hereby;
(iv) each Contract relating to the Company's sales with distributors;
16
(v) any mortgage, indenture, loan or credit agreement, security
agreement or other agreement or instrument relating to, and evidences of,
indebtedness for borrowed money or the deferred purchase price of property
(whether incurred, assumed, guaranteed or secured by any asset);
(vi) each partnership, joint venture or other similar Contract,
arrangements or agreements, directly affecting the Company;
(vii) any fidelity or surety bond or completion bond;
(viii) any lease of personal property having a value individually in
excess of Five Thousand Dollars ($5,000);
(ix) any Contract of indemnification or guaranty;
(x) any Contract relating to capital expenditures and involving
future payments in excess of Five Thousand Dollars ($5,000);
(xi) any Contract relating to the disposition or acquisition of
assets, property or any interest in any business enterprise outside the ordinary
course of the Company's business;
(xii) any purchase order or Contract for the purchase of raw materials
or services involving Five Thousand Dollars ($5,000) or more;
(xiii) any construction Contract;
(xiv) any distribution, joint marketing or development Contract;
(xv) any other Contract that involves Five Thousand Dollars ($5,000)
or more or is not cancelable without penalty upon notice of thirty (30) days or
less;
(xvi) any Contract under which the Company provides services to third
parties for which it will receive payments in excess of Five Thousand Dollars
($5,000) in a period of 12 consecutive months;
(xvii) any Contract that contains a liquidated damages provision for
failure to meet performance or quality milestones; or
(xviii) any other Contract, whether written or oral, which is
otherwise material to the Company, taken as a whole.
(b) Each Material Contract is a legal, valid and binding obligation of the
Company and, to the Company's knowledge, each other person who is a party
thereto, enforceable against the Company and each such Person in accordance with
its terms, and neither the Company nor, to the Company's knowledge, any other
party thereto is in material default thereunder.
Section 2.16. TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company does not own any real property, nor has it ever owned any
real property. Section 2.16 of the Company Disclosure Schedule sets forth a
complete and accurate list of all real property currently leased by the Company,
the name of the lessor and the date of the lease and each amendment thereto. All
such current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing material default or event of default (or event which, with
notice or lapse of time, or both, would constitute a default) by the Company or,
to the Company's knowledge, by the other party to such lease. Complete and
correct copies of such leases have been delivered to Parent or Acquisition prior
to the date hereof.
17
(b) Except as set forth in Section 2.16 of the Company Disclosure
Schedule, the Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its properties and
assets, tangible and intangible, real, personal and mixed, used or held for use
in its business, free and clear of any Liens, except for such imperfections of
title, if any, that do not materially interfere with the present value of the
subject property. For purposes of this Section 2.16 only, the terms "property"
or "assets" do not include Intellectual Property.
Section 2.17. INSURANCE. Section 2.17 of the Company Disclosure Schedule
contains a true and complete list (including the names and addresses of the
insurers, the names of the persons to whom such policies have been issued, the
expiration dates thereof, whether the policies are currently in effect, the
annual premiums and payment terms thereof, whether it is a "claims made" or an
"occurrence" policy and a brief description of the interests insured thereby) of
all liability, property, workers' compensation, directors' and officers'
liability and other insurance policies in effect at any time since January 1,
1995 that insure or did insure the business, operations or employees of the
Company or affect or relate to the ownership, use or operation of any of the
assets (both past and present) of the Company and that (a) have been issued to
the Company or (b) have been issued to any person (other than the Company) for
the benefit of the Company (the "Insurance Policies"). Each Insurance Policy is
in full force and effect and is valid, outstanding and enforceable, and all
premiums due thereon have been paid in full. None of the Insurance Policies will
terminate or lapse (or be affected in any other materially adverse manner) by
reason of the execution and delivery of, or consummation of any of the
transactions contemplated by, this Agreement. The Company has complied in all
material respects with the provisions of each Insurance Policy under which it is
the insured party. No insurer under any Insurance Policy has canceled or
generally disclaimed liability under any such policy or, to the Company's
knowledge, indicated any intent to do so or not to renew any such policy. All
material claims of the Company under the Insurance Policies have been filed in a
timely fashion.
Section 2.18. CERTAIN BUSINESS PRACTICES. Neither the Company nor any of
its directors, officers, agents or employees of the Company has (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to political activity; (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or (iii) made any other unlawful payment.
Section 2.19. PRODUCT WARRANTIES. Section 2.19 of the Company Disclosure
Schedule sets forth complete and accurate summaries of the written warranties
and guaranties by the Company utilized within the past five (5) years with
respect to its products. There have not been any material deviations from such
warranties and guaranties, and neither the Company nor any of its salesmen,
employees, distributors and agents is authorized to undertake obligations to any
customer or to other third parties in excess of such warranties or guaranties.
The Company has not made any oral warranty or guaranty with respect to its
products.
Section 2.20. DISTRIBUTORS AND CUSTOMERS. The documents and information
supplied by the Company to Parent or Acquisition in connection with this
Agreement with respect to relationships and volumes of business done with its
significant distributors and customers are accurate in all material respects.
During the last twelve (12) months, the Company has not received any notice of
termination or written threat of termination from any of the ten (10) largest
distributors or customers of the Company, taken as a whole, or any information
that any such customer or distributor intends to materially decrease the amount
of business that it does with the Company.
Section 2.21. VOTE REQUIRED. Subject to Section 4.2 of this Agreement, the
affirmative vote of (i) the holders of a majority of the outstanding Shares of
common stock of the Company voting together as a single class and (ii) the
holders of a majority of each series of the outstanding Shares of preferred
stock of the Company voting separately as each series (Series A-E), are the only
votes of the holders of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement and the Merger.
Section 2.22. TAX TREATMENT. Neither the Company nor, to the Company's
knowledge, any of its affiliates has taken or agreed to take action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code.
18
Section 2.23. AFFILIATES. Except as set forth in Section 2.23 of the
Company Disclosure Schedule, there are no persons who, to the knowledge of the
Company, may be deemed to be affiliates of the Company under Rule 145 of the
Securities Act as defined in Section 3.4(a) below (collectively, "Company
Affiliates").
Section 2.24. BROKERS. Except as set forth in Section 2.24 of the Company
Disclosure Schedule, no broker, finder or investment banker (other than the
Company Financial Adviser) is entitled to any brokerage finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
Section 3.1. ORGANIZATION.
(a) Each of Parent and Acquisition is duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
power and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted.
(b) Each of Parent and Acquisition is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect on Parent. For purposes hereof, the term
"Material Adverse Effect on Parent" means any circumstance, change in or effect
on (or any circumstance, change or effect involving a prospective change on)
Parent or any of its subsidiaries (i) that is, or is reasonably likely in the
future to be, materially adverse to the operations, assets or liabilities
(including contingent liabilities), earnings or other results of operations, or
the condition (financial or otherwise) of Parent and its subsidiaries, taken as
a whole, or (ii) that would reasonably be expected to prevent or materially
delay or impair the ability of Parent and Acquisition to consummate the
transactions contemplated by this Agreement.
19
Section 3.2. CAPITALIZATION OF PARENT AND ITS SUBSIDIARIES. The authorized
capital stock of Parent consists of 50,000,000 shares of Parent Common Stock, of
which, as of September 30, 2000, 24,833,277 shares of Parent Common Stock were
issued and outstanding, and 5,000,000 shares of preferred stock, $.001 par value
per share, none of which are outstanding. All of the outstanding shares of
Parent Common Stock have been validly issued and are fully paid, nonassessable
and free of preemptive rights. As of September 30, 2000, 5,491,948 shares of
Parent Common Stock were reserved for issuance and 2,548,441 shares of Parent
Common Stock were issuable upon or otherwise deliverable in connection with the
exercise of outstanding options and warrants. Between September 30, 2000 and the
date hereof, no shares of Parent's capital stock have been issued other than
pursuant to stock options and warrants already in existence on such date and
except for grants of stock options to employees, officers and directors in the
ordinary course of business consistent with past practice. Between September 30,
2000 and the date hereof, 29,000 stock options have been granted and no warrants
have been issued . Except as set forth above, as of the date hereof, there are
outstanding (i) no shares of capital stock or other voting securities of Parent,
(ii) no securities of Parent or its subsidiaries convertible into, or
exchangeable for, shares of capital stock, or voting securities of Parent, (iii)
no options, warrants or other rights to acquire from Parent or its subsidiaries
and no obligations of Parent or its subsidiaries to issue any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Parent, and (iv) except for all stock option plans
and employee stock purchase plans of Parent, no equity equivalent interests in
the ownership or earnings of Parent or its subsidiaries or other similar rights
(collectively, "Parent Securities"). As of the date hereof, there are no
outstanding obligations of Parent or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Parent Securities. There are no stockholder
agreements, voting trusts or other agreements or understandings to which Parent
is a party or by which it is bound relating to the voting of any shares of
capital stock or other voting securities of Parent.
Section 3.3. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the boards of directors of Parent and
Acquisition and by Parent as the sole stockholder of Acquisition, and no other
corporate proceedings on the part of Parent or Acquisition are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by each of
Parent and Acquisition and constitutes, assuming the due authorization,
execution and delivery hereof by the Company, a valid, legal and binding
agreement of each of Parent and Acquisition enforceable against each of Parent
and Acquisition in accordance with its terms, subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally or to general
principles of equity.
Section 3.4. SEC REPORTS; FINANCIAL STATEMENTS.
(a) Parent has filed all required forms, reports and documents ("Parent
SEC Reports") with the SEC since January 1, 2000, each of which complied at the
time of filing in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act") and the Securities
Exchange Act of 1934, a amended (the "Exchange Act"), as applicable, in each
case as in effect on the dates such forms reports and documents were filed. None
of such Parent SEC Reports, including any financial statements and schedules
included or incorporated by reference therein, contained when filed any untrue
statement of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein in light of the circumstances under which they were made not
misleading. The audited consolidated financial statements of Parent included in
the Parent SEC Reports fairly present in conformity in all material respects
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated in the notes thereto) the consolidated financial
position of Parent as of the dates thereof and its consolidated results of
operations and changes in financial position for the periods then ended.
(b) Parent has heretofore made available or promptly will make available
to the Company a complete and correct copy of any amendments or modifications
that are required to be filed with the SEC but have not yet been filed with the
SEC to agreements, documents or other instruments that previously had been filed
by Parent with the SEC pursuant to the Exchange Act.
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Section 3.5. INFORMATION SUPPLIED. None of the information supplied or to
be supplied in writing by Parent or Acquisition for inclusion in the Information
Statement will, at the date mailed or furnished to shareholders of the Company
in connection with obtaining approval of the Merger and this Agreement, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein in light of the circumstances under which they are made not misleading.
Section 3.6. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents, and approvals as may be required under and
other applicable requirements of the Securities Act, the Exchange Act, state
securities or blue sky laws, and any filings under similar merger notification
laws or regulations of foreign Governmental Entities and the filing and
recordation of the Certificates of Merger as required by the DGCL and the CCC,
no filing with or notice to, and no permit authorization consent or approval of
any Governmental Entity is necessary for the execution and delivery by Parent or
Acquisition of this Agreement or the consummation by Parent or Acquisition of
the transactions contemplated hereby, except where the failure to obtain any
such permits, authorizations, consents or approvals or to make such filings or
give any such notice would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Neither the execution, delivery and
performance of this Agreement by Parent or Acquisition nor the consummation by
Parent or Acquisition of the transactions contemplated hereby will (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws (or similar governing documents) of Parent or
Acquisition or any of Parent's other subsidiaries, (ii) result in a violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or Acquisition or any of Parent's other
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, or (iii) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to Parent or Acquisition or
any of Parent's other subsidiaries or any of their respective properties or
assets except, in the case of (ii) or (iii), for violations, breaches or
defaults that would not, individually or in the aggregate, have a Material
Adverse Effect on Parent.
Section 3.7. NO DEFAULT. Neither Parent nor any of its subsidiaries is in
breach, default or violation (and no event has occurred that with notice or the
lapse of time or both would constitute a breach, default or violation) of any
term, condition or provision of (i) its Certificate of Incorporation or Bylaws
(or similar governing documents), (ii) any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Parent or any of its subsidiaries is now a party or by which any of them or any
of their respective properties or assets may be bound, or (iii) any order, writ,
injunction or decree of any Governmental Entity applicable to Parent or any of
its subsidiaries or any of their respective properties or assets, except, in the
case of clause (ii) or (iii), for violations, breaches or defaults that would
not, individually or in the aggregate, have a Material Adverse Effect on Parent.
Section 3.8. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES. Except as and
to the extent publicly disclosed by Parent in the Parent SEC Reports, neither
Parent nor any of its subsidiaries has any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise that would be required
by generally accepted accounting principles to be reflected on a consolidated
balance sheet of Parent and its consolidated subsidiaries (including the notes
thereto), other than liabilities and obligations incurred in the ordinary course
of business since June 30, 2000, which, individually or in the aggregate, will
not have a Material Adverse Effect on Parent. Except as publicly disclosed by
Parent in the Parent SEC Reports, since June 30, 2000, there have been no events
changes or effects with respect to Parent or its subsidiaries having or that
would reasonably be expected to have a Material Adverse Effect on Parent.
Section 3.9. OPINION OF FINANCIAL ADVISER. First Security Van Kasper (the
"Parent Financial Adviser") has delivered to the Board of Directors of Parent
its opinion to the effect that, as of the date of its opinion, the Merger
Consideration is fair, from a financial point of view, to Parent.
Section 3.10. NO PRIOR ACTIVITIES OF ACQUISITION. Except for obligations
incurred in connection with its incorporation or organization or the
negotiation, execution and consummation of this Agreement and the transactions
contemplated hereby, Acquisition has neither incurred any obligation or
liability nor engaged in any business or activity of any type or kind whatsoever
or entered into any agreement or arrangement with any person.
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ARTICLE 4
COVENANTS
Section 4.1. CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
this Agreement or as described in Section 4.1 of the Company Disclosure
Schedule, during the period from the date hereof to the Effective Time, the
Company will conduct its operations in the ordinary course of business
consistent with past practices and, to the extent consistent therewith, with no
less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its current business organizations, keep
available the service of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it with the intention that its goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Without limiting the generality of the
foregoing, except as otherwise expressly provided in this Agreement or as
described in Section 4.1 of the Company Disclosure Schedule, prior to the
Effective Time, the Company will not, without the prior written consent of
Parent:
(a) amend its Articles of Incorporation or Bylaws (or other similar
governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents (including any stock
options or stock appreciation rights) except for the issuance and sale of Shares
pursuant to options granted under the Company Plans prior to the date hereof;
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, make any
other actual, constructive or deemed distribution in respect of its capital
stock or otherwise make any payments to shareholders in their capacities as
such, or redeem or otherwise acquire any of its outstanding securities;
(d) except for the Merger, adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization of the Company;
(e) sell, convey, transfer, license or encumber any Intellectual Property;
(f) (i) incur or assume any long-term or short-term debt or issue any debt
securities except for borrowings under existing lines of credit in the ordinary
course of business consistent with past practices; (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; (iii) make
any loans, advances or capital contributions to or investments in any other
person; (iv) pledge or otherwise encumber shares of capital stock of the
Company; or (v) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material Lien thereupon;
(g) except as may be required by applicable law, enter into, adopt, amend
or terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, health, life, or disability insurance, dependent care,
severance or other employee benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer, consultant or
employee in any manner, or increase in any manner the compensation or fringe
benefits of any director, officer, consultant or employee or pay any benefit not
required by any plan and arrangement as in effect on the date hereof (including
the granting of stock appreciation rights or performance units);
(h) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions having a fair market value in
excess of Five Thousand Dollars ($5,000) in the aggregate, other than sales of
its products in the ordinary course of business consistent with past practices;
22
(i) except as may be required as a result of a change in applicable law or
in generally accepted accounting principles, change any of the accounting
principles, practices or methods used by it;
(j) revalue in any material respect any of its assets, including writing
down the value of inventory or equipment or writing-off notes or accounts
receivable, other than in the ordinary course of business;
(k) (i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any equity interest therein; (ii) enter into any contract or
agreement other than in the ordinary course of business consistent with past
practices that would be material to the Company, taken as a whole; (iii) amend,
modify or waive any right under any material contract of the Company; (iv)
modify its standard warranty terms for its products or amend or modify any
product warranties in effect as of the date hereof in any material manner that
is adverse to the Company; or (v) authorize any new capital expenditure or
expenditures that individually is in excess of Five Thousand Dollars ($5,000) or
in the aggregate are in excess of Twenty-Five Thousand Dollars ($25,000);
(l) grant any severance or termination pay to any director, officer,
employee or consultant, except payments made pursuant to written agreements in
effect on the date hereof, the terms of which are in all material respects
completely and correctly disclosed in Section 2.11(a) or Section 2.11(b) of the
Company Disclosure Schedule or as required by applicable federal, state or local
applicable law or regulations;
(m) enter into or amend any employment agreements, oral or written,
increase the compensation payable or to become payable by it to any of its
officers, shareholders, directors, employees or consultants, or adopt or amend
any employee benefit plan or arrangement, oral or written (including any
amendment to the Company Plans or the agreements thereunder), or increase the
salaries or wage rates of its officers, shareholders, directors, employees or
consultants;
(n) terminate the employment of any manager or officer or grant any
severance or termination pay to any member, manager, officer or any other
employee, except payments made pursuant to written agreements or other legally
binding commitments disclosed to Parent in writing and in effect on the date
hereof;
(o) exercise its discretion or otherwise voluntarily accelerate the
vesting of any Company Stock Option as a result of the Merger or otherwise;
(p) make or revoke any express or deemed election relating to Taxes of the
Company, unless required to do so by applicable laws or settle or compromise any
income tax liability or permit any Insurance Policy naming it as a beneficiary
or loss-payable to expire, or to be canceled or terminated, unless a comparable
insurance policy reasonably acceptable to Parent is obtained and in effect,
except for the West Coast Life Insurance Company Graded Premium Life Policy for
Paul Lawrence, which the Company and Parent agree shall be permitted to lapse by
virtue of nonpayment of premiums due;
(q) allow any Insurance Policy relating to the Company's assets,
properties or business to be amended or terminated without replacing such policy
with a policy providing at least equal coverage, insuring comparable risks and
issued by an insurance company financially comparable to the prior insurance
company;
(r) fail to file any Tax Returns when due (or, alternatively, fail to file
for available extensions), fail to cause such Tax Returns when filed to be
complete and accurate in all material respects, prepare of file any Tax Return
of the Company inconsistent with past practices in preparing of filing similar
Tax Returns in prior periods or, on any such Tax Return, take any position, make
any election, or adopt any method that is inconsistent with positions taken,
elections made or methods used in preparing or filing similar Tax Returns in
prior periods, in each case, except to the extent required by law;
(s) file or cause to be filed any amended Tax Return with respect to the
Company, file or cause to be filed claim for refund of Taxes paid by or on
behalf of the Company or any of its subsidiaries, or agree to an extension of a
statute of limitations with respect to the assessment or determination of Taxes;
23
(t) fail to pay any Taxes or other material debts when due;
(u) commence any litigation or any binding dispute resolution process
(other than in respect of any breach of or claim arising under this Agreement),
or settle or compromise any pending or threatened suit, action, claim or other
dispute that (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which would involve more than Five Thousand Dollars
($5,000) or that would otherwise be material to the Company, or relates to any
Intellectual Property matters;
(v) take any action or fail to take any action that could reasonably be
expected to (i) limit the utilization of any of the net operating losses,
built-in losses, tax credits or other similar items of the Company or its
subsidiaries under Section 382, 383, 384 or 1502 of the Code and the Treasury
Regulations thereunder, or (ii) cause any transaction in which the Company or
any of its subsidiaries was a party that was intended to be treated as a
reorganization under Section 368(a) of the Code to fail to qualify as a
reorganization under Section 368(a) of the Code;
(w) enter into any licensing, distribution, sponsorship, advertising or
other similar contracts, agreements, or obligations which may not be canceled
without penalty by the Company or its subsidiaries upon notice of thirty (30)
days or less or which provide for payments by or to the Company in an amount in
excess of Five Thousand Dollars ($5,000) over the term of the agreement;
(x) engage in any willful action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement; or
(y) take or agree in writing or otherwise to take any of the actions
described in Sections 4.1(a) through 4.1(x) (and it shall use all commercially
reasonable efforts not to take any action that would make any of the
representations or warranties of the Company contained in this Agreement untrue
or incorrect).
