EXHIBIT 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMERICAN MEDICAL SYSTEMS, INC.,
SNOWBALL ACQUISITION CORP.,
CRYOGEN, INC.,
AND
ROBERT KNARR
DATED AS OF DECEMBER 13, 2002
Table of Contents
Page
ARTICLE 1 THE MERGER; CONVERSION OF SHARES.......................................................................1
1.1 The Merger................................................................................................1
1.2 Effective Time............................................................................................1
1.3 Closing of the Merger.....................................................................................1
1.4 Effects of the Merger.....................................................................................2
1.5 Articles of Incorporation of the Surviving Corporation....................................................2
1.6 Bylaws of the Surviving Corporation.......................................................................2
1.7 Directors and Officers of the Surviving Corporation.......................................................2
1.8 Merger Consideration......................................................................................2
1.9 Earnout Payment...........................................................................................4
1.10 Closing Balance Sheet....................................................................................7
1.11 Cancellation and Conversion of Company Securities at the Effective Time..................................8
1.12 Dissenting Shares.......................................................................................11
1.13 Escrow Procedure; Exchange of Certificates..............................................................12
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................14
2.1 Corporate Organization and Power.........................................................................14
2.2 Subsidiaries.............................................................................................14
2.3 Authorization............................................................................................15
2.4 Capitalization of the Company............................................................................16
2.5 Non-Contravention........................................................................................16
2.6 Consents and Approvals...................................................................................17
2.7 Financial Statements; Undisclosed Liabilities............................................................17
2.8 Absence of Certain Changes...............................................................................18
2.9 Assets and Properties....................................................................................20
2.10 Manufacturing Compliance................................................................................20
2.11 Inventories.............................................................................................21
2.12 Receivables.............................................................................................21
2.13 Litigation..............................................................................................21
2.14 Contracts...............................................................................................21
2.15 Permits.................................................................................................23
2.16 Compliance with Applicable Laws.........................................................................23
2.17 Employee Benefit Matters................................................................................23
2.18 Labor and Employment Matters............................................................................27
2.19 Intellectual Property...................................................................................28
2.20 Environmental Compliance................................................................................29
2.21 Insurance...............................................................................................30
2.22 Tax Matters.............................................................................................31
2.23 Bank Accounts; Powers of Attorney.......................................................................33
2.24 Orders, Commitments and Returns.........................................................................33
2.25 Product Liability Claims................................................................................33
2.26 Warranties..............................................................................................33
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Table of Contents
(continued)
2.27 Relations with Suppliers and Customers..................................................................34
2.28 Indemnification Obligations.............................................................................34
2.29 Absence of Certain Business Practices...................................................................34
2.30 Brokers.................................................................................................34
2.31 Minute Books............................................................................................35
2.32 Shareholder Agreements..................................................................................35
2.33 Disclosure..............................................................................................35
2.34 Investigation by Parent.................................................................................35
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY........................................36
3.1 Corporate Existence and Power............................................................................36
3.2 Authorization............................................................................................36
3.3 Consents and Approvals...................................................................................36
3.4 Available Capital Resources..............................................................................37
3.5 Disclosure...............................................................................................37
3.6 Non-Contravention........................................................................................37
3.7 Brokers..................................................................................................37
3.8 Financial Statements.....................................................................................37
3.9 Litigation...............................................................................................38
ARTICLE 4 COVENANTS.............................................................................................38
4.1 Conduct of the Business..................................................................................38
4.2 Company's Agreements as to Specified Matters.............................................................38
4.3 Full Access..............................................................................................40
4.4 Confidentiality..........................................................................................41
4.5 Filings; Consents; Removal of Objections.................................................................41
4.6 Further Assurances; Cooperation; Notification............................................................42
4.7 Approval of Shareholders.................................................................................42
4.8 Update Disclosure; Breaches..............................................................................43
4.9 No Solicitation..........................................................................................43
4.10 Public Announcements....................................................................................43
4.11 Preparation of Tax Returns: Tax Matters.................................................................44
4.12 Restated Company Charter................................................................................44
4.13 Top Heavy Report........................................................................................44
4.14 Lessor Consents.........................................................................................44
ARTICLE 5 CONDITIONS TO PARENT'S AND MERGER SUBSIDIARY'S OBLIGATIONS............................................45
5.1 Representations and Warranties True......................................................................45
5.2 Performance..............................................................................................45
5.3 Filed Agreement of Merger................................................................................45
5.4 Estimated Closing Balance Sheet..........................................................................45
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Table of Contents
(continued)
5.5 Required Approvals and Consents..........................................................................45
5.6 No Proceeding or Litigation..............................................................................45
5.7 Legislation..............................................................................................46
5.8 No Material Adverse Effect...............................................................................46
5.9 Certificates.............................................................................................46
5.10 Other Receipts; Good Standing...........................................................................46
5.11 Opinion of Company Counsel..............................................................................46
5.12 Escrow Agreement........................................................................................46
5.13 Shareholder Agreements..................................................................................46
5.14 Shareholder Approval....................................................................................46
5.15 Resignation.............................................................................................46
5.16 Restated Company Charter................................................................................46
5.17 Termination of Marketing and Sales Agreement............................................................47
5.18 Termination of Management Rights Agreement..............................................................47
5.19 Termination of Observation Rights Agreement.............................................................47
5.20 Termination of Voting Agreement.........................................................................47
5.21 Termination of Investor Rights Agreement................................................................47
ARTICLE 6 CONDITIONS TO COMPANY'S OBLIGATIONS...................................................................47
6.1 Representations and Warranties True......................................................................47
6.2 Performance..............................................................................................47
6.3 Filed Agreement of Merger................................................................................47
6.4 Corporate Approvals......................................................................................47
6.5 No Proceeding or Litigation..............................................................................48
6.6 Legislation..............................................................................................48
6.7 Certificates.............................................................................................48
6.8 Other Receipts; Good Standing............................................................................48
6.9 Opinion of Parent Counsel................................................................................48
6.10 Escrow Agreement........................................................................................48
ARTICLE 7 TERMINATION...........................................................................................48
7.1 Methods of Termination...................................................................................48
7.2 Procedure Upon Termination...............................................................................49
7.3 Effect of Termination....................................................................................49
ARTICLE 8 SURVIVAL AND INDEMNIFICATION..........................................................................49
8.1 Survival.................................................................................................50
8.2 Indemnification by Shareholders..........................................................................50
8.3 Indemnification by Parent................................................................................50
8.4 Claims for Indemnification...............................................................................51
8.5 Indemnification Limits...................................................................................52
8.6 Right of Off-Set.........................................................................................53
8.7 Escrow Funds.............................................................................................53
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Table of Contents
(continued)
8.8 Expenses of Shareholders' Representative.................................................................53
ARTICLE 9 ARBITRATION...........................................................................................53
9.1 Dispute..................................................................................................53
9.2 Mediation................................................................................................53
9.3 Arbitration..............................................................................................54
ARTICLE 10 DEFINITIONS..........................................................................................55
10.1 Definitions.............................................................................................55
ARTICLE 11 MISCELLANEOUS........................................................................................62
11.1 Notices.................................................................................................62
11.2 Amendments; No Waivers..................................................................................63
11.3 Expenses................................................................................................63
11.4 Successors and Assigns..................................................................................64
11.5 Governing Law...........................................................................................64
11.6 Counterparts; Effectiveness.............................................................................64
11.7 Entire Agreement........................................................................................64
11.8 Captions................................................................................................64
11.9 Severability............................................................................................64
11.10 Construction...........................................................................................64
11.11 Cumulative Remedies....................................................................................65
11.12 Third Party Beneficiaries..............................................................................65
11.13 Appointment of Shareholders' Representative; Enforcement of Rights, Benefits and Remedies..............65
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
December 13, 2002, is entered into by and among American Medical Systems, Inc.,
a Delaware corporation ("Parent"), Snowball Acquisition Corp., a California
corporation and a wholly-owned subsidiary of Parent ("Merger Subsidiary"),
Cryogen, Inc., a California corporation ("Company"), and Robert Knarr, as
Shareholders' Representative (the "Shareholders' Representative").