Section 4.2. APPROVAL OF SHAREHOLDERS. The Company shall take all actions
necessary in accordance with the CCC and its Articles of Incorporation and
Bylaws to duly call, give notice of, convene and hold a meeting of or solicit
written consents from its shareholders, including without limitation a separate
vote of holders of each series of the Company's preferred stock, as promptly as
practicable to obtain their vote or written consent for the adoption and
approval of this Agreement and the transactions contemplated hereby (the
"Shareholder Proceedings"). A vote or the written consents of (i) a majority of
the outstanding Shares of common stock of the Company voting together as a
single class and (ii) the holders of a majority of each series of the
outstanding Shares of preferred stock of the Company voting separately as each
series (Series A-E), shall be required for the adoption and approval of the
transactions contemplated by this Agreement, notwithstanding any other vote
required by the CCC and the Company's Articles of Incorporation and Bylaws. The
Company will, through the Company Board, recommend to its shareholders approval
of such matters. The Company shall promptly prepare and distribute the
Information Statement for the solicitation of a vote or the written consents of
the holders of the Shares approving the Merger, which shall include the
recommendation of the Company Board that shareholders of the Company vote in
favor of the approval and adoption of this Agreement. Whenever any event occurs
which is required to be set forth in an amendment or supplement to the
Information Statement, the Company or Parent, as the case may be, will promptly
inform the other of such occurrence and cooperate in preparing and mailing to
shareholders of the Company, such amendment or supplement. Notwithstanding
anything to the contrary contained in this Agreement, the Company may adjourn or
postpone (i) the Shareholder Proceedings to the extent necessary to ensure that
any necessary supplement or amendment to the Information Statement is provided
to the Company's shareholders in advance of a vote or the acceptance of written
consents on the Merger and this Agreement or (ii) the time
24
for which the Shareholder Proceedings are originally scheduled (as set forth in
the Information Statement), if there are insufficient Shares represented, either
in person or by proxy, to constitute a quorum necessary to conduct the business
of the Shareholder Proceedings. Parent shall use all reasonable efforts to
obtain all necessary state securities law or "blue sky" permits and approvals
required in connection with the Merger and the consummation of the other
transactions contemplated by this Agreement and will pay all expenses incident
thereto, PROVIDED that the Company shall cooperate with Parent in obtaining such
permits and approvals as reasonably requested.
Section 4.3. NOTICE TO COMPANY WARRANT HOLDERS. The Company shall promptly
give written notice of the Merger and any such other notice or take such other
action as may be required under the terms of any warrant agreements to the
holders of Company Warrants. The Company shall take any action required to
effect the provisions of Section 1.8(b) above.
Section 4.4. COMPANY STOCK OPTIONS. The Company shall promptly give written
notice of the Merger and any such other notice or take such other action as may
be required under the terms of any Company Plan to the holders of Company Stock
Options. The Company shall take any action required to effect the provisions of
Section 1.11 above.
Section 4.5. REGISTRATION RIGHTS AGREEMENT. On or prior to the Closing Date
Parent shall execute and deliver to the Securityholder Agent, on behalf of all
shareholders of the Company, a registration rights agreement substantially in
the form of EXHIBIT B (the "Registration Rights Agreement"), which provides, in
part, that Parent will file a registration statement in accordance with the time
period set forth in Section 2 of the Registration Rights Agreement.
Section 4.6. SHAREHOLDERS' AGREEMENT. The Company shall obtain from all of
its shareholders, after the date of this Agreement and on or prior to the
Effective Time, a shareholder agreement substantially in the form of EXHIBIT C
(the "Shareholders' Agreement") as soon as practicable.
Section 4.7. EMPLOYEE MATTERS.
(a) EMPLOYEES. Any employees of the Company at the Effective Time who
receive and accept offers of employment from Parent or the Surviving
Corporation, and are hereinafter referred to as "Continuing Employees."
Continuing Employees will be subject to employment at the will of Parent or the
Surviving Corporation, as applicable. As a condition of their continuing
employment with the Surviving Corporation, all Continuing Employees will be
required to sign Parent's standard form of non-disclosure, assignment of
inventions and confidentiality agreement (the "Employee Non-Disclosure
Agreement") and Code of Conduct. Employees of the Company who are not Continuing
Employees will be offered such severance package(s) as set forth in EXHIBIT D
hereto, in exchange for a release, satisfactory to Parent in its sole
discretion, from any claims against Parent, the Company, Acquisition or the
Surviving Corporation and their respective officers, directors, employees and
agents.
(b) PARTICIPATION IN PARENT PLANS. Parent has furnished to the Company
descriptions of each of the material employee benefit plans made available by it
generally to its
25
employees (the "Parent Plans"). Parent covenants that the Continuing Employees
shall be eligible to participate in the Parent Plans on substantially the same
terms and conditions as similarly situated employees of Parent. For purposes of
participation in any Parent Plan, except for any "defined benefit plan" (as
defined in ERISA) and any bonus plan, the Continuing Employees shall receive
such credit under the Parent Plan as previously recognized by the Company under
the appropriate Employee Plan for the time of service with the Company to the
same extent as if such Continuing Employees had been continuously employed for
such periods of time with Parent, and they shall not be subject to any
pre-existing condition exclusions under any health care plan maintained by
Parent for the employees of the Parent (except for those existing under any
health care plan maintained by the Company). Each Continuing Employee will be
offered a bonus schedule as set forth in EXHIBIT D hereto in connection with
such Continuing Employee's employment with the Surviving Corporation or Parent.
Nothing in this Agreement shall limit Parent's ability to modify or terminate,
in whole or in part, any employee benefit plan or arrangement including any
Parent Plan in accordance with the terms of such plan and any applicable law.
(c) COMPANY COMPENSATION AND BENEFITS. The Company will take all actions
necessary to amend, merge, freeze or terminate any or all Employee Plans
effective at or immediately prior to the Closing Date as requested in writing by
Parent.
Section 4.8. NO SOLICITATION OR NEGOTIATION.
(a) Between the date hereof and the earlier of the termination of this
Agreement and the Effective Time, the Company shall not (nor shall the Company
permit any of its officers, directors, employees, consultants, agents,
representatives, affiliates or shareholders (including The Cooper Companies,
Inc. and any of its affiliates or subsidiaries) or cause any person on behalf of
the Company to) directly or indirectly, take any of the following actions with
any person other than Parent and Acquisition:
(i) solicit, initiate, entertain or encourage any proposals or offers
from, or conduct discussions with or engage in negotiations with any person
relating to any possible Third Party Acquisition;
(ii) provide information with respect to it to any person, other than
Parent and Acquisition, relating to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any such person with regard to, any possible
Third Party Acquisition; or
(iii) enter into any agreement with any person providing for a Third
Party Acquisition.
(b) The Company shall promptly notify Parent in the event the Company or
any of its affiliates and their respective directors, officers, employees,
consultants, agents, representatives, affiliates or shareholders (including The
Cooper Companies, Inc. and any of its affiliates or subsidiaries) receives any
proposal or inquiry concerning a Third Party Acquisition, including the terms
and conditions thereof and the identity of the person or group submitting such
proposal, and shall advise Parent from time to time of the status and any
material developments concerning the same. Except as set forth in this Section
4.8(b), the Company Board shall not withdraw its recommendation of the
transactions contemplated hereby or approve or recommend, or cause the Company
to enter into any agreement with respect to, any Third Party Acquisition.
Notwithstanding the foregoing, if the Company Board by a majority vote
determines in its good faith judgment, that it is required to do so in order to
comply with its fiduciary duties, the Company Board may withdraw its
recommendation of this Agreement and
26
the transactions contemplated hereby, but only (i) after providing written
notice to Parent (a "Notice of Superior Proposal") advising Parent that the
Company Board has received a Superior Proposal, specifying the material terms
and conditions of such Superior Proposal and identifying the person making such
Superior Proposal, and (ii) if Parent does not, within five (5) business days
after Parent's receipt of the Notice of Superior Proposal, make an offer that
the Company Board by a majority vote determines in its good faith judgment
(based on the written advice of a financial adviser) to be at least as favorable
to the Company's shareholders as such Superior Proposal; PROVIDED, HOWEVER, that
no withdrawal of the Company Board's recommendation of this Agreement and the
transactions contemplated hereby shall relieve the Company of its obligation to
submit this Agreement and such transactions to its shareholders for approval, as
provided in Section 4.2. Any disclosure that the Company Board may be compelled
to make with respect to the receipt of a proposal for a Third Party Acquisition
or otherwise in order to comply with its fiduciary duties will not constitute a
violation of this Agreement; PROVIDED, HOWEVER, that such disclosure states that
no action will be taken by the Company Board in violation of this Section
4.8(b).
(c) For purposes of this Agreement, "Third Party Acquisition" means the
occurrence of any of the following events: (i) the acquisition of the Company by
merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than Parent, Acquisition
or any affiliate thereof (a "Third Party"); (ii) the acquisition by a Third
Party of any material portion of the assets of the Company and its subsidiaries,
taken as a whole, other than the sale of their products in the ordinary course
of business consistent with past practices; (iii) the acquisition by a Third
Party of fifteen percent (15%) or more of the outstanding Shares; (iv) the
adoption by the Company of a plan of total or partial liquidation or the
declaration or payment of an extraordinary dividend; (v) the repurchase by the
Company or any of its subsidiaries of more than ten percent (10%) of the
outstanding Shares; or (vi) the acquisition by the Company or any of its
subsidiaries by merger, purchase of stock or assets, joint venture or otherwise
of a direct or indirect ownership interest or investment in any business whose
annual revenues, net income or assets is equal or greater than ten percent (10%)
of the annual revenues, net income or assets of the Company. For purposes of
this Agreement, a "Superior Proposal" means any BONA FIDE proposal to acquire
directly or indirectly for consideration consisting of cash and/or securities
more than fifty percent (50%) of the Shares then outstanding or all or
substantially all of the assets of the Company and otherwise on terms that the
Company Board by a majority vote determines in its good faith judgment (based on
the written advice of a financial advisor) to be more favorable to the Company's
shareholders than the Merger.
Section 4.9. NASDAQ LISTING. If required by the National Association of
Securities Dealers, Inc. regulations, Parent shall use all reasonable efforts to
cause the shares of Parent Common Stock to be issued in the Merger to be
approved for listing on Nasdaq, subject to official notice of issuance, prior to
the Effective Time.
Section 4.10. ACCESS TO INFORMATION.
(a) Between the date hereof and the Effective Time, the Company will
permit Parent and its authorized representatives reasonable access to all
employees, plants, offices, warehouses and other facilities and to all books and
records of the Company as Parent may reasonably require, and will cause its
officers and employees to furnish Parent with such financial and operating data
and other information with respect to the business, properties and prospects of
the Company as Parent may from time to time reasonably request.
27
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent (i) within two (2) business days following preparation thereof
(and in any event within twenty (20) business days after the end of each
calendar month, commencing with October 2000), an unaudited balance sheet as of
the end of such month and the related statements of earnings, shareholders'
equity (deficit) and cash flows, (ii) within two (2) business days following
preparation thereof (and in any event within twenty (20) business days after the
end of each fiscal quarter) an unaudited balance sheet as of the end of such
quarter and the related statements of earnings, shareholders' equity (deficit)
and cash flows for the quarter then ended, and (iii) within two (2) business
days following preparation thereof (and in any event within ninety (90) calendar
days after the end of each fiscal year, an audited balance sheet as of the end
of such year and the related statements of earnings, shareholders' equity
(deficit) and cash flows, all of such financial statements referred to in
clauses (i), (ii) and (iii) to be prepared in accordance with generally accepted
accounting principles with respect to such financial statements. All the
foregoing shall be in accordance with the books and records of the Company and
shall fairly present its financial position (taking into account the differences
between the monthly, quarterly and annual financial statements prepared by the
Company in conformity with its past practices) as of the last day of the period
then ended.
(c) Each of the parties hereto will hold, and will cause its agents,
representatives, consultants and advisers to hold, in confidence all documents
and information furnished to it by or on behalf of another party to this
Agreement in connection with the transactions contemplated by this Agreement
pursuant to the terms of that certain Mutual Confidentiality Agreement, dated
July 18, 2000, as amended on August 30, 2000 and on October 20, 2000, between
the Company and Parent.
Section 4.11. CERTAIN FILINGS; REASONABLE EFFORTS. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take or cause to be taken all action and to do or cause to
be done all things reasonably necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using all reasonable efforts to do the
following: (i) cooperate in the preparation of the Information Statement; (ii)
obtain consents of all third parties and Governmental Entities necessary, proper
or advisable for the consummation of the transactions contemplated by this
Agreement; (iii) contest any legal proceeding relating to the Merger; and (iv)
execute any additional instruments necessary to consummate the transactions
contemplated hereby. Subject to the terms and conditions of this Agreement,
Parent and Acquisition agree to use all commercially reasonable efforts to cause
the Effective Time to occur as soon as practicable after the Company shareholder
vote with respect to the Merger. The Company agrees to use all commercially
reasonable efforts to encourage its employees to accept any offers of employment
extended by Parent. If at any time after the Effective Time any further action
is necessary to carry out the purposes of this Agreement the proper officers and
directors of each party hereto shall take all such necessary action.
Section 4.12. PUBLIC ANNOUNCEMENTS. Neither the Company nor any of its
Affiliates shall issue any press release or otherwise make any public statements
with respect to the transactions contemplated by this Agreement, including the
Merger, without the prior consent of Parent.
Section 4.13. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent and Acquisition, and Parent and Acquisition shall give
prompt notice to the Company, of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which has caused or would be reasonably
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any respect at or prior to the Effective Time and (ii)
any failure of the Company, Parent or Acquisition, as the case may be, to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the
delivery of any notice pursuant to this Section 4.13 shall not cure such breach
or non-compliance or limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
Section 4.14. ADDITIONS TO AND MODIFICATION OF COMPANY DISCLOSURE SCHEDULE.