WHEREAS, the Board of Directors of each of the Company, Parent and
Merger Subsidiary have (i) determined that the Merger (as defined below) is fair
and in the best interests of their respective stockholders and (ii) approved the
Merger of Merger Subsidiary with and into the Company, with the Company
surviving, in accordance with the terms and conditions of this Agreement.
WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Merger Subsidiary
hereby agree as follows:
ARTICLE 1
THE MERGER; CONVERSION OF SHARES
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 California General Corporation Law (the "CGCL"), Merger Subsidiary
shall be merged with and into the Company, and following the merger,
the Company shall continue as the surviving corporation (the "Surviving
Corporation"), the separate corporate existence of Merger Subsidiary
shall cease and the Surviving Corporation shall continue to be governed
by the laws of the State of California (the "Merger").
1.2 Effective Time. Subject to the terms and conditions set forth in this
Agreement, on the Closing Date (as defined below) the Company and
Merger Subsidiary will file, or cause to be filed, with the Secretary
of State of the State of California, an Agreement of Merger (the
"Agreement of Merger"), in the form as required by, and executed and
acknowledged in accordance with, the applicable provisions of the CGCL,
and will be substantially in the form attached hereto as Exhibit A. The
Merger shall become effective at the date and time the Agreement of
Merger is filed or, if agreed to by the Parent and the Company, such
later date or time set forth in the Agreement of Merger (the "Effective
Time").
1.3 Closing of the Merger. Unless this Agreement shall have been terminated
and the transactions contemplated herein abandoned pursuant to Article
7 hereof, the closing of the Merger (the "Closing") will take place on
a date (the "Closing Date") to be specified by Parent and the Company
which shall be no later than the second business day after satisfaction
or waiver of the latest to occur of the conditions set forth in
Articles 5 and 6
(other than delivery of items to be delivered at the Closing and other
than those conditions that by their nature are to be satisfied at the
Closing, it being understood that the occurrence of the Closing shall
remain subject to the delivery of such items and the satisfaction or
waiver of such conditions at the Closing), at 10:00 a.m., local time,
at the offices of Oppenheimer, Wolff & Donnelly LLP, 45 South Seventh
Street, Suite 3400, Minneapolis, Minnesota 55402, unless another time,
date, place or manner (e.g., by telecopy exchange of signature pages
with originals to follow by overnight delivery) is agreed to in writing
by the parties hereto. The parties will use commercially reasonable
efforts to consummate the Closing by December 30, 2002; provided,
however, that in no event shall the Closing occur later than January
31, 2003 (the "Termination Date").
1.4 Effects of the Merger. The Merger shall have the effects set forth in
this Agreement, the Agreement of Merger and the CGCL. 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 Merger Subsidiary shall vest in the Surviving
Corporation and all debts, liabilities and duties of the Company and
Merger Subsidiary shall become the debts, liabilities and duties of the
Surviving Corporation. The Surviving Corporation shall become a
wholly-owned subsidiary of Parent.
1.5 Articles of Incorporation of the Surviving Corporation. The form of
Articles of Incorporation of Merger Subsidiary, as amended, shall be
the Articles of Incorporation of the Surviving Corporation until
thereafter further amended in accordance with applicable law and such
Articles of Incorporation, except that the name of the Surviving
Corporation shall be Cryogen, Inc.
1.6 Bylaws of the Surviving Corporation. The Bylaws of Merger Subsidiary as
in effect immediately prior to the Effective Time, shall be the Bylaws
of the Surviving Corporation until thereafter amended in accordance
with applicable law, except that the name of the Surviving Corporation
shall be Cryogen, Inc.
1.7 Directors and Officers of the Surviving Corporation. The directors and
officers of Merger Subsidiary immediately prior to the Effective Time
shall be the directors and officers respectively, of the Surviving
Corporation until their respective successors shall be duly elected and
qualified.
1.8 Merger Consideration. Subject to Section 1.12 (Dissenting Shares) and
Section 8.6 (Right of Off-Set), Parent shall pay for all of the Company
Common Stock and Company Preferred Stock issued and outstanding
immediately prior to the Effective Time the consideration set forth in
Section 1.8 and Section 1.10.
(a) At Closing, Parent shall pay Forty Million Dollars
($40,000,000) (the "Initial Payment") plus or minus, as the
case may be, the Purchase Price Adjustment (as defined in
section 1.8(b)) (as so adjusted, the "Estimated Initial Merger
Consideration"), which shall be paid by Parent to the Persons
and in the amounts as follows: (i) Three Million Dollars
($3,000,000) (the "Escrow Funds") to the Escrow Agent to be
held in escrow to secure any indemnification obligation of the
Shareholders under Section 8.3 and to refund to Parent any
negative Purchase
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Price Adjustment due Parent after final determination of the
Closing Balance Sheet in accordance with Section 1.10; (ii)
the Transaction Expenses to the Persons and in the amounts as
set forth in Schedule 1.8(d); and (iii) the balance of the
Estimated Initial Merger Consideration to the Payment Agent
for distribution to the Shareholders in accordance with the
terms of the Payment Agreement or to such Shareholders as have
delivered to Parent properly assigned stock certificates and
properly executed letters of transmittal, in form acceptable
to Parent, prior to Closing (such balance payable to the
Shareholders is sometimes referred to herein as the "Net
Initial Merger Consideration"). The Escrow Funds shall not be
distributed to the Shareholders until eighteen (18) months
after the Effective Time and shall only be distributed in
accordance with the terms and conditions of the Escrow
Agreement. In the event that Parent shall have perfected,
prior to the expiration of such 18 month period, a claim for
indemnification pursuant to Section 8.4, the Shareholders'
Representative and the Parent shall endeavor in good faith to
determine a reasonable estimate of the maximum amount of such
claim and shall instruct the Escrow Agent to deliver any
excess amount of Escrow Funds to the Payment Agent for
distribution to the Shareholders in accordance with the Escrow
Agreement.
(b) The Initial Payment shall be adjusted (the "Purchase Price
Adjustment") as follows: (a) increased or decreased on a
dollar-for-dollar basis, by the amount that the Net Equity (as
defined below), as reflected in the Estimated Closing Balance
Sheet (as defined in Section 1.8(c)) is greater or less than
negative One Hundred Fifty Thousand Dollars (-$150,000) (the
"Net Equity Threshold"); and (b) decreased by the amount of
consideration that would have been payable to Dissenting
Shareholders (as defined below) if they had not perfected
their rights as Dissenting Shareholders. For purposes of
clarity, the Purchase Price Adjustment shall increase the
amount of Initial Merger Consideration to the extent the Net
Equity is greater than the Net Equity Threshold and shall
decrease the amount of Initial Merger Consideration to the
extent the Net Equity is less than the Net Equity Threshold.
For purposes hereof, the term "Net Equity" shall mean the
Company's total assets less total liabilities as reflected on
the Estimated Closing Balance Sheet, prepared in accordance
with Section 1.10, and shall include Transaction Expenses and
Severance Accruals but shall not include as an asset any
prepaid expenses for the cost of tail coverage for director
and officer liability or product liability insurance. The
Purchase Price Adjustment shall not be subject to the
limitations on indemnification set forth in Section 8.5 and
shall not be affected by whether or not any item reflected on
or accounted for in the Closing Balance Sheet (and therefore
included in the Purchase Price Adjustment) would constitute a
breach of representation or warranty in this Agreement.
(c) Not less than three business days prior to the Closing, the
Company shall prepare and deliver to Parent (i) a good faith
estimate of the Estimated Initial Merger Consideration,
setting forth, in reasonable detail, a calculation of: (A) the
estimated Net Equity; (B) the Severance Accruals; (C) the
estimated Transaction Expenses; and (D) the estimated
consideration that would have been payable to Dissenting
Shareholders if they had not perfected their rights as
Dissenting
3
Shareholders; (ii) an estimated consolidated balance sheet for
the Company and the Subsidiaries as of the Closing Date (the
"Estimated Closing Balance Sheet"), with the items described
in subclauses (c)(i) and (ii) above prepared in accordance
with GAAP as applicable to interim financial statements (and
thus may not contain all notes and may not contain prior
period comparative data which are required for compliance with
GAAP) on a basis consistent with the accounting methods,
practices and procedures used to prepare the Latest Financial
Statements (as defined in Section 2.7); and (iii) a
certificate of a duly authorized officer of the Company
certifying the foregoing.
(d) The Company shall deliver to Parent on the date hereof an
interim Schedule 1.8(d) hereto, setting forth the estimated
Transaction Expenses. Immediately prior to the Closing, the
Company shall update Schedule 1.8(d) hereto to reflect such
Transaction Expenses through the Closing. At the Closing,
Parent, on behalf of the Company, shall pay the Transaction
Expenses in accordance with Schedule 1.8(d) hereto, as so
amended.
1.9 Earnout Payment. As additional consideration for the Merger and subject
to the conditions set forth in this Section 1.9, Section 1.12
(Dissenting Shares) and Section 8.6 (Right of Off-Set), Parent shall
make an additional payment (an "Earnout Payment") to the Payment Agent
for distribution to those Shareholders who are not otherwise Dissenting
Shareholders (as defined in Section 1.12) ("Participating
Shareholders") in an amount equal to (A) the product of the Net Product
Revenues for the Payment Period (as defined below) multiplied by three
(3), less (B) Forty Million Dollars ($40,000,000); provided however,
that the Earnout Payment shall not exceed One Hundred Ten Million
Dollars ($110,000,000). As used herein, the term "Payment Period" shall
refer to a period of four consecutive fiscal quarters of Parent,
determined pursuant to subsection (b) below, occurring between the
first day of Parent's fiscal quarter beginning on December 29, 2002 and
ending on the last day of Parent's fiscal quarter ending on or about
December 31, 2005 (the "Earnout Period").
(a) During the period commencing on the Closing Date and ending on
the Earnout Payment Date (as defined below), Parent shall
deliver quarterly to the Shareholders' Representative, no
later than thirty (30) days following the last day of Parent's
fiscal quarter, a statement with reasonable detail reflecting
Parent's calculation of Net Product Revenues for the prior
fiscal quarter, which such statement shall be prepared in
accordance with GAAP on a basis consistent with the accounting
principles and revenue recognition policies followed by Parent
in the preparation of its financial statements. In his
discretion, the Shareholders' Representative may distribute
these statements to Participating Shareholders who held at
least 250,000 shares of Company Capital Stock immediately
prior to the Effective Time (except that such threshold shall
not apply if the Shareholder Representative is seeking a
Shareholder consent pursuant to Section 1.9(b)), provided in
each case that such Participating Shareholders have agreed to
be bound by the confidentiality obligations set forth in
Section 4.4 herein. The Shareholders' Representative may cause
an audit to be made, at his sole cost and expense, of those
books and records of Parent that are necessary to review and
4
audit the quarterly statement and Parent's calculation of Net
Product Revenues. Any such audit shall be conducted only by an
independent certified accountant selected by the Shareholders'
Representative and reasonably acceptable to Parent, after
prior written notice to Parent, and shall be conducted during
regular business hours at Parent's offices and in such a
manner so as not to interfere with Parent's normal business
activities. Parent agrees to permit such accountants, during
normal business hours, to have reasonable access to, and to
examine and make copies of, those books and records of Parent
that are necessary to review and audit the quarterly statement
and Parent's calculation of Net Product Revenues. Neither the
Shareholders' Representative nor such auditors will have the
right to review or audit any other books and records of
Parent. In no event shall the audits be made more than once in
any nine (9) month period, nor shall the records supporting
any statements be audited more than once for the same purpose.
In the event any such audit reveals any discrepancy less than
five percent (5%) of the Net Product Revenues for the
respective quarterly period, Shareholders shall pay for the
reasonable third party costs and expenses of such audit. In
the event any such audit reveals any discrepancy greater than
or equal to five percent (5%) of the Net Product Revenues for
the respective quarterly period, Parent shall pay for the
reasonable third party costs and expenses of such audit.
(b) At any time during the Earnout Period and within sixty (60)
days of receipt of a quarterly statement, and provided that
the Shareholders' Representative receives the written consent
of at least a majority in interest, on a class voting basis,
of the Participating Shareholders, the Shareholders'
Representative may send notice to Parent demanding payment of
the Earnout Payment (the "Earnout Demand Notice") based on Net
Product Revenues for the consecutive four (4) fiscal quarters
of Parent immediately preceding the date of the Earnout Demand
Notice. In the event that the Shareholders' Representative
does not deliver an Earnout Demand Notice to Parent during the
Earnout Period, then the relevant Payment Period under which
the Earnout Payment is to be calculated shall be the final
consecutive four (4) fiscal quarters of Parent occurring
during the Earnout Period.