Concurrently with the execution and delivery of this Agreement, the Company has
delivered a Company Disclosure Schedule that includes all of the information
required by the relevant provisions of this Agreement. In addition, the Company
shall deliver to Parent and Acquisition such additions to or modifications of
any Sections or subsections of the Company Disclosure Schedule necessary to make
the information set forth therein true, accurate and complete in all material
respects as soon as practicable after such information is available to the
shareholders or the Company after the date of execution and delivery of this
Agreement; PROVIDED, HOWEVER, that such disclosure shall not be deemed to
28
constitute an exception to its representations and warranties under Article 2,
nor limit the rights and remedies of Parent and Acquisition under this Agreement
for any breach by the Company of such representation and warranties.
Section 4.15. COMPENSATION-RELATED PAYMENTS. Within a reasonable time
following the Effective Time but in no event later than December 31, 2000,
Parent agrees to pay compensation, bonuses and similar payments substantially to
the extent and in the amounts set forth in EXHIBIT E hereto. Except as set forth
in this Agreement or in EXHIBIT E hereto, neither the Company, Acquisition nor
Parent shall have any obligation or responsibility to pay any amounts owed by
the Company to any of its former or current directors, officers, employees or
consultants, including without limitation payments identified in Section 2.11(a)
and Section 2.11(b) of the Company Disclosure Schedule.
Section 4.16. LOCK-UP AGREEMENTS. Subject to Section 5.3(h) below, the
Company shall use all reasonable efforts to obtain executed Lock-Up Agreements
from each of the shareholders of the Company prior to the Effective Time.
Section 4.17. COOPER LICENSE ARRANGEMENT. Contemporaneously with the
execution of this Agreement, the Company acknowledges that Parent and
CooperSurgical, Inc. have entered into an amendment and restatement of the
License and Requirements Agreement dated as of February 25, 1998, between
CooperSurgical, Inc. and the Company, and that such agreement between
CooperSurgical, Inc. and Parent will go into effect as of the Effective Time.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER.
The respective obligations of each party hereto to effect the Merger are subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions:
(a) this Agreement shall have been approved and adopted by the requisite
vote of the shareholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States federal or state court or United States federal or state
Governmental Entity that prohibits, restrains, enjoins or restricts the
consummation of the Merger;
(c) any governmental or regulatory notices, approvals or other
requirements necessary to consummate the transactions contemplated hereby and to
operate the businesses of the Company and its subsidiaries after the Effective
Time in all material respects as they were operated prior thereto shall have
been given, obtained or complied with, as applicable; and
(d) Parent shall have received all state securities laws or "blue sky"
permits and authorizations necessary to issue shares of Parent Common Stock in
exchange for the Shares in the Merger.
Section 5.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to effect the Merger is subject to the satisfaction at or prior
to the Effective Time of each of the following conditions:
(a) the representations and warranties of Parent and Acquisition contained
in this Agreement shall be true and correct at and as of the Effective Time with
the same effect as if made at and as of the Effective Time (except to the extent
such representations specifically related to an earlier date, in which case such
representations shall be true and correct as of such earlier date) and, at the
Closing, Parent and Acquisition shall have delivered to the Company a
certificate to that effect;
29
(b) each of the covenants and obligations of Parent and Acquisition to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and, at the Closing, Parent and Acquisition shall have
delivered to the Company a certificate to that effect;
(c) if required, the shares of Parent Common Stock issuable to the
shareholders in connection with the Merger shall have been authorized for
listing on Nasdaq, upon official notice of issuance;
(d) There shall not have occurred, following the execution of this
Agreement and prior to the Closing Date, a change in law that would result in
the Merger not constituting a reorganization within the meaning of Section 368
of the Code or that otherwise would result in a material portion of the Merger
Consideration being treated other than as provided in Section 354 of the Code;
and
(e) the Securityholder Agent shall have received, on behalf of all
shareholders of the Company, the Registration Rights Agreement substantially in
the form attached hereto as EXHIBIT B, duly executed by Parent.
Section 5.3. CONDITIONS TO THE OBLIGATIONS OF PARENT AND ACQUISITION. The
respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions:
(a) the representations and warranties of the Company contained in this
Agreement shall be true and correct at and as of the Effective Time with the
same effect as if made at and as of the Effective Time (except to the extent
such representations specifically related to an earlier date, in which case such
representations shall be true and correct as of such earlier date) and, at the
Closing, the Company shall have delivered to Parent and Acquisition a
certificate to that effect;
(b) each of the covenants and obligations of the Company to be performed
at or before the Effective Time pursuant to the terms of this Agreement shall
have been duly performed in all material respects at or before the Effective
Time and, at the Closing, the Company shall have delivered to Parent and
Acquisition a certificate to that effect;
(c) there shall have been no circumstances, changes in or effects on the
Company or any of its subsidiaries that, individually or in the aggregate, have
had or would reasonably be expected to have, a Material Adverse Effect on the
Company;
(d) Parent shall have received the opinion of tax counsel to Parent to the
effect that (i) the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and (ii) each of
Parent, Acquisition and the Company will be a party to the reorganization within
the meaning of Section 368(b) of the Code, which opinion may rely on
certificates of representations of the Company and Parent as such counsel
reasonably deems appropriate, and such opinion shall not have been withdrawn or
modified in any material respect;
(e) Parent shall have received the opinion of legal counsel to the Company
as to the matters reasonably agreed upon by the parties;
(f) the Company shall have obtained the consent or approval of each person
whose consent or approval shall be required in order to permit the succession by
the Surviving Corporation pursuant to the Merger to any obligation, right or
interest of the Company under the agreements and instruments set forth in
Section 2.15 of the Company Disclosure Schedule;
(g) the Company shall have obtained and delivered to Parent a
consent/waiver from the Venture Banking Group, which provides that the Company
will not be in default under the Loan and Security Agreement dated as of March
24, 2000 and its related documents in connection with the consummation of the
Merger;
30
(h) the shareholders of the Company identified on EXHIBIT F hereto shall
have executed and delivered to Parent a Lock-Up Agreement substantially in the
form of EXHIBIT G hereto;
(i) Parent shall have received an executed employment agreement from Paul
Lawrence, Ph.D., and he shall remain an employee in good standing (which for
these purposes means that he is not subject to termination by the Company under
its employment policies in effect on the date of this Agreement) and shall not
have expressed his intent not to continue his employment with Parent or the
Surviving Corporation;
(j) Parent shall have received an executed consultant letter agreement
from Marian Buccafurni, and she shall remain a consultant in good standing
(which for these purposes means that she is not subject to termination by the
Company under its policies in effect on the date of this Agreement) and shall
not have expressed her intent not to continue her consulting relationship with
Parent or the Surviving Corporation;
(k) Parent shall have received, in form satisfactory to Parent, from each
of Paul Lawrence and Marian Buccafurni, a consent to terminate his/her
employment agreement with the Company, both of which were entered into in
February, 1998;
(l) Parent shall have received an executed Escrow Agreement substantially
in the form of EXHIBIT A hereto from the Company, the Escrow Agent and the
Securityholder Agent;
(m) the Company shall have given written notice of the Merger and any such
other notice as required under the terms of the Company to the holders of the
Company Stock Options and all such notice periods shall have expired;
(n) the Company shall have given written notice of the Merger and any such
other notice as required under the terms of the Company to the holders of the
Company Warrants and all such notice periods shall have expired, and either all
Warrants shall have been exercised prior to the Effective Time or the Company
shall have obtained from any holders of unexercised Warrants a consent to
terminate such unexercised Warrants;
(o) Parent shall have received from each shareholder of the Company an
executed copy of the Shareholder Agreement substantially in the form attached
hereto as EXHIBIT C;
(p) no more than 5% of Shares outstanding immediately prior to the
Effective Time, including Shares underlying Company Stock Options and Warrants,
shall be Dissenting Shares;
(q) the amendment and restatement of the License and Requirements
Agreement between CooperSurgical, Inc. and Parent (as described in Section 4.17
above) shall be effective in accordance with its terms; and
(r) Parent shall have received, in form satisfactory to Parent, from the
Company, evidence that all agreements, including amendments and addendums
thereto, whether written or oral, pursuant to which Dave Sutton has been
providing or may continue to provide consulting or other professional services
to the Company have been terminated and that neither Parent, the Surviving
Company nor the Company have any obligations to or commitments with Dave Sutton
as of the Closing Date.
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ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
Section 6.1. TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time whether before or after
approval and adoption of this Agreement by the Company's shareholders:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if any one of the following
occur: (i) any court of competent jurisdiction in the United States or other
United States federal or state Governmental Entity shall have issued a final
order, decree or ruling, or taken any other final action, restraining, enjoining
or otherwise prohibiting the Merger and such order, decree, ruling or other
action is or shall have become nonappealable, (ii) this Agreement and the
transactions contemplated hereby shall not have been approved and adopted by the
shareholders of the Company, or (iii) the Merger has not been consummated by
December 31, 2000, PROVIDED that no party may terminate this Agreement pursuant
to this clause (iii) if such party's failure to fulfill any of its obligations
under this Agreement shall have been the reason that the Effective Time shall
not have occurred on or before said date;
(c) by the Company if any one of the following occur: (i) there shall have
been a breach of any representation or warranty on the part of Parent or
Acquisition set forth in this Agreement or if any representation or warranty of
Parent or Acquisition shall have become untrue such that the conditions set
forth in Section 5.2(a) would be incapable of being satisfied by the Closing
Date, PROVIDED that the Company has not breached any of its obligations
hereunder in any material respect; or (ii) there shall have been a material
breach by Parent or Acquisition of any of their respective covenants or
agreements hereunder and Parent or Acquisition, as the case may be, has not
cured such breach within twenty (20) business days after notice by the Company
thereof, PROVIDED that the Company has not breached any of its obligations
hereunder in any material respect;
(d) by Parent and Acquisition if any one of the following occur: (i) there
shall have been a breach of any representation or warranty on the part of the
Company set forth in this Agreement or if any representation or warranty of the
Company shall have become untrue such that the conditions set forth in Section
5.3(a) would be incapable of being satisfied by the Closing Date, PROVIDED that
neither Parent nor Acquisition has breached any of their respective obligations
hereunder in any material respect; (ii) there shall have been a material breach
by the Company of its covenants or agreements hereunder, and the Company has not
cured such breach within twenty (20) business days after notice by Parent or
Acquisition thereof, PROVIDED that neither Parent nor Acquisition has breached
any of their respective obligations hereunder in any material respect; (iii) if
the Company Board shall have withdrawn or adversely modified its approval or
recommendation of this Agreement or the Merger; (iv) if the Company shall have
ceased using all reasonable efforts to call, give notice of, or convene or hold
a shareholders' meeting to vote on or to solicit shareholder written consent of
the Merger as promptly as practicable after the date hereof or shall have
adopted a resolution not to effect any of the foregoing; (v) if the Company
shall have convened a meeting of its shareholders to vote upon or attempted to
obtain the written consent of its shareholders to approve the Merger and shall
have failed to obtain the requisite vote or consent of its shareholders; or (vi)
the Company Board shall have recommended to the shareholders a Superior
Proposal.
Section 6.2. EFFECT OF TERMINATION. Except as provided in Section 6.3, in
the event of the termination and abandonment of this Agreement pursuant to
Section 6.1, this Agreement shall forthwith become void and have no effect
without any liability on the part of any party hereto or its affiliates,
directors, officers or stockholders other than the provisions of this Section
6.2 and Sections 4.10(c) and Article 8. Nothing contained in this Section 6.2
shall relieve any party from liability for any breach of this Agreement prior to
such termination.
Section 6.3. FEES AND EXPENSES.
(a) In the event that this Agreement is terminated pursuant to:
32
(i) Section 6.1(d)(iv), Section 6.1(d)(v) or Section 6.1(d)(vi);
(ii) Section 6.1(d)(i) or Section 6.1(d)(ii) (unless the breach or
inaccuracy causing termination pursuant to either such Section was in all
respects outside the direction or control of Company) and within twelve (12)
months thereafter Company enters into an agreement with respect to a Third Party
Acquisition or a Third Party Acquisition occurs involving any party (or any
affiliate thereof) (x) with whom Company (or its agents or representatives) had
negotiations with a view to a Third Party Acquisition, (y) to whom Company (or
its agents or representatives) furnished information with a view to a Third
Party Acquisition or (z) who had submitted a proposal or expressed an interest
in a Third Party Acquisition, in the case of each of clauses (x), (y) and (z),
after the date hereof and prior to such termination;
(iii) Section 6.1(d)(iii) and the Company Board has withdrawn or
materially weakened its recommendation following the receipt of an offer by a
Third Party to consummate a Third Party Acquisition involving the payment of
consideration to shareholders of Company with a value in excess of the Merger
Consideration; then
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate Parent and
Acquisition for such damages, the Company shall pay to Parent the amount of
Seven Hundred Fifty Thousand Dollars ($750,000) (the "Termination Payment") as
liquidated damages immediately upon the occurrence of the event described in
this Section 6.3(a) giving rise to such damages. It is specifically agreed that
the amount to be paid pursuant to this Section 6.3(a) represents liquidated
damages and not a penalty. The Company hereby waives any right to set-off or
counterclaim against such amount. Moreover, upon the termination of this
Agreement under circumstances in which the Termination Payment is payable, in
addition to any other remedies that Parent or Acquisition may have as a result
of such termination, the Company shall pay to Parent the amount equal to the
costs, fees and expenses incurred by Parent or Acquisition on their behalf in
connection with this Agreement, the Merger and the consummation of all
transactions contemplated by this Agreement (including fees payable to counsel
for Parent or Acquisition, investment bankers, accountants or counsel to any of
the foregoing).
(b) Except as specifically provided in Sections 6.3(a) and (b) hereof,
each party shall bear its own expenses in connection with this Agreement, the
Merger and the other transactions contemplated hereby and by any other documents
connected with the transactions contemplated hereby; PROVIDED, HOWEVER, that, in
the event that the transactions contemplated by this Agreement are consummated,
(i) Parent or Acquisition shall pay all reasonable and documented expenses
incurred by the Company for financial, legal, accounting and other professional
advisory services up to Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate without regard to payments to Company's broker as identified in
Section 2.9 and Section 2.24 of the Company Disclosure Schedule, and (ii) the
shareholders of the Company shall pay all such fees and expenses of the Company
in excess of Two Hundred Fifty Thousand Dollars ($250,000), such amount to be
deducted from the Escrow Amount, if necessary.
Section 6.4. AMENDMENT. This Agreement may be amended by action taken by
the Company, Parent and Acquisition at any time before or after approval of the
Merger by the shareholders of the Company, but after any such approval no
amendment shall be made that requires the approval of such shareholders under
applicable law without such approval. This Agreement (including the Company
Disclosure Schedule) may be amended only by an instrument in writing signed on
behalf of the parties hereto.
Section 6.5. EXTENSION; WAIVER. At any time prior to the Effective Time,
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument, in writing, signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
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ARTICLE 7
INDEMNIFICATION
Section 7.1. GENERAL SURVIVAL. Subject to Section 7.3(a) below, the parties
agree that, regardless of any investigation made by Parent and Acquisition, the
representations, warranties, covenants and agreements (in the case of covenants
and agreements, to the extent of performance or non-performance prior to the
Effective Time) of the parties contained in this Agreement shall survive the
execution and delivery of this Agreement for a period beginning on the date
hereof and ending at 5:00 p.m., California time, eighteen (18) months following
the date on which the Effective Time occurs (the "Survival Period").
Section 7.2. INDEMNIFICATION PROVISIONS IN GENERAL.
(a) Subject to Section 7.1 and Section 7.6, from and after the Effective
Time, Parent, Acquisition and the Surviving Corporation and their respective
affiliates, officers, directors, shareholders, representatives and agents
(collectively, the "Parent Indemnitee(s)") shall be indemnified and held
harmless by each former shareholder of the Company from and against and in
respect of any and all Losses incurred by, resulting from, arising out of,
relating to, imposed upon or incurred by Parent, Acquisition, the Surviving
Corporation or any other Parent Indemnitee by reason of:
(i) any inaccuracy in or breach of any of the Company's
representations, warranties, covenants or agreements (to the extent of
performance or non-performance prior to the Closing Date) contained in this
Agreement or any of the other documents contemplated by this Agreement to which
it is a party;
(ii) any misrepresentation contained in the Company Disclosure
Schedule or in any other written statement or certificate furnished to Parent,
Acquisition or any other Indemnitee by or on behalf of the Company or any
Company shareholder in connection with the transactions contemplated by this
Agreement or any other documents contemplated hereby;
(iii) any claim made or amounts paid in connection with the Company's
disclosure contained in Section 2.24 hereof, without regard to any other
disclosure contained the Company Disclosure Schedule or elsewhere; and
(iv) any claim by a former or current director, officer, employee or
consultant of the Company for compensation, bonuses or similar payments, except
to the extent listed in EXHIBIT E hereto, without regard to any disclosure
contained the Company Disclosure Schedule.