(c) Within thirty (30) days after delivery of the Earnout Demand
Notice, or Parent's last fiscal quarter in the Earnout Period,
as applicable, Parent shall deliver to Shareholders'
Representative a statement with reasonable detail reflecting
Parent's calculation of Net Product Revenues for the Payment
Period (the "Earnout Calculation"), which such statement shall
be prepared in accordance with GAAP from the books and records
of Parent, on a basis consistent with the accounting
principles and revenue recognition policies followed by Parent
in the preparation of its financial statements. The Earnout
Calculation shall be accompanied by a schedule showing Net
Product Revenues by fiscal quarter during the Payment Period
and by a written confirmation of Parent stating that, to
Parent's knowledge, the Earnout Calculation has been made in
accordance with GAAP. In his discretion, the Shareholders'
Representative may distribute the Earnout Calculation and
accompanying schedules to the Participating Shareholders
provided that such Participating Shareholders have agreed to
be bound by the confidentiality obligations set forth in
Section 4.4
5
herein. The Earnout Calculation will be deemed to be accepted
by the Shareholders' Representative and shall be conclusive
for purposes of determining the Earnout Calculation, if any,
unless the Shareholders' Representative shall have delivered
to Parent within fifteen (15) Business Days following delivery
of the Earnout Calculation a written statement objecting to
any of the information contained in the Earnout Calculation,
specifying in reasonable detail the amount in dispute and
accompanied by detailed schedules and work papers providing
reasonable support for such determination.
(d) In the event of a dispute or disagreement relating to the
Earnout Calculation which Parent and the Shareholders'
Representative are unable to resolve by good faith
discussions, either Parent or the Shareholders' Representative
may elect to have all such disputes or disagreements resolved
by an accounting firm of nationally recognized standing to be
mutually selected by the Shareholders' Representative and
Parent. Such designated accounting firm shall make a
resolution of the Earnout Calculation, which shall be final,
binding and enforceable as an arbitration award for all
purposes. The designated accounting firm shall be instructed
to use every reasonable effort to perform its services within
thirty (30) days of submission of the Earnout Calculation to
it and, in any case, as soon as practicable after such
submission. In the event any such audit reveals any
discrepancy less than five percent (5%) of the Net Product
Revenues for the Payment Period, Shareholders shall pay the
entire costs and expenses for the services of the designated
accounting firm. In the event any such audit reveals any
discrepancy greater than or equal to five percent (5%) of the
Net Product Revenues for the Payment Period, Parent shall pay
the entire costs and expenses for the services of the
designated accounting firm. Any additional Earnout Payment
determined to be payable to the Participating Shareholders
through good faith discussion or by the designated accounting
firm shall be payable to the Payment Agent in accordance with
Section 1.9(e).
(e) Within (i) sixty (60) days following delivery of the Earnout
Demand Notice, or (ii) twenty (20) days following final
determination of the Earnout Calculation, pursuant to Section
1.9(c) or (d), whichever is later (the "Earnout Payment
Date"), Parent shall pay the Earnout Payment to the Payment
Agent for distribution to the Participating Shareholders, if
earned.
(f) During the period commencing on the Closing Date and ending on
the Earnout Payment Date, Parent will use commercially
reasonable efforts to promote, market and sell the Products
and in good faith not undertake any action the purpose of
which is to negatively impact the Participating Shareholders'
right to receive an Earnout Payment hereunder. In furtherance
of the foregoing covenant, Parent covenants and agrees that it
will not (i) enter into any sales agreements with respect to
the Product with any Affiliates of Parent whose revenues are
not consolidated with Parent's revenues on pricing and other
terms that have not been negotiated at "arms length" and which
are reasonable and customary, and (ii) divest or sell any
division responsible for selling and marketing the assets
6
constituting the Product, unless express provision has been
made with any such successor corporation to assume Parent's
obligations pursuant to this Section 1.9.
1.10 Closing Balance Sheet.
(a) Within sixty (60) days after the Closing Date, Parent shall
have the right to deliver to the Shareholders' Representative
a balance sheet of Company as of the Closing Date, prepared in
accordance with GAAP, including footnotes, from the books and
records of Company, on a basis consistent in every respect
with the accounting principles theretofore followed by Company
in the preparation of the Latest Financial Statements and the
Annual Financial Statements (as such terms are defined in
Section 2.7 below), and fairly presenting the financial
position of Company as of the Closing Date. The balance sheet
shall be accompanied by detailed schedules and by a written
confirmation of Parent stating that, to Parent's knowledge,
(a) the examination of the balance sheet has been made in
accordance with GAAP and (b) the balance sheet has been
prepared in accordance with GAAP based upon information
available to the Company, on a basis consistent with the
accounting principles theretofore followed by Company, except
as otherwise provided in this Section 1.10, and (c) setting
forth the amount of the final Purchase Price Adjustment and by
whom to be paid pursuant to Section 1.8 hereof.
(b) Within thirty (30) days following the delivery of the balance
sheet referred to in Section 1.10(a), the Shareholders'
Representative may object to any of the information contained
in said balance sheet or accompanying schedules which could
affect the necessity or amount of any payment by Parent or the
Shareholders pursuant to Section 1.8. Any such objection shall
be made in writing delivered to Parent and shall state the
Shareholders' determination of the amount of the Purchase
Price Adjustment, accompanied by detailed schedules and work
papers providing reasonable support for such determination.
(c) In the event of a dispute or disagreement relating to the
balance sheet, schedules, or final Purchase Price Adjustment
which Parent and the Shareholders' Representative are unable
to resolve by good faith discussions, either Parent or
Shareholders' Representative may elect to have all such
disputes or disagreements resolved by an accounting firm of
nationally recognized standing (the "Third Accounting Firm")
to be mutually selected by the Shareholders' Representative
and Parent. The Third Accounting Firm shall make a resolution
of the balance sheet of Company as of the Closing Date
including a calculation of Net Equity as of the Closing Date
and a determination of the final Purchase Price Adjustment
which shall be final, binding and enforceable as an
arbitration award for all purposes. The Third Accounting Firm
shall be instructed to use every reasonable effort to perform
its services within thirty (30) days of submission of the
balance sheet to it and, in any case, as soon as practicable
after such submission. In the event any such audit reveals any
7
discrepancy less than five percent (5%) of the Purchase Price
Adjustment, Shareholders shall pay the entire costs and
expenses for the Third Accounting Firm. In the event any such
audit reveals any discrepancy greater than or equal to five
percent (5%) of the Purchase Price Adjustment, Parent shall
pay the entire costs and expenses for the services of the
Third Accounting Firm. As used in this Agreement, the term
"Closing Balance Sheet" shall mean the balance sheet of
Company as of the Closing Date as finally determined for
purposes of this Article 1, whether by acquiescence of Parent
of the Estimated Closing Balance Sheet prepared by the
Company, acquiescence of Shareholders' Representative in the
balance sheet as of the Closing Date by Parent, by negotiation
and agreement of the parties, or by the Third Accounting Firm.