(b) Subject to Section 7.1, from and after the Effective Time, each
shareholder of the Company as of immediately prior to the Effective Time and
their respective affiliates, officers, directors, shareholders, representatives
and agents (collectively the "Company Indemnitee(s)" and together with the
Parent Indemnitees the "Indemnitees") shall be indemnified and held harmless by
Parent, Acquisition and the Surviving Corporation from and against and in
respect of any and all Losses incurred by, resulting from, arising out of,
relating to, imposed upon or incurred by any Company Indemnitee by reason of:
(i) any inaccuracy in or breach of any of the representations,
warranties, covenants or agreements (to the extent of performance or
non-performance prior to the Closing Date) of Parent and Acquisition contained
in this Agreement or any of the other documents contemplated by this Agreement
to which it is a party; and
34
(ii) any misrepresentation contained in the certificates furnished to
the Company pursuant to Sections 5.2(a) and (b).
For purposes of Article 7, the term "Losses" means any and all deficiencies,
judgments, settlements, demands, claims, suits, actions or causes of action,
assessments, liabilities, losses, damages (whether direct, indirect, incidental
or consequential), interest, fines, penalties, costs, expenses (including
reasonable legal, accounting and other costs and expenses of professionals)
incurred in connection with investigating, defending, settling or satisfying any
and all demands, claims, actions, causes of action, suits, proceedings,
assessments, judgments or appeals, and in seeking indemnification therefor, and
interest on any of the foregoing from the date incurred until paid at the prime
rate published from time to time by Wells Fargo Bank, net of any insurance
proceeds actually received.
(c) Any claims for indemnification hereunder must be set forth in writing,
contain a reasonably detailed description of the nature of and the events or
circumstances underlying the claim for indemnification hereunder and be received
by the party obligated to provide indemnity (the "Indemnitor") not later than
the expiration of the Survival Period or the periods set forth in Section 7.3(a)
(an "Indemnification Claim").
(d) No Parent Indemnitee shall be entitled to indemnification hereunder
for any Losses arising under Sections 7.2(a)(i) and (ii) until the aggregate
amount of all Losses under all claims of all Indemnitees for all such breaches
and claims shall exceed Seventy-Five Thousand Dollars ($75,000) (the "Floor"),
at which time only Losses incurred in excess of the Floor shall be subject to
indemnification hereunder; PROVIDED, HOWEVER, that the provisions of this
subsection (c) shall not apply with respect to (i) Losses arising out of fraud,
willful misconduct or any breach of the representations and warranties of the
Company contained in Sections 2.2, 2.12, 2.13 and 2.18, and Parent and the
Surviving Corporation shall be entitled to indemnification in the event of a
breach of such Sections without applicability of the Floor; and (ii) Losses
arising under Sections 7.2(a)(iii) or (iv). No Company Indemnitee shall be
entitled to indemnification hereunder for any Losses arising under Sections
7.2(b)(i) and (ii) until the aggregate amount or all Losses shall exceed
Seventy-Five Thousand Dollars ($75,000).
(e) The maximum aggregate liability of the Parent, Acquisition and the
Surviving Corporation to the Company Indemnitees for all Indemnification Claims
arising under this Agreement shall equal the aggregate Merger Consideration paid
by the Parent to all shareholders of the Company.
(f) Any indemnification payments made from the Escrow Account pursuant to
this Section 7.2 shall constitute an adjustment to the dollar amount of the
aggregate consideration payable by Parent to the holders of the capital stock of
the Company.
Section 7.3. MANNER OF INDEMNIFICATION.
(a) To provide a fund against which a Parent Indemnitee may assert
Indemnification Claims under this Article 7, the Escrow Amount shall be withheld
and deposited into escrow for the Survival Period pursuant to the Escrow
Agreement in accordance with Section 1.12. Notwithstanding anything to the
contrary in this Agreement, the amount of shares of Parent Common Stock in the
Escrow Amount for Losses arising under Section 7.2(a)(iii) equal to the dollar
value of Three Hundred Thousand Dollars ($300,000), and Section 7.2(a)(iv) equal
to the dollar value of Three Hundred Ten Thousand Dollars ($310,000) (each such
amount valued at a price per share of Parent Common Stock equal to $5.375 or the
30-day Price, if applicable) shall be held by the Escrow Agent for a time period
beyond the Survival Period, which time period shall expire upon the earlier to
occur of (y) the full and unconditional settlement or non-appealable judicial
determination of any claim that may be raised in connection with Section
7.2(a)(iii) or Section 7.2(a)(iv), and (z) the expiration of the last to expire
of the statutes of limitation applicable to any claim that may be raised in
connection with Section 7.2 (iii) or Section (a)(iv). The Escrow Amount so
deposited, and interest and other earnings payable thereon, shall be held and
distributed in accordance with the Escrow Agreement. Notwithstanding anything to
the contrary in this subsection (a), the amount of shares of Parent Common Stock
withdrawn from the Escrow Amount for Losses arising under Section 7.2(a)(iii)
shall not exceed the dollar value of Three Hundred Thousand Dollars ($300,000)
(valued at a price per share of Parent Common Stock equal to $5.375 or the
30-day Price, if applicable).
35
(b) Each Indemnification Claim shall be made only in accordance with this
Article 7 and the Escrow Agreement. Notwithstanding any other provision of this
Article 7, with respect to any matters referred to in Sections 7.2(a)(iii) and
(iv) above, Parent shall have the right to initiate, negotiate and direct the
resolution of such matters but shall not settle any such matters without the
consent of the Securityholder Agent (as defined below), such consent not to be
unreasonably withheld, conditioned or delayed; PROVIDED, HOWEVER, that with
respect to certain matters as agreed upon between Parent and the Company that
may arise under Sections 7.2(a)(iii) and (iv), Parent acknowledges that the
Company, or its representatives or the Securityholder Agent, shall have the
right to initiate and control negotiations of such matters and approach Parent
with a proposal for resolution of such matters; PROVIDED, FURTHER, HOWEVER, that
the Company, its representatives or the Securityholder Agent shall regularly
update Parent regarding the status of and any significant developments in the
negotiations and Parent shall have sole discretion to approve a resolution or
settlement of such claims and authorize a withdrawal of shares of Parent Common
Stock from the Escrow Amount, which consent shall not be unreasonably withheld,
which Parent may accept or reject in its sole discretion.
Section 7.4. SECURITYHOLDER AGENT. For purposes of this Agreement,
immediately and automatically upon the approval of this Agreement by the
requisite vote or written consent of the Company's shareholders, and, without
any further action on the part of any such shareholders, each shareholder of the
Company shall be deemed to have consented to the appointment of Richard L.
Sherman, as his, her or its representative (the "Securityholder Agent") and the
attorney-in-fact for and on behalf of each such Company shareholder, and the
taking by the Securityholder Agent of any and all actions and the making of any
decisions required or permitted to be taken by him or her under this Agreement
and the Escrow Agreement, including the exercise of the power to (i) execute the
Escrow Agreement, (ii) authorize delivery to Parent and Acquisition of the
Escrow Amount, or any portion thereof, in satisfaction of Indemnification
Claims, (iii) agree to, negotiate, enter into settlements and compromises of and
comply with orders of courts and awards of arbitrators with respect to such
Indemnification Claims, (iv) resolve any Indemnification Claims, and (v) take
all actions necessary in the judgment of the Securityholder Agent for the
accomplishment of the foregoing and all of the other terms, conditions and
limitations of this Agreement, the Registration Rights Agreement and the Escrow
Agreement. Accordingly, the Securityholder Agent has unlimited authority and
power to act on behalf of each Company shareholder with respect to this
Agreement, the Registration Rights Agreement and the Escrow Agreement and the
disposition, settlement or other handling of all Indemnification Claims, rights
or obligations arising from and taken pursuant to each such agreement. The
Company shareholders will be bound by all actions taken by the Securityholder
Agent in connection with this Agreement the, Registration Rights Agreement and
the Escrow Agreement, and Parent and Acquisition shall be entitled to rely on
any action or decision of the Securityholder Agent. The Securityholder Agent
will incur no liability with respect to any action taken or suffered by him in
reliance upon any notice, direction, instruction, consent, statement or other
document believed by him to be genuine and to have been signed by the proper
person (and shall have no responsibility to determine the authenticity thereof),
nor for any other action or inaction, except his or her own willful misconduct
or gross negligence. In all questions arising under this Agreement, Registration
Rights Agreement or the Escrow Agreement, the Securityholder Agent may rely on
the advice of counsel, and the Securityholder Agent will not be liable to anyone
for anything done, omitted or suffered in good faith by the Securityholder Agent
based on such advice. The Securityholder Agent will not be required to take any
action involving any expense unless the payment of such expense is made or
provided for in a manner satisfactory to him. At any time, holders of a majority
in interest of the Escrow Amount, determined at the Effective Time, may appoint
a new Securityholder Agent by written consent by sending notice and a copy of
the written consent appointing such new Securityholder Agent signed by holders
of a majority in interest of the Escrow Amount to Parent and the Escrow Agent.
Such appointment will be effective upon the later of the date indicated in the
consent or the date such consent is received by Parent, Acquisition (or, if
after the Effective Time, the Surviving Corporation) and the Escrow Agent.
Section 7.5. THIRD-PARTY CLAIMS. If Parent becomes aware of a
third-party claim that Parent believes, in good faith, may result in the
assertion by it of an Indemnification Claim against the Escrow Amount, Parent
shall notify the Securityholder Agent of such claim, and the Securityholder
Agent, as representative for the Company shareholders, shall be entitled to
participate in any defense of such third party claim. The reasonable costs of
the defense of any third-party action or claim incurred by the Securityholder
Agent shall be paid by the Company shareholders out of the Escrow Amount.
Notwithstanding the immediately preceding sentence, Parent shall conduct such
defense, but shall not settle any such claim without the consent of the
Securityholder Agent, such consent not to be unreasonably withheld,
conditioned or delayed; PROVIDED, HOWEVER, that, if the consent of the
Securityholder
36
Agent is so obtained, such settlement of that portion of any such claim shall
alone be determinative of the amount of the Indemnification Claim and neither
the Securityholder Agent nor any person who has a beneficial interest in the
Escrow Amount shall have any power or authority to object under any provision
of this Article 7 to the amount of any demand by Parent against the Escrow
Amount with respect to such settlement.
Section 7.6. EXCLUSIVE REMEDY. The Escrow Amount shall be the sole and
exclusive remedy of the Parent Indemnitees for any indemnifiable Loss arising
under this Agreement, PROVIDED, HOWEVER, that nothing in this Agreement shall be
deemed a waiver by any party of (i) any right to specific performance or
injunctive relief or (ii) any right or remedy, including money damages in excess
of the Escrow Amount, arising by reason of any claim of fraud or willful
misrepresentation with respect to this Agreement; PROVIDED, HOWEVER, that each
shareholder (if such shareholder has not committed the fraud or willful
misrepresentation) may be liable for money damages under this Section 7.6(ii)
only to the extent of his, her or its Pro Rata Ratio of the Loss in question;
and PROVIDED FURTHER, HOWEVER, that (except in the case of such shareholder's
fraud or willful misrepresentation) the maximum aggregate liability of each
shareholder for all indemnifiable Losses arising out of or related to this
Agreement, whether pursuant to this Section 7.6 (ii) or otherwise, shall in no
event exceed such shareholder's Pro Rata Ratio of the Merger Consideration.
Notwithstanding the foregoing, and without waiving any rights or remedies that
Parent may otherwise have, Parent covenants that (x) it shall first seek
recourse for any claim of fraud or willful misrepresentation against the Escrow
Amount in accordance with the provisions of the Escrow Agreement and thereafter,
to the extent necessary, (y) it will use reasonable good faith efforts to pursue
any remedies outside the Escrow Amount first against the person or persons it
reasonably believes to have committed the fraud or willful misrepresentation,
provided Parent shall have no obligation to pursue such remedies against such
person or persons for more than six months after becoming aware of an
Indemnification Claim arising by reason of such person or persons' fraud or
willful misrepresentation, and thereafter may pursue remedies against other
shareholders consistent with this Article 7.
ARTICLE 8
MISCELLANEOUS
Section 8.1. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including the
Company Disclosure Schedule) (a) constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings both written and oral between the
parties with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise; provided, HOWEVER, that Acquisition may assign
any or all of its rights and obligations under this Agreement to any wholly
owned subsidiary of Parent, but no such assignment shall relieve Acquisition of
its obligations hereunder if such assignee does not perform such obligations.
Section 8.2. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
Section 8.3. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by facsimile
or by registered or certified mail (postage prepaid, return receipt requested)
to each other party as follows:
If to Parent or Acquisition: QUIDEL CORPORATION
10165 McKellar Court
San Diego, CA 92121
Telecopier: (619) 646-8016
Attention: Chief Executive Officer
37
with a copy to: Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, California 92614
Telecopier: (949) 451-4220
Attention: Mark W. Shurtleff, Esq.
If to the Company to: LITMUS CONCEPTS, INC.
2981 Copper Road
Santa Clara, CA 95051
Telecopier: (408) 245-3301
Attention: President
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Telecopier: (650) 496-4082
Attention: Mark Casillas, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 8.4. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to the principles of conflicts of law thereof.
Section 8.5. DESCRIPTIVE HEADINGS; SECTION REFERENCES. The descriptive
headings herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. All references herein to Articles, Sections, subsections, paragraphs
and clauses are references to Articles, Sections, subsections, paragraphs and
clauses of this Agreement unless specified otherwise.
Section 8.6. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided herein, nothing in this
Agreement is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 8.7. CERTAIN DEFINITIONS. For the purposes of this Agreement the
term:
(a) "affiliate" means a person that, directly or indirectly, through one
or more intermediaries controls, is controlled by or is under common control
with the first-mentioned person;
(b) "business day" means any day other than a day on which Nasdaq is
closed;
(c) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(d) "include" or "including" means "include, without limitation" or
"including, without limitation," as the case may be, and the language following
"include" or "including" shall not be deemed to set forth an exhaustive list;
(e) "knowledge" or "known" means, with respect to any fact, circumstance,
event or other matter in question, the actual knowledge of such fact,
circumstance, event or other matter, in the case of the Company, of any member
of senior management or other employee and, in the case of Parent, of its
executive officers. Any such individual will be deemed to have knowledge of a
particular fact, circumstance, event or other matter if (i) such individual has
actual knowledge of such fact, circumstance, event or other matter, (ii) such
fact, circumstance, event or other matter is reflected in one or more documents
(whether written or electronic, including
38
e-mails sent to or by such individual) in, or that have been in, such
individual's possession, including personal files of such person, or (iii) such
fact, circumstance, event or other matter is reflected in one or more documents
(whether written or electronic) contained in books and records of the Company
(in the case of knowledge of the Company) or Parent (in the case of knowledge of
Parent) that would reasonably be expected to be reviewed by a person who has the
duties and responsibilities of such individual in the customary performance of
such duties and responsibilities;
(f) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity including any Governmental Entity; and
(g) "subsidiary" or "subsidiaries" of the Company, Parent, the Surviving
Corporation or any other person means any corporation, partnership, limited
liability company, association, trust, unincorporated association or other legal
entity of which the Company, Parent, the Surviving Corporation or any such other
person, as the case may be (either alone or through or together with any other
subsidiary), owns, directly or indirectly, 50% or more of the capital stock the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
Section 8.8. PERSONAL LIABILITY. Except as otherwise specifically provided
herein, this Agreement shall not create or be deemed to create or permit any
personal liability or obligation on the part of any direct or indirect
shareholder of the Company or Parent or Acquisition or any officer, director,
employee, agent, representative or investor of any party hereto.
Section 8.9. SPECIFIC PERFORMANCE. The parties hereby acknowledge and agree
that the failure of any party to perform its agreements and covenants hereunder,
including its failure to take all actions as are necessary on its part to the
consummation of the Merger, will cause irreparable injury to the other parties,
for which damages, even if available, will not be an adequate remedy.
Accordingly, each party hereby consents to the issuance of injunctive relief by
any court of competent jurisdiction to compel performance of such party's
obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
Section 8.10. FURTHER ASSURANCES. Each party will, at the reasonable
request of any other party hereto, from time to time execute and deliver such
other assignments, transfers, conveyances, and other instruments and documents
and do and perform such other acts and things as may be reasonably necessary or
desirable for effecting complete consummation of this Agreement and the
transactions contemplated hereby.
Section 8.11. CONSTRUCTION/INTERPRETATION. In the construction and
interpretation of this Agreement, the parties acknowledge that the terms hereof
reflect extensive negotiations among the parties and that this Agreement shall
not be deemed, for the purpose of construction and interpretation, drafted by
any of the parties hereto.
Section 8.12. COUNTERPARTS. This Agreement may be executed by facsimile and
in one or more counterparts, each of which shall be deemed to be an original but
all of which shall constitute one and the same agreement.
39
IN WITNESS WHEREOF, each of the parties has caused this Agreement and Plan
of Merger to be duly executed on its behalf as of the day and year first above
written.
LITMUS CONCEPTS, INC.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
QUIDEL CORPORATION
By:__________________________________________
Name:________________________________________
Title:_______________________________________
LITMUS ACQUISITION CORPORATION
By:__________________________________________
Name:________________________________________
Title:_______________________________________
40
EXHIBIT A
FORM OF ESCROW AGREEMENT
1
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "AGREEMENT") is entered into as of _________,
2000, by and among Quidel Corporation, a Delaware corporation ("PARENT"),
Richard L. Sherman, an individual residing in the State of California acting as
Securityholder Agent (the "SECURITYHOLDER AGENT"), and __________, as escrow
agent (the "ESCROW AGENT").