(d) Promptly after the Closing Balance Sheet and the Purchase
Price Adjustment become final and binding on the parties, the
Estimated Initial Merger Consideration shall be recalculated
by giving effect to such final and binding amounts (as
recalculated, the "Final Initial Merger Consideration"). If
the Estimated Initial Merger Consideration is greater than the
Final Initial Merger Consideration, the Escrow Agent shall
immediately remit cash to Parent, in accordance with the
Escrow Agreement, in the amount by which the Estimated Initial
Merger Consideration exceeds the Final Initial Merger
Consideration. If the Final Initial Merger Consideration is
greater than the Estimated Initial Merger Consideration,
Parent shall deposit additional funds with the Payment Agent
for distribution to the Shareholders in accordance with the
Payment Agreement in the amount by which the Final Initial
Merger Consideration exceeds the Estimated Initial Merger
Consideration (with interest at a rate equal to the "prime
rate" as published in The Wall Street Journal on the Closing
Date, calculated from the Closing Date until the date of
payment).
1.11 Cancellation and Conversion of Company Securities at the Effective
Time. As of the Effective Time, by virtue of the Merger and without any
action on the part of any holder of any share of capital stock of the
Company or Merger Subsidiary:
(a) Subject to the terms and conditions of this Article 1, each
share of Company Common Stock, issued and outstanding
immediately prior to the Effective Time (other than (1)
Company Common Stock held in the Company's treasury or by any
of the Company's Subsidiaries, (2) Company Common Stock held
by Parent, Merger Subsidiary or any other Subsidiary of
Parent, and (3) Dissenting Shares) shall automatically be
converted into the right to receive Merger Consideration in
cash, payable to the holders thereof upon surrender of the
Certificates (as defined in Section 1.13 below) in accordance
with Section 1.11(c);
(b) Subject to the terms and conditions of this Article 1, each
share of Company Preferred Stock, issued and outstanding
immediately prior to the Effective Time (other than (1)
Preferred Stock held in the Company's treasury or by any of
the Company's Subsidiaries, (2) Company Preferred Stock held
by Parent, Merger Subsidiary or any other Subsidiary of
Parent, and (3) Dissenting Shares) shall automatically be
converted into the right to receive Merger Consideration in
cash, payable to the holders thereof upon surrender of the
Certificates (as defined in Section 1.13 below) in accordance
with Section 1.11(c);
8
(c) Schedule 1.11(c) hereto sets forth the name and mailing
address of each Shareholder and the class, series and number
of shares of Company Capital Stock owned by each such
Shareholder. The aggregate amount of Merger Consideration
(including the Earnout Payment, if any) to be paid to
Shareholders pursuant to this Agreement shall be paid in
accordance with the liquidation preference provisions set
forth in Article III, Section B.2(f) of the Restated Company
Charter, as shall be in effect immediately prior to the
Closing, as follows:
(i) All of the Net Initial Merger Consideration shall be
paid to the holders of the Company's Series D
Preferred Stock, Series E Preferred Stock and Series
F Preferred Stock in accordance with their percentage
interests in the Series D, E & F Preference Amount,
as set forth on Schedule 1.11(c)(i) hereto;
(ii) upon the completion of the payment in full of the Net
Initial Merger Consideration in accordance with
subsection (c)(i) above, the next $1,500,000 of
Merger Consideration (the "Second Preference Amount")
shall be paid to the holders of the Company's Series
G Preferred Stock (which shall be authorized pursuant
to the Restated Company Charter (the "Series G
Preferred Stock")) pro rata in proportion to the
number of outstanding shares of Series G Preferred
Stock held by each such holder, which pro rata
amounts shall be set forth in a certificate delivered
by the Company to Parent at the Closing;
(iii) upon the completion of the payment in full of the
Second Preference Amount in accordance with
subsection (c)(ii) above, the next distribution of
Merger Consideration (the "Third Preference Amount")
shall be paid to the holders of the Company's Series
D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock in accordance with their
percentage interests in the Series D, E & F
Preference Amount as set forth on Schedule 1.11(c)(i)
hereto until such holders shall have received an
aggregate amount, including the payment to such
holders of the Net Initial Merger Consideration
pursuant to subsection 1.11(c)(i) above, equal to the
Series D, E & F Preference Amount, less $1,500,000;
(iv) upon the completion of the payment in full of the
Third Preference Amount in accordance with subsection
(c)(iii) above, the next $8,141,976 of Merger
Consideration (the "Fourth Preference Amount") shall
be paid to the holders of the Company's Series A
Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock in accordance with their percentage
interests in the Fourth Preference Amount as set
forth on Schedule 1.11(c)(iv) hereto;
(v) upon the completion of the payment in full of the
Fourth Preference Amount in accordance with
subsection (c)(iv) above, the next $1,500,000 of
Merger Consideration shall be paid to the holders of
the Company's Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred
9
Stock in accordance with their percentage interests
in the Series D, E & F Preference Amount as set forth
on Schedule 1.11(c)(i) hereto;
(vi) upon the completion of the payment in full of the
amount described in subsection (c)(v) above, the next
distribution of Merger Consideration shall be paid to
the holders of Company Common Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock until
such holders shall have received an aggregate amount
equal to (A) the quotient obtained by dividing
$1,500,000 by a fraction the numerator of which is
equal to the number of shares of Series G Preferred
Stock outstanding immediately prior to the Effective
Time and the denominator of which is equal to the
number of shares of Company Capital Stock outstanding
immediately prior to the Effective Time (assuming the
conversion into Company Common Stock of all
outstanding shares of Company Preferred Stock), minus
(B) $1,500,000, which shall be distributed among the
holders of Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock
and Series F Preferred Stock pro rata based on the
number of shares of Company Common Stock held by each
such holder (assuming the conversion into Company
Common Stock of all such shares of Company Preferred
Stock).
(vii) upon the completion of the payment in full of the
amount described in subsection (c)(vi) above, any
remaining Merger Consideration shall be paid to the
holders of the Company's Common Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series
G Preferred Stock pro rata based on the number of
shares of Company Common Stock held by each such
holder (assuming the conversion of all outstanding
shares of Company Preferred Stock into Company Common
Stock in accordance with the Restated Company
Charter).
(d) Each Company Stock Option that is outstanding immediately
prior to the Effective Time, whether or not vested or
exercisable, shall, effective as of the Effective Time, be
cancelled and terminated in accordance with the terms of the
Company Stock Option Plans or agreements, arrangements or
instruments, as applicable. Except for (i) a warrant to
purchase up to 13,100 shares of the Company's Series B
Preferred Stock issued to Comdisco, Inc. on August 25, 1997,
and (ii) a warrant to purchase up to 111,111 shares of the
Company's Series C Preferred Stock issued to Comdisco, Inc. on
March 25, 1998 (collectively, the "Comdisco Warrants") (each
of which shall, to the extent required by their terms, remain
outstanding and be converted into the right to receive a pro
rata share of the Earnout Payment, if any, to the extent that
such warrants are validly exercised by the holder thereof),
each Company Warrant that is outstanding immediately prior to
the Effective Time, whether or not vested or exercisable,
10
shall, effective as of the Effective Time, be cancelled and
terminated in accordance with the terms of such Company
Warrants or agreements, arrangements or instruments, as
applicable. The Company has delivered or will deliver to each
holder of Company Warrants outstanding on the date hereof
(other than the Comdisco Warrants) a notice sufficient to
cause such outstanding warrants to be cancelled and terminated
immediately prior to the Effective Time.