RECITALS
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated as of
October 30, 2000 (the "MERGER AGREEMENT"), by and among Parent, Litmus
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
Parent ("ACQUISITION"), Litmus Concepts, Inc., a California corporation (the
"COMPANY"), the parties thereto have agreed to the merger of Acquisition with
and into the Company, with the Company as the surviving corporation and a wholly
owned subsidiary of Parent (the "MERGER"), all subject to the terms and
conditions contained in the Merger Agreement (the "TRANSACTION");
WHEREAS, under the terms of the Merger Agreement, Parent shall deposit as
the Escrow Amount (as defined in the Merger Agreement) a number of shares of
Parent Common Stock (as defined in the Merger Agreement) otherwise payable to
each of the shareholders of the Company in an escrow account with the Escrow
Agent, such Escrow Amount to be withheld and deducted from the aggregate
consideration otherwise payable to the shareholders of the Company promptly
after the Effective Time. The shares of Parent Common Stock so deposited will
remain subject to any indemnification claims which Parent, Acquisition and the
Surviving Corporation and their respective affiliates, officers, directors,
shareholders, representatives and agents (the "INDEMNITEES") may have under and
in accordance with Article VII of the Merger Agreement;
WHEREAS, the Merger Agreement provides that the Escrow Agent shall hold and
administer the Escrow Amount in accordance with the terms of this Agreement and
the Escrow Agent is willing to act as the Escrow Agent upon the terms and
subject to the conditions of this Agreement;
WHEREAS, pursuant to the Merger Agreement, the shareholders of the Company
have consented to the appointment of (without any further action on the part of
Parent, the Company, the Escrow Agent or any other person) the Securityholder
Agent as their attorney-in-fact, to act on their behalf with respect to all
matters relating to and all claims made against the Escrow Amount, subject to
the terms hereof and of the Merger Agreement;
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the obligations of Parent and Acquisition under the Merger
Agreement; and
WHEREAS, capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement. In the event of any conflict between
the terms of this Agreement (other than those terms herein that affect the
rights, indemnification, duties or obligations
2
of the Escrow Agent, which shall be governed exclusively by the terms of this
Agreement) and the Merger Agreement, the terms of the Merger Agreement shall
prevail.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. DELIVERY OF SHARES; INDEMNIFICATION
(a) Promptly after the Effective Time, Parent shall deposit the Escrow
Amount with the Escrow Agent, to be held in escrow and administered in
accordance with the terms and conditions of this Agreement. The Escrow Amount
shall consist of issued and outstanding shares of Parent to be held by the
Escrow Agent in certificated form and registered in the name of the
Securityholder Agent. Notwithstanding the foregoing, the Securityholder Agent,
in his capacity of Securityholder Agent, shall not be deemed to be the
beneficial owner of the Escrow Amount. Schedule A attached hereto lists the Pro
Rata percentage of the Escrow Amount beneficially owned by each shareholder in
accordance with the terms of the Merger Agreement.
(b) Any Indemnitee may make Indemnification Claims against the Escrow
Amount for any Losses in accordance with this Section 1 and Article VII of the
Merger Agreement if an indemnification Claim Notice (as defined in Section 4(a)
hereof) is delivered to the Securityholder Agent during the period beginning on
the Effective Time and ending at 5:00 p.m., California time, on the date that is
eighteen (18) months after the date on which the Effective Time occurs (the
"SURVIVAL PERIOD"). Notwithstanding the foregoing, indemnification may be sought
after the Survival Period for any Losses arising under Section 7.2(a)(iii) and
(iv) if an indemnification Claim Notice with respect to such Losses is delivered
to the Securityholder Agent before the earlier to occur of (y) the full and
unconditional settlement or non-appealable judicial determination of any claim
that may be raised in connection with Section 7.2(a)(iii) or (iv), and (z) the
expiration of the last to expire of the statutes of limitation applicable to any
claim that may be raised in connection with the matters described in Section
7.2(a)(iii) or (iv) (in either case, as determined or resolved between the
Parent and Securityholder Agent, a "FINAL RESOLUTION").
(c) Within five (5) business days after the termination of the Survival
Period, the Escrow Agent shall deliver to each such former shareholder of the
Company such shareholder's pro rata amount (based on the number of Shares
contributed to the Escrow by each former shareholder) of the remaining Escrow
Amount held by the Escrow Agent, as specifically set forth on SCHEDULE A hereto;
less that portion thereof sufficient to satisfy, on a pro rata basis, all the
then pending and unsatisfied Indemnification Claims made by the Indemnitees for
indemnification in accordance with Article VII of the Merger Agreement;
provided, however, that (x) in the event a Final Resolution has not occurred
with respect to matters described in Section 7.2(a)(iii) of the Merger
Agreement, then MINUS that number of escrowed shares of Parent Common Stock, on
a pro rata basis, equal to Three Hundred Thousand Dollars ($300,000) (such
amount valued at a per share price of Parent Common Stock equal to $5.375 or the
30-day Price, if applicable); and (y) to the extent that a Final Resolution has
not occurred with respect to any matters described in Section 7.2(a)(iv) of the
Merger Agreement, then MINUS that number of escrowed shares of Parent Common
Stock, on a pro rata basis, equal to the unresolved amount
3
not to exceed Three Hundred Ten Thousand ($310,000) (such amount valued at a per
share price of Parent Common Stock equal to $5.375 or the 30-day Price, if
applicable). Within five (5) business days after each such Final Resolution, the
Escrow Agent shall deliver to each former stockholder of the Company such
shareholder's pro rata amount of the Escrow Amount that was held by the Escrow
Agent pending each such Final Resolution, less the amount thereof used to
satisfy Indemnification Claims in connection therewith.
(d) Upon the final determination of any pending Indemnification Claims,
that portion of the Escrow being held pending such determination shall be
distributed by the Escrow Agent in accordance with the terms of the relevant
Claim Notice, Claim Dispute Notice, memorandum or decision stipulated in Section
4 hereof.
(e) For purposes of this Agreement and Article VII of the Merger
Agreement, and subject to any limitations contained in such Article VII, the
satisfaction of any indemnifiable Losses in accordance with Section 4 hereof
shall be made by the Escrow Agent's delivery to Parent of that number of
escrowed shares of Parent Common Stock calculated by dividing the dollar amount
of such Losses by $5.375 or the 30-day Price, if applicable, rounded up or down
to the nearest whole share. Neither the Escrow Agent nor the Securityholder
Agent shall transfer any other property other than the Escrow Amount in
satisfaction of any Indemnification Claim.
(f) The Escrow Agent shall hold and dispose of the Escrow Amount in
accordance with the terms and conditions of this Agreement. All obligations of
the Escrow Agent hereunder shall terminate upon final delivery of the entire
Escrow Amount to the appropriate party or parties in accordance with the terms
of this Agreement and Article VII of the Merger Agreement. This Agreement shall
terminate upon final delivery of the entire Escrow Amount in accordance with the
previous sentence.
2. ADMINISTRATION
(a) The Escrow Agent shall accept, hold and safeguard the Escrow Amount
until its obligations hereunder terminate and shall administer, hold and dispose
of such shares only in accordance with the terms of this Agreement, or as
instructed in a joint writing by Parent and the Securityholder Agent.
(b) Notwithstanding the escrow of the Escrow Amount, cash dividends or
other distributions declared and paid on such shares shall be paid by Parent to
the Escrow Agent (for further distribution to the former shareholders of the
Company based on their Pro Rata percentage); PROVIDED, HOWEVER, that any
securities received by the Escrow Agent in respect of any Escrow Amount as a
result of any stock split, reclassification, subdivision or combination of
shares of Parent Common Stock, payment of a stock dividend or other stock
distribution in or on shares of Parent Common Stock, or change of shares of
Parent Common Stock into any other securities pursuant to or as part of a
merger, consolidation, acquisition of property or stock, separation,
reorganization, or liquidation of Parent, or otherwise, shall be held by the
Escrow Agent as, and shall be included within the definition of, Escrow Amount.
(c) The Securityholder Agent shall have voting rights with respect to all
shares comprising the Escrow Amount.
4
3. ISSUANCE OF NEW STOCK CERTIFICATES
When any portion of the Escrow Amount is to be released and delivered
hereunder to the Parent or to the former shareholders of the Company, the Escrow
Agent shall deliver certificate(s) in the name of such former shareholder
evidencing the appropriate portion of the Escrow Amount to be so released and
delivered.
4. INDEMNIFICATION AND REIMBURSEMENT PROCEDURES; CLAIMS AGAINST THE ESCROW
(a) INDEMNIFICATION CLAIM NOTICE. An Indemnitee shall give written notice
(a "CLAIM NOTICE") containing a reasonably detailed description of the nature
and the events or circumstances underlying any Indemnification Claim under
Article VII of the Merger Agreement, and a good faith estimate of the amount of
Losses related thereto, to the Securityholder Agent not later than the
expiration of the Survival Period or the date of Final Resolution, as
applicable. Unless the amount of Losses (or portion thereof) described in the
Indemnification Claim is contested by the Securityholder Agent within the thirty
(30) day period described in Section 4(b) hereof, the Indemnitee may recover
such amount (or such uncontested portion thereof) from the Escrow Amount pro
rata (based on the number of Shares contributed to the Escrow by each former
stockholder). In such event, the Escrow Agent shall, subject to any such Claim
Dispute Notice (as defined below), be entitled to rely on any such Claim Notice
and distribute any or all of the Escrow Amount to the Indemnitee in accordance
with the terms hereof, the Claim Notice and any Claim Dispute Notice, as
applicable.
(b) CLAIM DISPUTE NOTICE
(i) If, within thirty (30) days after the receipt by the
Securityholder Agent of a Claim Notice, he contests in writing to the
Indemnitee and the Escrow Agent that all or part of the Losses identified
in such Claim Notice constitute Indemnification Claims or the amount
thereof (the "CLAIM DISPUTE NOTICE"), then the Indemnitee and the
Securityholder Agent, acting in good faith, shall attempt to reach
agreement with respect to the contested portions of such Indemnification
Claim. If the Indemnitee and the Securityholder Agent should so agree, a
written memorandum setting forth such agreement shall be prepared and
signed by the Indemnitee and the Securityholder Agent and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely
on any such memorandum and distribute Escrow Amount held in escrow in
accordance with the terms hereof and thereof.
(ii) The Securityholder Agent shall not object to any Indemnification
Claim unless (i) it believes in good faith that the Indemnitee is not
entitled to be indemnified with respect to all or part of the Losses
specified therein or (ii) it lacks sufficient information to assess the
validity or amount of the Indemnification Claim. If the Securityholder
Agent objects to an Indemnification Claim on the basis that it lacks
sufficient information, it shall promptly request from the Indemnitee any
additional information reasonably necessary in order for it to assess such
Indemnification Claim and the Indemnitee shall, to the extent the
Indemnitee reasonably can, provide the additional information reasonably
requested. Upon receipt of such additional information, the Securityholder
Agent shall review it as soon as reasonably practicable
5
and notify the Indemnitee and the Escrow Agent of any withdrawal or
modification of the objection.
(c) OTHER DISTRIBUTIONS. In addition to the other permitted distributions
of the Escrow Amount set forth herein, the Escrow Agent shall distribute the
Escrow Amount in accordance with the terms of a written memorandum signed by
Parent and the Securityholder Agent or the final decision of a court of
competent jurisdiction in a proceeding to which Parent and the Securityholder
Agent are parties.
5. PROVISIONS REGARDING THE ESCROW AGENT
(a) LIABILITY OF THE ESCROW AGENT. The duties of the Escrow Agent
hereunder are purely ministerial in nature. In performing any duties under this
Agreement, the Escrow Agent shall not be liable to any party for any losses,
claims, damages, liabilities or expenses, except for gross negligence, willful
misconduct or bad faith on the part of the Escrow Agent (which for all purposes
of any Section of this Agreement shall be as determined by a court of competent
jurisdiction or by binding arbitration). The Escrow Agent shall be fully
protected in relying on and shall not incur any liability for any action taken,
suffered or omitted to be taken in reliance on any instrument, including any
written statement, memorandum or affidavit provided for in this Agreement that
the Escrow Agent shall believe to be genuine and provided that the Escrow Agent
acted without gross negligence, willful misconduct or bad faith (as determined
by a court of competent jurisdiction or by binding arbitration), nor will the
Escrow Agent be liable or responsible for the forgeries, fraud, impersonations
of others, or determining the scope of any representative authority, provided
that the Escrow Agent believed that such forgeries, fraud, or impersonations
were genuine and acted without gross negligence, willful misconduct or bad faith
(as determined by a court of competent jurisdiction or by binding arbitration).
In addition, the Escrow Agent may consult with legal counsel in connection with
the Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or omitted to be taken by it in good faith in
accordance with the advice of counsel; PROVIDED, HOWEVER, that the Escrow Agent
exercised reasonable care in the selection of such counsel. The Escrow Agent is
not responsible for determining and verifying the authority of any person acting
or purporting to act on behalf of any party to this Agreement. The Escrow Agent
shall have the right to perform any of its duties hereunder through agents,
custodians or nominees, and the Escrow Agent shall not be liable or responsible
for any misconduct or negligence on the part of any such agent, custodian or
nominee absent gross negligence, willful misconduct or bad faith on the part of
the Escrow Agent in the selection and continued employment thereof.
(b) FEES AND EXPENSES. It is understood that the fees, expenses and usual
charges agreed on for services of the Escrow Agent, as set forth in SCHEDULE B
attached hereto, shall be considered compensation for ordinary services as
contemplated by this Agreement. In the event that the conditions of this
Agreement are not promptly fulfilled, or if the parties request a substantial
modification of its terms, or if any controversy arises, or if the Escrow Agent
is made a party to, or intervenes in, any litigation pertaining to this escrow
or its subject matter, the Escrow Agent shall be reasonably compensated for such
extraordinary services and shall be reimbursed for all costs, reasonable
attorneys' fees and expenses occasioned by such default, delay, modification,
controversy, or litigation and the Escrow Agent shall have the right to retain
all documents and/or other things of value at any time held by the Escrow Agent
in this escrow
6
until such compensation, fees, costs, and expenses are paid. Parent shall be
responsible for all fees and expenses of the Escrow Agent.
(c) CONTROVERSIES.
(i) If any controversy arises between the parties to this Agreement,
or with any other person, concerning the subject matter of this Agreement,
its terms or conditions, the Escrow Agent will not be required to determine
the controversy or to take any action regarding it. The Escrow Agent may
hold all documents and other items of value held in escrow and may wait for
settlement of any such controversy by agreement by the parties as provided
by Section 4 hereof. In such event, the Escrow Agent will not be liable to
any person for interest or damage, except for its gross negligence or
willful misconduct. The Escrow Agent is authorized to deposit with the
arbitrator for such controversy all documents and other items of value held
in escrow. Upon deposit of all such documents and items of value with such
arbitrator, the Escrow Agent shall be fully released and discharged of and
from all obligations and liability imposed by the terms of this Agreement.
Parent shall be responsible for all costs, expenses, charges, and
reasonable attorneys' fees incurred by the Escrow Agent due to the
arbitration action.
(ii) In addition, in the event of any dispute between the parties to
this Agreement, or between any of them and any other person, resulting in
adverse claims or demands being made upon any portion of the Escrow Amount,
or in the event that the Escrow Agent, in good faith, is in doubt as to
what action it should take hereunder, the Escrow Agent may, at its option,
file a suit as interpleaded in a court of appropriate jurisdiction, or
refuse to comply with any claims or demands on it, or refuse to take any
other action hereunder, so long as such dispute shall continue or such
doubt shall exist. The Escrow Agent shall be entitled to continue so to
refrain from acting until (i) the rights of all parties have been fully and
finally adjudicated by a court of appropriate jurisdiction or by binding
arbitration or (ii) all differences and such doubt shall have been resolved
by agreement among all of the interested persons, and the Escrow Agent
shall have been notified of such agreement in writing signed by all such
persons. The rights of the Escrow Agent under this Section are cumulative
of all other rights which it may have by law or otherwise.
(d) INDEMNIFICATION OF THE ESCROW AGENT. Parent shall indemnify the Escrow
Agent for, and hold it harmless against, any loss, liability, claim, cost,
settlement, judgment, damage, fine, penalty, demand or expense, including
reasonable attorneys' fees, arising out of or in connection with its execution
of this Agreement or its performance of its duties under this Agreement,
including the costs and expenses of defending itself against any such loss,
liability, claim, cost, settlement, judgment, damage, fine, penalty, demand or
expense in connection herewith, unless such loss, liability, claim, cost,
settlement, judgment, damage, fine, penalty, demand or expense shall have been
determined by a court of competent jurisdiction or by binding arbitration to be
a result of the Escrow Agent's gross negligence or willful misconduct. Any
liability of the Escrow Agent will be limited to the amount of fees and expenses
paid to the Escrow Agent hereunder. The obligations of Parent under this Section
5(d) hereof shall survive termination of this Agreement and the resignation or
substitution of the Escrow Agent.