(e) Each share of the common stock, no par value, of Merger
Subsidiary ("Merger Subsidiary Common Stock"), issued and
outstanding at the Effective Time of the Merger shall be
converted into one share of common stock, no par value, of the
Surviving Corporation ("Surviving Corporation Common Stock").
(f) Each share of Company Common Stock and Company Preferred Stock
held in the treasury of the Company and each share of Company
Common Stock and Company Preferred Stock held by Parent,
Merger Subsidiary or any Subsidiary of Parent, Merger
Subsidiary or the Company immediately prior to the Effective
Time will, by virtue of the Merger and without any action on
the part of Merger Subsidiary, the Company or the holder
thereof, be canceled, retired and cease to exist without
payment of any consideration therefore and without any
conversion thereof.
1.12 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock issued and
outstanding immediately prior to the Effective Time that are
held by any holder of shares of Company Capital Stock who has
not voted in favor of the Merger (if entitled to vote) and has
properly exercised and perfected appraisal rights in
accordance with Section 1300 et. seq. of the CGCL (such
holders are referred to as "Dissenting Shareholders" and such
shares are referred to as "Dissenting Shares") will not be
converted into the right to receive the Merger Consideration,
but will become entitled to the right to receive such
consideration as may be determined to be due to the holders of
such Dissenting Shares pursuant to the CGCL; provided,
however, that any holder of Dissenting Shares who will have
failed to perfect or who effectively will have withdrawn or
lost such rights of appraisal under the CGCL will forfeit the
right to appraisal of such shares of Company Capital Stock,
and such shares of Company Capital Stock will no longer be
Dissenting Shares and, as of the Effective Time, will be
deemed to have been converted into the right to receive the
Merger Consideration.
(b) The Company will give Parent and Merger Subsidiary prompt
notice of any written demands for appraisal, withdrawals of
demands for appraisal and any other related instruments
received by the Company and, Parent will have the right to
participate at its sole expense in all negotiations and
proceedings with respect to such demands. Prior to the
Effective Time, the Company will not, except with the prior
written consent of Parent, make any payment with respect to,
or settle or offer to settle, any such demands.
Notwithstanding anything to the contrary in this Section 1.12
if (i) the Merger is terminated, rescinded or abandoned or
(ii) if
11
the Shareholders revoke the authority to effect the Merger,
then the right of any Shareholder to appraisal under Section
1300 et. seq. of the CGCL shall cease. The Surviving
Corporation will comply with all obligations of the CGCL with
respect to Dissenting Shareholders.
(c) The holders of shares of Parent Common Stock shall not be
entitled to appraisal rights.
1.13 Escrow Procedure; Exchange of Certificates.
(a) U.S. Bank National Association or such other bank as the
parties may agree shall act as the payment agent (in such
capacity, the "Payment Agent") pursuant to a payment
agreement, to be entered into between the Company and the
Payment Agent (the "Payment Agreement") and escrow agent (in
such capacity, the "Escrow Agent") pursuant to the Escrow
Agreement, for the benefit of the holders of Company Common
Stock and Company Preferred Stock for the purpose of paying
the Merger Consideration upon surrender of certificates which
immediately prior to the Effective Time represented Company
Common Stock or Company Preferred Stock (in either case, the
"Certificates") for the Merger Consideration.
(b) At the Closing, Parent shall deposit, or shall cause to be
deposited, with the Payment Agent pursuant to the Payment
Agreement, for the benefit of the Shareholders, cash in U.S.
dollars in an amount equal to the Net Initial Merger
Consideration, less amounts paid directly to Shareholders
pursuant to Section 1.8(a).
(c) To the extent that sums are released by the Payment Agent or
the Escrow Agent to the Shareholders or the Parent in
accordance with this Agreement or the Escrow Agreement, the
pro-rata portion of any accumulated interest shall be
distributed therewith.
(d) As soon as reasonably practicable after the Effective Time,
the Payment Agent shall mail to each holder of record of
Certificates: (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 Payment Agent and shall be in such form
and have such other provisions as Merger Subsidiary and the
Company may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for
a cash payment of the proper Merger Consideration when and if
it becomes payable under this Agreement. Upon surrender of a
Certificate for cancellation to the Payment Agent or to such
other agent or agents as may be appointed by Merger
Subsidiary, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to
receive in exchange therefor by check or wire transfer, as the
case may be, an amount equal to the proper Merger
Consideration when and if it becomes payable under this
Agreement, and the Certificate so surrendered shall forthwith
be canceled. No interest shall be paid or accrued on
12
any Merger Consideration upon the surrender of any
Certificates. In the event of a transfer of ownership of
Company Common Stock or Company Preferred Stock which is not
registered in the transfer records of the Company, payment of
the proper Merger Consideration when and if it becomes payable
under this Agreement may be paid to a transferee if the
Certificate representing such Company Common Stock or Company
Preferred Stock, as applicable, is presented to the Payment
Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock
transfer or other taxes required as a result of such payment
to a Person other than the registered holder of such shares
have been paid. Until surrendered and exchanged as
contemplated by this Section 1.13, each Certificate shall be
deemed at any time after the Effective Time to represent only
the right to receive upon such surrender an amount equal to
the proper Merger Consideration when and if it becomes payable
under this Agreement.
(e) In the event that any Certificate shall have been lost, stolen
or destroyed, the Payment Agent will, upon the making of an
affidavit of that fact by the holder claiming such Certificate
to have been lost, stolen or destroyed, pay the proper Merger
Consideration as may be required pursuant to this Agreement,
but for the failure to deliver such Certificate to the Payment
Agent; provided, however, that the Surviving Corporation may,
in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed
Certificate to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against
the Surviving Corporation with respect to the Certificate
alleged to have been lost, stolen or destroyed.
(f) The Merger Consideration paid upon the surrender of
Certificates for exchange of Company Common Stock and Company
Preferred Stock in accordance with the terms hereof shall be
deemed to have been paid in full satisfaction of all rights
pertaining to such Company Common Stock and Company Preferred
Stock. After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the
Surviving Corporation of the Company Common Stock or Company
Preferred Stock 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,
except as otherwise provided by Applicable Law.
(g) Any portion of the Final Initial Merger Consideration set
aside for distribution pursuant to this Section 1.13 to any
holder of Company Common Stock or Company Preferred Stock that
remains undistributed to any such holder for four years after
the Effective Time shall be delivered to the Parent, upon
demand, and any such holders who have not theretofore complied
with this Article 1 shall thereafter look only to the Parent
for payment of their claim for any Merger Consideration.
(h) Notwithstanding Section 1.13(d), neither the Surviving
Corporation nor Parent shall be liable to any holder of
Company Common Stock or Company Preferred
13
Stock for any Merger Consideration delivered to a public
official pursuant to any applicable abandoned property,
escheat or similar law.
(i) To the extent permitted by Applicable Law, (i) any amounts of
Final Initial Merger Consideration remaining unclaimed by any
holder of Company Common Stock or Company Preferred Stock four
years after the Effective Time or (ii) any amounts of the
Earnout Payment, if any, remaining unclaimed by any holder of
Company Common Stock or Company Preferred Stock four years
after delivery by Parent of the Earnout Payment (or in the
case of (i) or (ii) such earlier date immediately prior to
such times as such amounts would otherwise escheat to or
become property of any governmental entity) shall become the
property of the Parent, subject to the rights of any such
Shareholder to claim such amounts from Parent.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to Parent and Merger Subsidiary to enter into
this Agreement, with the understanding that Parent and Merger Subsidiary will be
relying thereon in consummating the transactions contemplated hereunder, the
Company hereby represents and warrants to Parent and Merger Subsidiary that
except as set forth in the Disclosure Schedule delivered by the Company to
Parent and Merger Subsidiary on the date hereof (the "Disclosure Schedule") the
statements contained in this Article 2 are true and correct. The Disclosure
Schedule is arranged in sections corresponding to the sections and subsections
of this Article 2, and disclosure in one section of the Disclosure Schedule
shall constitute disclosure for all sections of the Disclosure Schedule only to
the extent to which the applicability of such disclosure is reasonably apparent.
2.1 Corporate Organization and Power. The Company and each Subsidiary is a
corporation duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of incorporation, and has all
requisite corporate power and authority required to carry on its
business as now conducted and to own, lease and operate the assets and
properties of the Company and each Subsidiary as now owned, leased and
operated. The Company and each Subsidiary is duly qualified or licensed
to do business as a foreign corporation and is in good standing in
every jurisdiction in which the character or location of its properties
and assets owned, leased or operated by the Company or any Subsidiary
or the nature of the business conducted by the Company or any
Subsidiary requires such qualification or licensing, except where the
failure to be so qualified, licensed or in good standing in such other
jurisdiction would not, individually or in the aggregate, have a
Material Adverse Effect on the Company or its Subsidiaries.
2.2 Subsidiaries. The Company has heretofore delivered or made available to
Parent complete and accurate copies of its Articles of Incorporation
and bylaws and the organizational and governing documents for each
Subsidiary, as currently in effect. Except as set forth in the
Disclosure Schedule, neither the Company nor any Subsidiary, directly
or indirectly, owns or controls or has any capital, equity,
partnership, participation or other ownership interest in any
corporation, partnership, joint venture or
14
other business association or entity, except for the Company's
ownership of its Subsidiaries. The Disclosure Schedule contains a list
of the name and jurisdiction of incorporation of each Subsidiary and
all jurisdictions in which the Company and each Subsidiary is qualified
or licensed to do business. Except as set forth in the Disclosure
Schedule, in the case of each Subsidiary: (a) all outstanding capital
stock and other equity securities are owned or controlled directly or
indirectly by Company free and clear of all Liens; (b) there are no
contractual or consensual limitations on Company's ability to vote or
alienate such securities, including without limitation, any voting
trusts, voting agreements, or rights of first refusal or first option;
(c) there are no outstanding options, warrants or other rights to
purchase or acquire securities of such Subsidiary; (d) there are no
contracts, commitments, understandings, arrangements or restrictions by
which any such Subsidiary is bound to issue, sell, transfer or to
purchase or acquire any shares of its capital stock or other equity
securities or options, warrants or rights; and (e) all of the
outstanding capital stock of such Subsidiary is duly authorized,
validly issued, fully paid, nonassessable and was not issued in
violation of preemptive rights.
2.3 Authorization. The Company has the requisite corporate power and
authority to enter into this Agreement and, subject to obtaining the
necessary approval of its stockholders with respect to the Merger, the
requisite corporate power and corporate authority to carry out the
transactions contemplated herein. The Board of Directors of the Company
have taken, and prior to the Closing the Shareholders will have taken,
all action required by law, the Company's Articles of Incorporation and
bylaws and otherwise to duly and validly authorize and approve the
execution, delivery and performance by the Company of this Agreement
and the consummation by the Company of the transactions contemplated
herein and no other corporate proceedings on the part of the Company or
any Subsidiary are, or will be, necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. The affirmative
vote of (i) the holders of a majority of the outstanding shares of each
of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock, each voting as a separate series, (ii) the
holders of a majority of the outstanding shares of Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock, voting
together as a separate class, (iii) the holders of a majority of the
outstanding shares of Company Common Stock, voting together as a
separate class, (iv) the holders of a majority of the outstanding
shares of the Company Preferred Stock, voting together as a separate
class and (v) the holders of a majority of the outstanding shares of
Company Capital Stock, voting together as a single class on an
as-converted basis 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 to consummate the Merger. This Agreement has been,
and the agreements, if any, required by Article 5 will be, duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Merger Subsidiary
of this Agreement, constitutes the legal, valid and binding obligations
of the Company, enforceable against it in accordance with its terms,
subject to laws of general application relating to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and rules of law governing specific
performance, injunctive relief or other equitable remedies.
15
2.4 Capitalization of the Company. The authorized capital stock of the
Company consists of (a) 63,000,000 shares of Company Common Stock,
2,170,904 shares of which are issued and outstanding; and (b)
46,100,000 shares of Company Preferred Stock, 1,214,286 shares of which
have been designated as Series A Preferred Stock, all of which are
issued and outstanding and are convertible into 1,124,286 shares of
Company Common Stock, 3,800,000 shares of which have been designated as
Series B Preferred Stock, 3,658,336 shares of which are issued and
outstanding and are convertible into 4,769,729 shares of Company Common
Stock, 2,600,000 shares of which have been designated as Series C
Preferred Stock, 2,222,223 shares of which are issued and outstanding
and are convertible into 3,377,079 shares of Company Common Stock,
4,100,000 shares of which have been designated as Series D Preferred
Stock, 3,990,144 shares of which are issued and outstanding and are
convertible into 6,314,604 shares of Company Common Stock, 12,100,000
shares of which have been designated as Series E Preferred Stock,
10,531,452 shares of which are issued and outstanding and are
convertible into 16,239,338 shares of Company Common Stock, and
22,000,000 shares of which have been designated as Series F Preferred
Stock, 20,916,183 shares of which are issued and outstanding and are
convertible into 20,916,183 shares of Company Common Stock. All of the
issued and outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. All issued and outstanding shares of Company Capital
Stock are owned (of record) solely by the Shareholders in the exact
amounts as shown on Section 2.4 of the Disclosure Schedule. There are
7,350,000 shares of Company Common Stock reserved for issuance pursuant
to Company Stock Option Plans (including 4,219,225 shares subject to
outstanding Company Stock Options), 1,080,016 shares of Company
Preferred Stock subject to outstanding Company Warrants and 227,500
shares of Common Stock subject to outstanding Company Warrants. Each
Company Stock Option that is currently outstanding, whether or not
vested or exercisable, shall, effective as of the Effective Time, be
cancelled and terminated in accordance with the terms of the Company
Stock Option Plans or agreements, arrangements or instruments, as
applicable. Except as set forth in this Section 2.4 and Section 2.4 of
the Disclosure Schedule, there are outstanding (a) no shares of capital
stock or other voting securities of the Company, (b) no securities of
the Company or the Subsidiaries convertible into or exchangeable for
shares of capital stock or voting securities of the Company, (c) no
options, warrants, contracts, understandings, agreements or other
rights to purchase or acquire from the Company or the Subsidiaries,
and, no obligations of the Company or the Subsidiaries to issue, any
capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company, and
(d) no equity equivalent interests in the ownership or earnings of the
Company or the Subsidiaries or other similar rights (collectively,
"Company Securities"). Except as set forth in Section 2.4 of the
Disclosure Schedule, there are no outstanding obligations of the
Company to repurchase, redeem or otherwise acquire any Company
Securities. Except as set forth in the Disclosure Schedule, there are
no shareholder agreements, voting trusts or other agreements or
understandings to which the Company is a party or by which it is bound
relating to the voting or registration of any shares of capital stock
of the Company.