7
(e) RESIGNATION OF THE ESCROW AGENT. The Escrow Agent may resign at any
time upon giving at least 30 days' written notice to Parent and the
Securityholder Agent; PROVIDED, HOWEVER, that no such resignation shall become
effective until the appointment of a successor escrow agent, which shall be
accomplished as follows: Parent and the Securityholder Agent shall use their
best efforts to mutually agree on a successor escrow agent within 30 days after
receiving such notice. If Parent and the Securityholder Agent fail to agree on a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent, which successor escrow agent shall be
reasonably acceptable to Parent and the Securityholder Agent. The successor
escrow agent shall execute and deliver an instrument accepting such appointment
and it shall, without further acts, be vested with all the estates, properties,
rights, powers and duties of the predecessor escrow agent as if originally named
as escrow agent. At any time, the holders of a majority in interest of the
Escrow Amount (without considering any part of the Escrow Amount held of record
beneficially by the Securityholder Agent), determined at the Effective Time, may
appoint a new Securityholder Agent by written consent by sending notice and a
copy of the written consent appointing such new Securityholder Agent signed by
such holders of a majority in interest of the Escrow Amount to Parent and the
Escrow Agent. Such appointment will be effective upon the later of the date
indicated in the consent or the date such consent is received by Parent,
Acquisition (or, if after the Effective Time, the Surviving Corporation) and the
Escrow Agent, (i) the Escrow Agent shall be discharged from any further duties
and liability with respect to the Escrow Amount (except as otherwise provided
herein) and (ii) all references to the "Escrow Agent" shall, where applicable,
be deemed to include such successor escrow agent and such successor escrow agent
shall thereafter become the Escrow Agent for all purposes of this Agreement. If
a successor escrow agent is not appointed within the above time frames, then the
Escrow Agent may apply to a court of competent jurisdiction for appointment of a
successor escrow agent.
6. REPRESENTATIONS AND WARRANTIES
Each of the parties hereto represents and warrants with respect to itself
only as follows: (i) that it has full power and authority to execute, deliver
and perform its obligations under this Agreement; (ii) that all action on the
part of such party necessary for the due authorization, execution, delivery and
performance of this Agreement, the consummation of the transactions contemplated
hereby, and the performance of each party's obligations hereunder has been
taken; (iii) that this Agreement has been duly authorized, executed and
delivered by such party; and (iv) that this Agreement is a legal, valid and
binding obligation of such party, enforceable against such party in accordance
with its terms.
7. AMENDMENTS
This Agreement may not be amended except by an instrument signed by Parent
and the Securityholder Agent. No such amendment shall be effective to alter or
enlarge the Escrow Agent's rights, duties, discretion and obligations hereunder
without its prior consent.
8. NOTICES
All notices, requests, claims, demands and other communications hereunder
shall be in writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by facsimile, by registered or
certified mail (postage prepaid, return receipt
8
requested) or sent by nationally-recognized overnight courier to each other
party as set forth below or to such other address as the party to whom notice is
to be given may have furnished to the other parties hereto in writing in
accordance herewith. Any such notice or communication shall be deemed to have
been delivered and received (a) in the case of personal delivery, on the date of
such delivery, (b) in the case of facsimile, on the date sent if confirmation of
receipt is received and such notice is also promptly mailed by registered or
certified mail (return receipt requested), (c) in the case of a
nationally-recognized overnight courier in circumstances under which such
courier guarantees next business day delivery, on the next business day after
the date when sent and (d) in the case of mailing, on the fourth business day
following that on which the piece of mail containing such communication is
posted:
If to Parent or Acquisition: Quidel Corporation
10165 McKellar Court
San Diego, CA 92121
Telecopier: (619) 646-8016
Attention: Chief Executive Officer
with a copy to: Gibson, Dunn & Crutcher LLP
4 Park Plaza, Suite 1705
Irvine, California 92614
Telecopier: (949) 451-4220
Attention: Mark Shurtleff
To the Securityholder Agent: QED Technologies
20 Valley Stream Parkway, Suite 265
Malvern, PA 19355-1457
Telecopier: (610) 695-2068
Attention: Richard L. Sherman
with a copy to: The Cooper Companies
6140 Stoneridge Mall Road, Suite 590
Pleasanton, CA 94588
Telecopier: (925) 460-3662
Attention: Carol Kaufman
and a copy to: O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, NY 10112
Telecopier: (213) 408-2420
Attention: David Karabell, Esq.
To the Escrow Agent: ___________________________________
___________________________________
Telecopier:________________________
Attention:_________________________
9. SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any
9
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
10. ENTIRE AGREEMENT
This Agreement and the Merger Agreement constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof
and supersede all prior agreements and undertakings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
thereof.
11. PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and, except for Indemnitees who are not parties hereto,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
12. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the
internal laws (without reference to choice or conflict of laws) of the State of
California. Each of the parties hereto consents to the jurisdiction of any
Federal court or California or Delaware state court, and irrevocably agrees that
all actions or proceedings relating to this Agreement shall be litigated in one
of such courts, and each of the parties waives any objection that it may have
based on improper venue or FORUM NON CONVENIENS to the conduct of any such
action or proceeding in any such court and waives personal service of any and
all process upon it, and consent to all such service of process made in the
manner set forth in Section 8. Nothing contained in this Section 12 shall affect
the right of any party to serve legal process on any other party in any other
manner permitted by law. The parties hereto waive all rights to a jury trial in
connection with actions arising in connection with this Agreement.
13. HEADINGS
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. ASSIGNMENT
This Agreement shall not be assigned by operation of law or otherwise,
without the prior written consent of the other parties; PROVIDED, HOWEVER, that
Parent may assign all or any of its rights and obligations hereunder to any of
its existing or future successors or wholly owned subsidiaries without the
consent of any other party hereto, but no such assignment shall relieve Parent
of its obligations hereunder if such assignee does not perform such obligations.
10
15. SPECIFIC PERFORMANCE
Each of the parties acknowledges and agrees that the other parties hereto
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. Accordingly, each of the parties hereto agrees that the other
parties hereto will be entitled to an injunction to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions of this Agreement (including the indemnification provisions
hereof) in any competent court having jurisdiction over the parties, in addition
to any other remedy to which they might be entitled at law or in equity.
16. FURTHER ASSURANCES
Each party will, at the reasonable request of any other party hereto, from
time to time execute and deliver such other assignments, transfers, conveyances,
and other instruments and documents and do and perform such other acts and
things as may be reasonably necessary or desirable for effecting complete
consummation of this Agreement and the transactions contemplated hereby.
17. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
11
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
QUIDEL CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
SECURITYHOLDER AGENT:
__________________________________
Name: Richard L. Sherman
ESCROW AGENT:
By:________________________________
Name:______________________________
Title:_____________________________
12
SCHEDULE A
PRO RATA PERCENTAGES
SCHEDULE B
SCHEDULE OF ESCROW AGENT FEES
================================================================================
1
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is entered into as of
______, 2000 by and among Quidel Corporation, a Delaware corporation (the
"PARENT"), and Richard L. Sherman, as the Securityholder Agent (the
"SECURITYHOLDER AGENT") of the persons whose names and addresses are set forth
in SCHEDULE 1 attached hereto (each an "INVESTOR" and together the "INVESTORS"),
for the express benefit of such Investors.
RECITALS
WHEREAS, the Investors were each holders of shares of the capital stock of
Litmus Concepts, Inc., a California corporation ("COMPANY");
WHEREAS, pursuant to the terms and conditions of that certain Agreement and
Plan of Merger, dated as of October 30, 2000 (the "MERGER AGREEMENT"), at the
Effective Time (as defined in the Merger Agreement) the Investors each became,
or upon exercise of warrants or stock options will become, holders of shares of
the common stock, par value $0.001 per share, of the Parent ("COMMON STOCK");
and
WHEREAS, in connection with entering into the Merger Agreement, the Parent
agreed to grant the Investors certain registration rights with respect to the
shares of Common Stock issued to the Investors at the Effective Time (as defined
in the Merger Agreement) pursuant to the Merger Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. DEFINITIONS
The following terms, as used herein, shall have the following meanings:
"COMMISSION" means the Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, as they each may, from time to
time, be in effect.
"MERGER" means the merger of Company with a wholly-owned subsidiary of the
Parent that is contemplated by the Merger Agreement.
"MERGER SHARES" means the aggregate number of shares of Common Stock
received by the Investors in the Merger pursuant to the Merger Agreement in
exchange for the shares of Company capital stock (allocated among them on a pro
rata basis, based on the number of shares of capital stock held by each) that
were outstanding immediately before or at the Effective Time.
2
"MERGER EFFECTIVE DATE" means the date on which the Effective Time has
occurred.
"RIGHTS HOLDERS" means the Investors during such time as they hold
Registrable Shares, and any persons or entities to whom the rights granted under
this Agreement are transferred in accordance with Section 12 hereof.
"REGISTRABLE SHARES" means the Merger Shares (other than those deposited as
the Escrow Amount, as defined in the Merger Agreement) and any other securities
issued in respect of such Merger Shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events), which
securities shall be the same type of Registrable Shares as the shares from which
they were issuable;
PROVIDED, HOWEVER, that shares which are Registrable Shares shall cease to be
Registrable Shares:
(i) upon any sale or other transfer of such shares pursuant to a
Registration Statement or Rule 144 under the Securities Act (or any similar
provision then in force); or
(ii) if such shares are capable of being distributed pursuant to Rule
144(k) under the Securities Act and the Parent removes all restrictive legends
on and stop transfer instructions with respect to such shares; or
(iii) upon any sale or transfer to a person or entity to which,
pursuant to Section 13 of this Agreement, the rights provided by this Agreement
are not transferable.
"REGISTRATION STATEMENT" means a registration statement filed by the Parent
with the Commission for a public offering and sale of Common Stock (other than a
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another person or entity or in connection
with an employee benefit plan).
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, as they each may, from time to
time, be in effect.
2. REGISTRATION RIGHTS
2.01 Within thirty (30) days after the Merger Effective Date, the Parent
will have filed a registration statement under the Securities Act on Form S-3
(or any successor form or other form that the Parent is eligible to use that may
be used to effect such registration) covering all of the Registrable Shares. If
the holders intend to distribute the Registrable Shares by means of an
underwriting, they shall so advise the Parent. In the event such registration is
underwritten, the right of other Rights Holders to participate shall be
conditional on such Rights Holders' participation in such underwriting.
2.02 Except as hereinafter set forth in Section 3.04, the Parent shall not
be required to effect more than one (1) registration pursuant to Section 2.01
above; PROVIDED, HOWEVER, that no registration statement filed pursuant to
Section 2.01 shall count as a registration statement that satisfies the Parent's
registration obligations and such obligations shall continue in full force and
effect, if (i) the Registration Statement is not declared effective by the
Commission within sixty
3
(60) days after the date it was originally filed with the Commission, or (ii)
the Parent fails to maintain the effectiveness of the Registration Statement for
the Applicable Registration Period.
2.03 If a required registration pursuant to Section 2.01 above is an
underwritten offering, the Parent may select a managing underwriter to
administer the offering as long as such underwriter is of recognized standing.
3. REGISTRATION PROCEDURES
3.01 In order to comply with its obligations pursuant to the provisions of
this Agreement to use its best efforts to effect the registration under the
Securities Act of any of the Registrable Shares, the Parent shall, subject to
the specific terms hereof:
(a) as expeditiously as practical prepare and file with the
Commission a Registration Statement with respect to such Registrable Shares and
use its best efforts to cause that Registration Statement to become effective as
soon as possible thereafter;
(b) as expeditiously as practicable prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby and one (1) year after the effective date of the Registration Statement
(each, an "APPLICABLE REGISTRATION PERIOD");
(c) as expeditiously as practicable furnish to each selling Rights
Holder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents, as the selling Rights Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Shares owned by the selling Rights Holder; and
(d) as expeditiously as practicable use its best efforts to register
or qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the selling Rights Holders
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Rights Holders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Rights Holder; PROVIDED, HOWEVER, that the Parent shall not be
required in connection with this Section 3.01(d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
3.02 If the Parent has delivered preliminary or final prospectuses to the
selling Rights Holders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Parent shall promptly
notify the selling Rights Holders and, if requested, the selling Rights Holders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Parent. The Parent shall promptly, but, in any such event,
by no later than the 30th day following the request by the Parent that the
Rights Holders cease their sales of shares, provide the selling Rights Holders
with revised prospectuses and, following receipt of the revised prospectuses,
the selling Rights Holders shall be free to resume making
4
offers of the Registrable Shares. In such event, however, at the time the Rights
Holders are permitted to resume making such offers the Applicable Registration
Period shall be extended for a number of days equal to the period during which
the Rights Holders were required to cease selling their Registrable Shares
pursuant to this Section 3.02.
3.03 Following the effectiveness of a Registration Statement (and the
making of any required filings with any state securities commissions), the
Parent may direct the selling Rights Holders to suspend sales of the Registrable
Securities, as provided herein, if any one or more of the following events (a
"SUSPENSION EVENT") occurs:
(a) an underwritten primary offering by the Parent where the Parent
is advised by the underwriters for such offering that sale of Registrable Shares
under the Registration Statement would have a material adverse effect on the
primary offering (a "PUBLIC OFFERING SUSPENSION EVENT"); or
(b) pending negotiations relating to, or consummation of, a
transaction or the occurrence of an event (a "MATERIAL EVENT SUSPENSION"):
(i) that would require additional disclosure of material information
by the Parent in the Registration Statement (or such filings) the absence of
which would make the Registration Statement materially misleading; and
(ii) as to which the Parent has a bona fide business purpose for
preserving confidentiality; or
(iii) which renders the Parent unable to comply with Commission
requirements;
in each case under circumstances that would make it impractical or inadvisable
(i) to take any action with respect to the Registration Statement (or such
filings), the effectiveness or continued effectiveness thereof, or (ii) to
promptly amend or supplement the Registration Statement on a post-effective
basis, as applicable; PROVIDED, HOWEVER, that:
(x) in the case of any Public Offering Suspension Event, the Parent
shall use its best efforts to cause to be registered in and sold (provided that
Investors have no obligation to sell) without Cutback, pursuant to the
underwritten registration statement for such public offering, the Registrable
Shares that were subject to the Suspension Event;
(y) in the case of any Public Offering Suspension Event, the period
of suspension shall commence up to thirty (30) days prior to a reasonably
anticipated effective date of a registration statement and terminate up to
ninety (90) days after such effective date if requested by the Parent's
underwriters; and
(z) in the case of a Material Event Suspension under subsection (ii),
the duration of the suspension shall terminate on the earlier of the public
announcement of such Suspension Event and the expiration of thirty (30) days
from the commencement of the suspension and, in the case of a Material Event
Suspension under subsections (i) or (iii), the
5
Parent shall use its best efforts to cause the duration of the suspension to
terminate as soon as reasonably practicable.
If, despite the exercise of its best efforts, the Parent is not able to
include all of such Registrable Shares in such registered public offering so
that all of such Registrable Shares have not been registered without Suspension
for an aggregate period of at least thirty (30) days, as contemplated by clause
(x) above, or in case of any Material Event Suspension, then, at the election of
the holders of a majority of the Registrable Shares included in the Suspended
Registration Statement, (A) the duration of the Applicable Time Period of the
Suspended Registration Statement shall be extended for a period of time equal to
the duration of the suspension or (B) such Rights Holders shall terminate their
participation in the suspended Registration Statement, in which case that
Registration Statement shall not count as a Registration Statement for purposes
of Section 2 of this Agreement, such Holders shall not be responsible for paying
or reimbursing the Parent for any of the Registration Expenses incurred with
respect to such Suspended Registration and the respective time periods within
which the Registrable Holders may exercise their registration rights under
Section 2.01 shall be extended for a period of time equal to the period of the
suspension resulting from the Suspension Event.
3.04 In the case of a Suspension Event, the Parent shall give written
notice (a "SUSPENSION NOTICE") to the selling Rights Holders to suspend sales of
the Registrable Shares so that the Parent may correct or update the Registration
Statement (or such filings); PROVIDED, HOWEVER, that such suspension shall
continue no longer than the applicable period of time set forth in Section 3.03
above. The selling Rights Holders agree that they will not effect any sales of
the Registrable Shares pursuant to such Registration Statement (or such filings)
at any time during the period from the date they received a Suspension Notice
from the Parent to such date as of which the Suspension Period shall expire as
provided in clauses (y) and (z) of Section 3.03 above. If so directed by the
Parent, selling Rights Holders will deliver to the Parent all copies of the
prospectus covering the Registrable Shares held by them at the time of receipt
of the Suspension Notice. The selling Rights Holders may recommence effecting
sales of the Registrable Shares pursuant to the Registration Statement (or such
filings) following further written notice to such effect (an "END OF SUSPENSION
NOTICE") from the Parent, which End of Suspension Notice shall be accompanied by
copies of the supplemented or amended prospectus necessary to resume such sales;
PROVIDED, HOWEVER, that such End of Suspension Notice shall be delivered, in the
case of a Public Offering Suspension Event, on the earlier to occur of the
consummation of the public offering and the date set forth in clause (y) of
Section 3.03 above, and in the case of a Material Event Suspension, at the
applicable date set forth in clause (z) of Section 3.03.
4. ALLOCATION OF EXPENSES
The Parent will pay all Registration Expenses of any registration under
this Agreement; PROVIDED, HOWEVER, that, except as otherwise provided in Section
3.03, if a registration is withdrawn at the request of the Rights Holders
requesting such registration (other than as a result of information concerning
the business or financial condition of the Parent which is made known to the
Rights Holders after the date on which such registration was requested or
withdrawn as a result of a Suspension Event), and if the requesting Rights
Holders elect not to have such registration counted as a registration requested
under Section 2, the requesting Rights Holders
6
shall pay the Registration Expenses of such registration pro rata in accordance
with the number of their Registrable Shares included in such registration. For
purposes of this Section 4, the term "REGISTRATION Expenses" shall mean all
expenses incurred by the Parent in complying with this Agreement, including,
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees and expenses of counsel for the Parent and the
reasonable fees and expenses of one counsel selected by the selling Rights
Holders to represent the selling Rights Holders, state Blue Sky fees and
expenses, and the expense of any special audits incidental to or required by any
such registration, but excluding underwriting discounts, selling commissions and
the fees and expenses of any selling Rights Holder's own counsel, or other
out-of-pocket expenses of the Rights Holders or their agents (other than the
counsel selected to represent all selling Rights Holders).
5. INDEMNIFICATION AND CONTRIBUTION
5.01 In the event of any registration under the Securities Act of any
Registrable Shares pursuant to this Agreement, the Parent will indemnify and
hold harmless the seller of such Registrable Shares, each underwriter of such
Registrable Shares, and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act or the Exchange Act against
any losses, claims, damages or liabilities, joint or several, to which such
seller, underwriter or controlling person may become subject under the
Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Parent will reimburse such seller, underwriter
and each such controlling person for any legal or any other expenses reasonably
incurred by such seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action as
and when incurred by them; PROVIDED, HOWEVER, that the Parent will not be liable
to such seller, underwriter or controlling person in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any untrue statement or omission made in such Registration Statement,
preliminary prospectus or final prospectus, or any such amendment or supplement,
in reliance upon and in conformity with information furnished to the Parent, in
writing, by or on behalf of such seller, underwriter or controlling person
specifically for use in the preparation thereof; PROVIDED, FURTHER, HOWEVER,
that the foregoing indemnity agreement with respect to any registration
statement or prospectus relating to the Registrable Securities shall not inure
to the benefit of any seller in such offering, its officers, directors or
agents, or controlling persons if:
(a) a copy of a prospectus (as then amended or supplemented if the
Parent shall have furnished any amendments or supplements thereto) for such
offering was not sent or given by or on behalf of such selling shareholder to
the person ("ASSERTING PERSON") asserting any losses, claims, damages or
liabilities as a result of an untrue statement of a material fact contained in
any registration statement or prospectus relating to the Registrable Securities
(as amended or supplemented if the Parent shall have furnished any amendments or
supplements
7
thereto) or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading and if such prospectus (as so amended or supplemented)
would have cured the defect giving rise to such losses, claims, damages or
liabilities; or
(b) such selling shareholder sold Registrable Securities to the
Asserting Person during the period between the receipt of a Suspension Notice
and the date of a End of Suspension Notice.
5.02 In the event of any registration under the Securities Act of any of
the Registrable Shares pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Parent,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Parent or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Parent, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Parent by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement; PROVIDED, HOWEVER, that the obligations of such Rights Holders
hereunder shall be limited to an amount equal to the net proceeds to such Rights
Holder of Registrable Shares sold in connection with such registration. The
terms of any underwriting agreement entered into by the Parent to effect a
registration of the Registrable Securities shall require the underwriter to
indemnify and hold harmless the Parent, its officers, directors, controlling
persons and agents and each selling Rights Holder on substantially the same
basis as that of the indemnification of the Parent by each selling holder or
each selling holder by the Parent as applicable, as provided in this Section 5.
5.03 Each party entitled to indemnification under this Section 5
("INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification ("INDEMNIFYING PARTY") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and PROVIDED, FURTHER, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 5 (except to the extent
such failure to give notice has resulted in increased losses, damages or
liabilities for the Indemnifying Party). The Indemnified Party may participate
in such defense at such party's expense and the Indemnified Party and not the
Indemnifying Party shall bear or be responsible for the expenses thereof,
unless:
8
(a) the Indemnifying Party and the Indemnified Party shall have
mutually agreed to the retention of such counsel, or
(b) the named parties to any such proceeding (including any impleaded
parties) include both the Indemnified Party and the Indemnifying Party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them.
No Indemnifying Party, in the defense of any such claim or litigation shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation, and no
Indemnified Party shall consent to entry of any judgment or settle such claim or
litigation without the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld.
5.04 In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either:
(a) any holder of Registrable Shares exercising rights under this
Agreement, or any controlling person of any such holder, makes a claim for
indemnification pursuant to this Section 5 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 5 provides for indemnification in such case; or
(b) contribution under the Securities Act may be required on the part
of any such selling Rights Holder or any such controlling person in
circumstances for which indemnification is provided under this Section 5;
then, in each such case, the Parent and such Rights Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportions as is appropriate
to reflect the relative fault of the Indemnifying Party and Indemnified Parties
in connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations;
PROVIDED, HOWEVER, that, in any such case:
(i) no such holder will be required to contribute any amount in
excess of the net proceeds to it of all Registrable Shares sold by it pursuant
to such Registration Statement; and
(ii) no person or entity guilty of fraudulent misrepresentation,
within the meaning of Section 11(f) of the Securities Act, shall be entitled to
contribution from any person or entity who is not guilty of such fraudulent
misrepresentation.
9
6. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING
In the event that Registrable Shares are sold pursuant to a Registration
Statement in an underwritten offering, the Parent agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including, without limitation, customary provisions with respect to
indemnification by the Parent of the underwriters of such offering.
7. INFORMATION BY RIGHTS HOLDER
Each Rights Holder including Registrable Shares in any registration shall
furnish to the Parent such information regarding such Rights Holder and the
distribution of such Right Holder's Registrable Shares proposed by such Rights
Holder as the Parent may reasonably request in writing and as shall be required
in connection with any registration, qualification or compliance referred to in
this Agreement.
8. NO LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
Nothing contained in this Agreement shall prohibit the Parent from granting
to any holder or prospective holder of any securities of the Parent registration
rights which would allow such holder or prospective holder to include securities
of the Parent in any Registration Statement filed by the Parent.
9. RULE 144 REQUIREMENTS
The Parent agrees to:
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Parent;
(b) use its reasonable efforts to file with the Commission in a
timely manner all reports and other documents required of the Parent under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon request:
(i) a written statement by the Parent as to its compliance with the
requirements of Rule 144(c) under the Securities Act, and the reporting,
requirements of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements);
(ii) a copy of the most recent annual or quarterly report of the
Parent; and
(iii) such other reports and documents of the Parent as such holder
may reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
10
10. MERGERS, ETC.
The Parent shall not, directly or indirectly, enter into any merger,
consolidation or reorganization in which the Parent shall not be the surviving
corporation or in which, although it is the surviving corporation, it becomes a
subsidiary of another corporation or entity (a "PARENT ENTITY"), unless the
proposed surviving corporation or Parent Entity, as the case may be, shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Parent under this Agreement; and for such purpose,
references hereunder to "Registrable Shares" shall be deemed to be references to
the securities which the Rights Holders would be entitled to receive in exchange
for Registrable Shares under any such merger, consolidation or reorganization;
PROVIDED, HOWEVER, that the provisions of this Section 10 shall not apply in the
event of any merger, consolidation or reorganization in which the Parent is not
the surviving corporation and does not become a subsidiary of a Parent Entity,
if all stockholders are entitled to receive in exchange for their Registrable
Shares consideration consisting solely of:
(a) cash; or
(b) securities of the acquiring corporation which may be immediately
sold to the public without registration under the Securities Act.
11. TERMINATION
All of the Parent's obligations to register Registrable Shares under this
Agreement shall terminate upon the last to occur of (i) the sale of all
Registrable Shares by the Holders thereof pursuant to this Agreement, or (ii)
the earliest date as of which all Registrable Shares have ceased being
Registrable Shares.
12. TRANSFERS OF RIGHTS
This Agreement, and the rights and obligations of each Rights Holder
hereunder, may only be assigned (including assignment by law) by such Rights
Holder to:
(a) any partner or retired partner (or substantial equivalent) of the
Rights Holder, if the Rights Holder is a partnership or limited liability
company;
(b) any family member or trust for the benefit of the Rights Holder,
if the Rights Holder is an individual; and
(c) any entity controlled by, controlling or under common control
with the Rights Holder;
PROVIDED that the transferee provides written notice of such assignment to the
Parent and agrees in writing to be bound by the terms and conditions hereof.
13. OTHER PUBLIC OFFERINGS
This Agreement is not intended to and shall not preclude the Parent from
listing its Common Stock on any reputable non-United States exchange.
11
14. NOTICES
All notices, requests, consents, and other communications under this
Agreement shall be in writing and shall be delivered by hand or mailed by
first-class certified or registered mail, return receipt requested, postage
prepaid:
(a) if to the Parent, to Quidel Corporation, 10165 McKellar Court,
San Diego, CA 92121, Attention: Chief Executive Officer, or to such other
address or addresses as may from time to time be furnished in writing by the
Parent to the Rights Holders, with a copy to Mark Shurtleff, Gibson, Dunn &
Crutcher LLP, 4 Park Plaza, Suite 1705, Irvine, California 92614; or
(b) if to an Investor, to its address set forth on SCHEDULE 1
attached hereto, or to such other address or addresses as may from time to time
be furnished to the Parent in writing by such Investor.
Notices provided in accordance with this Section 14 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
15. ENTIRE AGREEMENT
This Agreement embodies the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter.
16. AMENDMENTS AND WAIVERS
Any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of the
Parent and the holders of a majority of the Registrable Shares; PROVIDED,
HOWEVER, that this Agreement may be amended with the consent of the holders of
less than all but at least a majority of the Registrable Shares only in a manner
which affects the rights of all Registrable Shares in the same fashion. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision.
17. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
instrument.
18. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
12
19. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of California without reference to conflict of laws
principles thereof.
20. SECTION HEADINGS
The heading of each Section, Subsection or other subdivision of this
Agreement is for reference purposes only and shall not limit or control the
meaning thereof.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
13
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
COMPANY:
QUIDEL CORPORATION.
By:
----------------------------------------
Name:
---------------------------------------
Title:
-------------------------------------
SECURITYHOLDER AGENT:
-------------------------------------------
Name: Richard L. Sherman
14
EXHIBIT C
FORM OF SHAREHOLDERS' AGREEMENT
1
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (this "AGREEMENT") is entered into as of
______, 2000, between Quidel Corporation, a Delaware corporation ("PARENT"), and
the undersigned shareholder ("SHAREHOLDER") of Litmus Concepts, Inc., a
California corporation ("COMPANY").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Parent, Company
and Litmus Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of Parent ("ACQUISITION"), have entered into an Agreement and Plan of
Merger dated as of October 30, 2000 (the "MERGER AGREEMENT"), which provides for
the merger (the "MERGER") of Acquisition with and into Company and the
conversion of each outstanding share of Company's capital stock into shares of
common stock, par value $0.001 per share, of Parent (the "COMMON STOCK");
WHEREAS, in the Merger, outstanding shares of Company capital stock,
including any such shares owned by Shareholder, will be converted into the right
to receive Common Stock subject to the terms of, and as set forth in, the Merger
Agreement;
WHEREAS, the Common Stock to be received by Shareholder in the Merger will
not have been registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act or Regulation D promulgated thereunder;
WHEREAS, pursuant to the terms of the Registration Rights Agreement entered
into at the closing of the Merger between Parent and Richard L. Sherman as the
Securityholder Agent for the Shareholder and the other shareholders of Company
(the "REGISTRATION RIGHTS AGREEMENT"), after the Merger Effective Date (as
defined in the Merger Agreement), Parent will prepare and file with respect to
the Common Stock a registration statement on Form S-3 (the "REGISTRATION
STATEMENT") under the Securities Act to permit Shareholder to sell the Common
Stock registered for sale under the Registration Statement; and
WHEREAS, in order to induce Parent to enter into the Merger Agreement and
the Registration Rights Agreement and to file such Registration Statement and to
maintain the effectiveness of the Registration Statement for the period of time
set forth in the Registration Rights Agreement, Shareholder is willing to agree
to be bound by certain procedural requirements with respect to sales of the
Common Stock pursuant to the Registration Statement and to execute and deliver
this Agreement.
AGREEMENT
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. ACKNOWLEDGMENTS BY SHAREHOLDER. Shareholder acknowledges and
understands that the representations, warranties and covenants by Shareholder
set forth herein shall be relied
2
upon by Parent, Company, and their respective affiliates, counsel and accounting
firms, and that substantial losses and damages may be incurred by such persons
if Shareholder's representations, warranties or covenants are breached.
Shareholder has carefully read this Agreement, the Merger Agreement (including
the Escrow Agreement attached thereto as EXHIBIT B) and the Registration Rights
Agreement and has discussed the requirements of this Agreement with
Shareholder's professional advisors to the extent Shareholder has deemed
necessary.
2. SHAREHOLDER'S REPRESENTATIONS. Shareholder represents, warrants and
covenants that:
(a) SHARE OWNERSHIP. Shareholder has good and valid title to, and
sole record and beneficial ownership of, the shares of Company capital stock,
including any Company options and Company warrants to purchase Company capital
stock, listed on the signature page hereof, free and clear of any claims, liens,
pledges, options, security interests, trusts, encumbrances or other rights or
interests of any person or entity and the Shareholder has the absolute and
unrestricted right, power and authority and capacity to enter into this
Agreement.
(b) ACQUIRE SOLELY FOR OWN ACCOUNT. The Common Stock to be received
by Shareholder in the Merger will be acquired for investment for Shareholder's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, other than pursuant to the Registration
Statement. Shareholder does not presently have any contract, understanding,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third party with respect to any of the
Shares.
(c) RESTRICTED SECURITIES. Shareholder understands that the Common
Stock will be "restricted securities" under applicable federal and state
securities laws. Accordingly Shareholder will not make any sale, transfer, or
other disposition of Common Stock unless (i) such sale, transfer, or other
disposition is within the applicable limitations of and in compliance with Rule
144 promulgated by the Securities and Exchange Commission (the "COMMISSION")
under the Securities Act, or (ii) some other exemption from registration under
the Securities Act is available with respect to any such proposed sale, transfer
or other disposition of Common Stock, or (iii) such distribution of Common Stock
has been registered under the Securities Act. Except for the sale of the Common
Stock under the Registration Statement to be filed by Parent pursuant to Section
2.01 of the Registration Rights Agreement and subject to the provisions of
Section 5 hereof, Shareholder has no present intention to sell or otherwise
dispose of the Common Stock and is acquiring such Common Stock for investment
and not with a view to resale or distribution.
(d) INFORMATION CONCERNING PARENT AND COMPANY.
(i) Shareholder, either alone or together with his or her
purchaser representative (the "PURCHASER REPRESENTATIVE"), has had the
opportunity to ask questions of, and obtain any additional information
reasonably available to Parent and Company with respect to their respective
plans, results of operations, financial conditions, businesses, properties,
assets or business prospects, and Shareholder, either alone or together with the
Purchaser Representative, has received all such information as Shareholder or
the Purchaser Representative
3
deems necessary and appropriate to enable Shareholder, either alone or together
with the Purchaser Representative, to evaluate the risks and merits of the
Merger and the Common Stock.
(ii) If Shareholder has retained a Purchaser Representative,
Shareholder has been informed in writing by the Purchaser Representative of any
material relationship between the Purchaser Representative and its affiliates
and Parent and its affiliates that currently exists, that is understood to be
contemplated or has existed at any time during the previous two years, and any
compensation received or to be received as a result of such relationship, and
has, to the extent necessary to evaluate the risks and merits of the Merger,
relied upon the advice of the Purchaser Representative in connection with the
Merger;
(iii) Shareholder acknowledges he or she has previously received
(A) a copy of the Merger Agreement and exhibits thereto, (B) a copy of the
Registration Rights Agreement, (C) a copy of Parent's Annual Report on Form 10-K
for the year ended December 31, 1999, (D) a copy of Parent's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000 (E) a copy of Parent's Definitive
Proxy Statement for its Annual Meeting of Shareholders held on May 24, 2000.
(e) ECONOMIC RISK. Shareholder, either alone or together with the
Purchaser Representative, can look after Shareholder's financial interests in
connection with the Merger; has such knowledge and experience in financial or
business matters as to be able to evaluate the merits and risks of the Merger;
and is able to acquire the Common Stock without impairing Shareholder's
financial condition, to hold the Common Stock for an indefinite period of time
and to suffer a complete loss on Shareholder's investment. Shareholder has not
been organized solely for the purpose of acquiring the Common Stock.
3. RESTRICTIONS ON AND PROCEDURE FOR SALES.
(a) LEGEND. Shareholder understands that all certificates
representing Common Stock deliverable to Shareholder pursuant to the Merger
shall, until the occurrence of one of the events referred to below, bear a
legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE
REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED."
Parent, in its discretion, may cause stop transfer orders to be placed with
its transfer agent with respect to the certificates for the Common Stock which
are required to bear such legend. Such foregoing legend shall be removed in
connection with the sale of any stock at a time that the Registration Statement
is effective or in connection with any sale in compliance with Rule 144 or upon
receipt by the Parent of an opinion of counsel reasonably satisfactory to the
Parent that sales of shares are no longer restricted under the Securities Act.
4. INFORMATION FOR USE IN REGISTRATION STATEMENT. Shareholder represents,
warrants and covenants to Parent to provide such additional information as shall
be reasonably requested by Parent to enable Parent to prepare any Registration
Statement to be filed and that the information so provided is and will be true,
accurate and complete in all material respects.
4
Shareholder understands that such information will be provided to Parent
specifically for use in, or in connection with, the Registration Statement and
the prospectus contained therein, and has executed this Agreement with such
knowledge.
5. ADDITIONAL PROVISIONS REGARDING INDEMNIFICATION. Shareholder and
Parent approve and agree to be bound by all provisions of Section 1.12 and
Article VII of the Merger Agreement, the Escrow Agreement attached as EXHIBIT A
to the Merger Agreement and all provisions of Article 5 of the Registration
Rights Agreement. Without limiting the generality of the foregoing, Shareholder
consents and agrees to the appointment of the Securityholder Agent pursuant to
Article VII of the Merger Agreement and to the indemnification obligations
provided for in Section 7.2(a) of the Merger Agreement and in Section 5.02 of
the Registration Rights Agreement. In addition, Shareholder hereby agrees to
waive any rights that Shareholder may have to seek indemnification from Company
arising solely out of any indemnification claim made by Parent or its affiliates
against Shareholder pursuant to this Agreement, the Merger Agreement, the
Registration Rights Agreement or the Escrow Agreement. Shareholder has not
transferred and will not transfer shares of Company common stock solely for the
purpose of avoiding or mitigating indemnity obligations.
6. CONFIDENTIALITY. Until Parent has publicly announced the Merger or
such other shorter time as requested by Parent, Shareholder agrees to at all
times keep confidential and not divulge, furnish or make accessible to anyone
any information regarding or relating to the signing of the Merger Agreement or
the Closing of the Merger.
7. MISCELLANEOUS.
(a) This Agreement and documents referenced herein constitute the
entire agreement between the parties pertaining to the subject matter hereof. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
(b) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
(c) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns" shall
mean, where the context so permits, heirs, executors, administrators, trustees
and successor trustees, and personal and other representatives.
(d) This Agreement shall be governed by and construed, interpreted
and enforced in accordance with the internal laws of the State of California
(without regard to the principles of conflict of laws thereof).
(e) If a court of competent jurisdiction determines that any
provision of this Agreement is not enforceable or enforceable only if limited in
time and/or scope, this Agreement shall continue in full force and effect with
such provision stricken or so limited.
5
Executed as of the date shown on the first page of this Shareholders
Agreement.
QUIDEL CORPORATION
By: _____________________________
Name: _____________________________
Title: _____________________________
SHAREHOLDER
By: _________________________________
Name of Shareholder: ________________
Name of Signatory (ifdifferent from
name of Shareholder):_________________
Title of Signatory
(if applicable): ____________________
NUMBER OF SHARES BENEFICIALLY OWNED BY SHAREHOLDER:
COMMON STOCK _________________
SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF COMPANY WARRANTS _________________
SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF COMPANY OPTIONS _________________
SERIES A PREFERRED STOCK _________________
SERIES B PREFERRED STOCK _________________
SERIES C PREFERRED STOCK _________________
SERIES D PREFERRED STOCK _________________
SERIES E PREFERRED STOCK _________________
6
EXHIBIT D
SEVERANCE/BONUS PACKAGES
RETENTION BONUS AND SEVERANCE GUIDELINES
Any key employees will receive a bonus equal to 2-times each employee's monthly
salary on the anniversary date of the Closing of the Merger. This is in addition
to performance bonus that will be awarded to all Parent employees.
Any transitional employees will receive a bonus equal to 1-times each employee's
monthly salary at the end of the transitional period. Transitional periods will
be 6 months in most cases.
Employees whose position is eliminated in the first 60 days after the Closing of
the Merger and who have been employed by the Company for less than 1 year will
receive 2 weeks severance pay. Employees whose position is eliminated in the
first 60 days after the closing of the merger and who have been employed by the
Company for 1 year or longer will receive severance pay equal to 2 weeks salary
plus an additional 1 week salary equivalent for each year of employment.
Current hypotheses as to the identification of key employees, transitional
employees, and positions to be eliminated are based on the understanding of
processes, positions, and employee skills gained in the due diligence process.
Interviews will be conducted directly with the employees upon signing of this
Agreement to confirm these hypotheses. Skill sets of the employees whose
positions will be eliminated within 60 days after Closing of the Merger will be
reviewed for fit with Parent open positions in locations other than Santa Clara.
Outplacement assistance will be provided for employees whose positions are
terminated.
EXHIBIT E
COMPENSATION-RELATED PAYMENTS
BONUS EARNED UNDER JULY 22, 1999 BONUS MEMORANDUM:
1. Paul Lawrence
- Total $ 27,000
2. Marian Buccafurni
- Total $ 15,000
DEFERRED COMPENSATION UP TO A MAXIMUM OF $245,000 IN THE AGGREGATE FOR:
1. Bill Leiva
2. Paul Lawrence
3. Marian Buccafurni
INTELLECTUAL PROPERTY BONUSES:
1. Richard Stallsmith - allowance of QCard(R)trademark ($2,500)
2. Paul Lawrence - allowance of additional pH and Amines patent ($2,500)
EXHIBIT F
LIST OF SHAREHOLDERS
Paul Lawrence
Marian Buccafurni
John A. O'Malley
Beacon Fiduciary Advisors, Inc.
Gordon Wong
Capital Properties. Ltd.
Roland Lampert
Gus Blass, II
Gus Blass, III Keough Acct
Allen Misher
William Chan
The Cooper Companies (which includes its affiliates and subsidiaries)
EXHIBIT G
FORM OF LOCK-UP AGREEMENT
LOCK-UP AGREEMENT
[_______ ___], 2000
QUIDEL CORPORATION
10165 McKellar Court
San Diego, CA 92121
Re: PROPOSED ISSUANCE OF QUIDEL CORPORATION COMMON STOCK
IN MERGER WITH LITMUS CONCEPTS, INC.
Ladies and Gentlemen:
This agreement relates to the issuance of shares of common stock, par value
$.001 per share (the "Common Stock"), of Quidel Corporation, a Delaware
corporation (the "Parent"), at the effective time of the proposed merger (the
"Merger") of Litmus Acquisition Corporation, a Delaware corporation
("Acquisition") and a wholly-owned subsidiary of Parent, with and into Litmus
Concepts, Inc., a California corporation ("Company"). In connection therewith,
the Parent, Company and Acquisition have entered into that certain Agreement and
Plan of Merger, dated as of October 30, 2000 (the "Merger Agreement").
The Merger Agreement provides that it is a condition to the obligations of
Parent and Acquisition to consummate the Merger that certain Company
shareholders execute and deliver this agreement. In consideration of, and as an
essential inducement for, the Parent and Acquisition entering into the Merger
Agreement and consummating the Merger, the undersigned hereby irrevocably
confirms, covenants and agrees for the benefit of Company, the Parent and
Acquisition as follows:
(i) The undersigned will not (and will not permit any other person
who holds of record any of the undersigned's Parent Common Stock), directly or
indirectly, sell, offer to sell, contract to sell, grant any option for the sale
of or otherwise dispose of any Common Stock received by him in the Merger during
the period beginning from the date of this agreement and continuing to and
including the date that is one-hundred and eighty (180) days after the date on
which the Effective Time occurs (the "Effective Date"), other than as a BONA
FIDE gift or gifts or transfers to family trusts (provided the donee or donees
thereof agree in writing to be bound by this agreement), without the prior
written consent of the Parent;
(ii) All consents, approvals, authorizations and orders necessary for
the execution and delivery by the undersigned of this agreement have been
obtained; the undersigned has full right, power and authority to enter into this
agreement; and this agreement has been duly executed and delivered by the
undersigned and constitutes a valid and legally binding obligation of the
undersigned enforceable in accordance with its terms; and
(iii) The compliance by the undersigned with all of the provisions of
this agreement will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the undersigned is a party or by which the undersigned is
bound or to which any of the property or assets of the undersigned is subject,
nor will such action result in any violation of the provisions of the Articles
of Incorporation or Bylaws of the undersigned, if the undersigned is a
corporation, the partnership agreement of the undersigned, if the undersigned is
a partnership, or any other organizational documents of the undersigned, or any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the undersigned or the property of the
undersigned.
This agreement shall be governed by and construed in accordance with the
laws of the State of California.
Very truly yours,
[NAME]
By:
----------------------------------
Name (Print):
--------------------------
Title:
--------------------------------
EXHIBIT H
CONVERSION FORMULAS
CONVERSION FORMULAS FOR SECTION 1.8(a):
(i) Series A: $795,320 (80% of liquidation value) divided by $5.375 or the
30-day Price, if applicable, divided by 497,000
(ii) Series B: $600,000 (80% of liquidation value) divided by $5.375 or the
30-day Price, if applicable, divided by 150,000
(iii) Series C: $800,000 (80% of liquidation value) divided by $5.375 or the
30-day Price, if applicable, divided by 200,000
(iv) Series D: $1,598,400 (80% of liquidation value) divided by $5.375 or the
30-day Price, if applicable, divided by 249,750
(v) Series E: $8,000,008 (80% of liquidation value) divided by $5.375 or the
30-day Price, if applicable, divided by 418,218
(vi) Common Stock (including exercised options and warrants): (v) 3,250,000
minus (w) the total number of shares of Parent Common Stock issued under (i)-(v)
above, minus (x) the Share Value, multiplied by the Dissenting Shares, divided
by $5.375 or the 30-day Price, if applicable, minus (y) shares issued under
Section 1.11(b), divided by (z) 2,932,423 (Shares of common stock of the Company
calculated on a fully-diluted basis)
CONVERSION FORMULAS FOR SECTION 1.11(b):
Take the (A) total number of options, multiplied by the Share Value, minus (B)
the total number of options multiplied by the exercise price, divided by (C) by
$5.375 or the 30-day Price, if applicable.
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT (this "Amendment") dated as of December 7, 2000, is made to
the Agreement and Plan of Merger (the "Agreement") dated as of October 30, 2000,
by and among Litmus Concepts, Inc., a California corporation (the "Company"),
Quidel Corporation, a Delaware corporation ("Parent"), and Litmus Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent
("Acquisition"). Any terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Agreement.
WHEREAS, Section 1.11(b) of the Agreement provides that all outstanding
Company Stock Options which are vested and have an exercise price at of below
the Share Value as of the Effective Time (such options to be referred to herein
as "Vested In-The-Money Options") shall have the right to receive a certain
number of shares of Parent Common Stock;
WHEREAS, certain holders of Vested In-The-Money Options have agreed to
receive cash in an amount equivalent to the value of the shares of Parent Common
Stock which they would have received in exchange for their Vested In-The-Money
Options;
WHEREAS, Parent, Acquisition and the Company desire to amend the Agreement
to provide for such holders to receive cash instead of shares of Parent Common
Stock in exchange for their Vested In-The-Money Options;
WHEREAS, the parties additionally desire through this Amendment to correct
an inadvertent, erroneous number in the conversion value pertaining to the
Series A Preferred Stock set forth in Section 1.8(a)(i) of the Agreement; and
WHEREAS, pursuant to Section 6.4 of the Agreement, the Agreement may be
amended by an instrument in writing signed on behalf of the parties hereto.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, and intending to be legally bound thereby, the
parties hereto agree as follows:
1. AMENDMENT TO SECTION 1.8(a)(I) - ERRONEOUS CONVERSION VALUE. The
reference to ".297654" in Section 1.8(a)(i) of the Agreement shall be replaced
by ".297674."
2. AMENDMENT TO SECTION 1.8(a)(VI) - CORRECTION TO CALCULATION FACTOR.
The reference to "1,055,817" in Section 1.8(a)(vi) of the Agreement shall be
replaced by "1,055,195."
3. AMENDMENT TO SECTION 1.11(b) - TREATMENT OF COMPANY STOCK OPTIONS.
Section 1.11(b) of the Agreement is hereby amended in its entirety to read as
follows:
"(b)
(i) At the Effective Time, all outstanding Company Stock Options
which are vested and have an exercise price at or below the Share
Value as of the Effective Time (except for those described in
subsection (ii) below) shall have the right to receive the number of
shares of Parent Common Stock equal to (x) the number of Shares
issuable upon exercise of the Company Stock Options multiplied by the
Share Value, minus (y) the number of Shares issuable upon exercise of
the Company Stock Options multiplied by the exercise price of such
Company Stock Options, the net result of (x) and (y) then divided by
$5.375 or the 30-day Price, if applicable. Shares of Parent Common
Stock otherwise payable pursuant to this Section 1.11(b)(i) shall be
deferred as further provided in Section 1.12.
(ii) Notwithstanding subsection (i) above, at the Effective Time,
all outstanding Company Stock Options which are vested and have an
exercise price at or below the Share Value as of the Effective Time
and which are held by certain individuals mutually designated by the
Company and Parent, shall have the right to receive an amount of money
equal to (x) the number of Shares issuable upon exercise of the
Company Stock Options multiplied by the Share Value, minus (y) the
number of Shares issuable upon exercise of the Company Stock Options
multiplied by the exercise price of such Company Stock Options, which
shall be paid by Parent, as soon as reasonably practicable following
the Effective Time, by check representing the cash consideration as
contemplated by this Section 1.11(b)(ii)."
4. AMENDMENT TO EXHIBIT H - CONVERSION FORMULAS. Exhibit H of the
Agreement is hereby amended and superceded in its entirety by the Exhibit H
attached hereto.
5. NO OTHER AMENDMENTS. Except as expressly amended hereby, the Agreement
shall continue in full force and effect in accordance with their terms and
nothing herein shall affect, or be deemed to be a waiver of, the other terms and
provisions of the Agreement.
6. GOVERNING LAW. This Amendment shall be governed by, and shall be
construed in accordance with, the laws of the State of Delaware, exclusive of
its conflict-of-law principles.
7. COUNTERPARTS. This Amendment may be executed in counterparts
(including executed counterparts delivered and exchanged by facsimile
transmission), each of which shall be deemed to constitute one and the same
instrument.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
duly executed on its behalf as of the day and year first above written.
LITMUS CONCEPTS, INC.
By:
Name:
Title:
QUIDEL CORPORATION
By:
Name:
Title:
LITMUS ACQUISITION CORPORATION
By:
Name:
Title:
EXHIBIT H
CONVERSION FORMULAS
CONVERSION FORMULAS FOR SECTION 1.8(a):
(i) Series A: $795,320 (80% of liquidation value) divided by $5.375 or the
30-day Price, if applicable, divided by 497,075
(ii) Series B: $600,000 (80% of liquidation value) divided by $5.375 or the
30-day Price, if applicable, divided by 150,000
(iii) Series C: $800,000 (80% of liquidation value) divided by $5.375 or the
30-day Price, if applicable, divided by 200,000
(iv) Series D: $1,598,400 (80% of liquidation value) divided by $5.375 or the
30-day Price, if applicable, divided by 249,750
(v) Series E: $8,000,008 (80% of liquidation value) divided by $5.375 or the
30-day Price, if applicable, divided by 418,218
(vi) Common Stock (including exercised options and warrants): (v) 3,249,378
minus (w) the total number of shares of Parent Common Stock issued under (i)-(v)
above, minus (x) the Share Value, multiplied by the Dissenting Shares, divided
by $5.375 or the 30-day Price, if applicable, minus (y) shares issued under
Section 1.11(b), divided by (z) 2,932,423 (Shares of common stock of the Company
calculated on a fully-diluted basis)
CONVERSION FORMULAS FOR SECTION 1.11(b):
(i) At the Effective Time, all outstanding Company Stock Options which are
vested and have an exercise price at or below the Share Value as of the
Effective Time (except for those described in subsection (ii) below) shall have
the right to receive the number of shares of Parent Common Stock equal to (x)
the number of Shares issuable upon exercise of the Company Stock Options
multiplied by the Share Value, minus (y) the number of Shares issuable upon
exercise of the Company Stock Options multiplied by the exercise price of such
Company Stock Options, the net result of (x) and (y) then divided by $5.375 or
the 30-day Price, if applicable.
(ii) Notwithstanding subsection (i) above, at the Effective Time, all
outstanding Company Stock Options which are vested and have an exercise price at
or below the Share Value as of the Effective Time and which are held by certain
individuals mutually designated by the Company and Parent, shall have the right
to receive an amount of money equal to (x) the number of Shares issuable upon
exercise of the Company Stock Options multiplied by the Share Value, minus (y)
the number of Shares issuable upon exercise of the Company Stock Options
multiplied by the exercise price of such Company Stock Options.