2.5 Non-Contravention. Neither the execution, delivery and performance by
the Company of this Agreement nor the consummation of the transactions
contemplated herein will (a)
16
contravene or conflict with the Articles of Incorporation or bylaws of
the Company or any charter documents or bylaws of any Subsidiary, (b)
contravene or conflict with or constitute a violation of any provision
of any Applicable Law binding upon or applicable to the Company, any
Subsidiary, or any of the Company's or Subsidiary's assets; (c) result
in the creation or imposition of any Lien on any of the Company's or
Subsidiary's assets, other than Permitted Liens or (d) be in conflict
with, constitute (with or without due notice or lapse of time or both)
a default under, result in the loss of any material benefit under, or
give rise to any right of termination, cancellation, increased payments
or acceleration under any terms, conditions or provisions of any note,
bond, lease, mortgage, indenture, license, contract, franchise, permit,
instrument or other agreement or obligation to which the Company or any
Subsidiary is a party, or by which any of their respective properties
or assets may be bound, except in the cases of clause (b) where such
conflicts or other occurrences would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
2.6 Consents and Approvals. No consent, approval, order or authorization of
or from, or registration, notification, declaration or filing with
(hereinafter sometimes separately referred to as a "Consent" and
sometimes collectively as "Consents") any individual or entity,
including without limitation any Governmental Authority or Person, is
required in connection with the execution, delivery or performance of
this Agreement by the Company or the consummation by the Company of the
transactions contemplated herein, except (a) as set forth in the
Disclosure Schedule, (b) requirements of the CGCL for filing of
appropriate documents to effect the Merger, or (c) where the failure to
make any such filing, or to obtain such permit, authorization, Consent
or approval, would not prevent or delay consummation of the Merger or
would not otherwise prevent the Company from performing its obligations
under this Agreement. The Company is the "acquired person" within the
meaning of Rule 801.2(b) promulgated pursuant to the HSR Act and does
not within the meaning of Rule 801.1 of the HSR Act directly or
indirectly control (as defined in Rule 801.1(b)) any entities, trusts,
partnerships or other business organizations. The Company had total
assets as of the date of its last regularly prepared balance sheet (as
determined in accordance with Rule 801.11 of the HSR Act) of less than
Ten Million Dollars ($10,000,000) and annual net sales for its most
recent fiscal year (as determined in accordance with Rule 801.11 of the
HSR Act) of less than Ten Million Dollars ($10,000,000). There are no
facts relating to the identity or circumstances of the Company that
would prevent or materially delay obtaining any of the Consents.
2.7 Financial Statements; Undisclosed Liabilities.
(a) The Company has delivered to Parent true, correct and complete
copies of (a) the unaudited consolidated balance sheet, as of
September 30, 2002 of the Company and the Subsidiaries (the
"Latest Balance Sheet") and the unaudited consolidated
statements of income, stockholders' equity and cash flows of
the Company and the Subsidiaries for the 9-month period ended
September 30, 2002 (such statements of income, stockholders'
equity and cash flows and the Latest Balance Sheet being
herein referred to as the "Latest Financial Statements") and
(b) the audited consolidated balance sheet, as of December 31,
1999, 2000 and 2001 of the Company and the Subsidiaries and
the audited consolidated statements of
17
income, stockholders' equity and cash flows of the Company and
the Subsidiaries for each of the years ended December 31,
1999, 2000 and 2001 (collectively, the "Annual Financial
Statements"). The Latest Financial Statements and the Annual
Financial Statements are, and the Estimated Closing Balance
Sheet will be, based upon the information contained in the
books and records of the Company and the Subsidiaries and
fairly and accurately present the financial condition of the
Company and the Subsidiaries as of the dates thereof and
results of operations for the periods referred to therein. The
Annual Financial Statements have been prepared in accordance
with GAAP, consistently applied. The Latest Financial
Statements have been, and the Estimated Closing Balance Sheet
will be, prepared in accordance with GAAP consistently applied
as applicable to unaudited interim financial statements (and
thus may not contain all notes and may not contain prior
period comparative data which are required for compliance with
GAAP), and reflect all adjustments necessary to a fair and
accurate statement of the financial condition and results of
operations for the interim periods presented.
(b) All accounts, books and ledgers material to the business of
the Company and the Subsidiaries are properly and accurately
kept, are complete in all material respects, and there are no
material inaccuracies or discrepancies contained or reflected
therein. Neither the Company nor any Subsidiary has any of its
material records, systems, controls, data, or information
recorded, stored, maintained or operated by means which
(including all means of access thereto and therefrom) are not
under the exclusive ownership (excluding licensed software
programs) and direct control of the Company or the
Subsidiaries.
(c) Except as and to the extent reflected in the Latest Balance
Sheet, neither the Company nor any Subsidiary has any
liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to
become due, whether known or unknown, and regardless of when
asserted) arising out of transactions or events heretofore
entered into, or any action or inaction, or any state of facts
existing, with respect to or based upon transactions or events
heretofore occurring, except liabilities which have arisen
after the date of the Latest Balance Sheet in the ordinary
course of business, consistent with past custom and practice
in an amount not more than $100,000 in the aggregate and which
are set forth on the Closing Balance Sheet (none of which is a
liability for breach of contract, breach of warranty,
violation of Applicable Law, tort, infringement, claim or
lawsuit).
2.8 Absence of Certain Changes. Except as set forth in the Disclosure
Schedule or as otherwise authorized by this Agreement, since the date
of the Latest Balance Sheet, the Company and each Subsidiary has owned
and operated its assets, properties and businesses in the ordinary
course of business and consistent with past practice and there has not
been:
(a) any change, effect, event, occurrence, state of facts or
development that individually or in the aggregate, has had or
could reasonably be expected to have a Material Adverse
Effect;
18
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock
of the Company, or any repurchase, redemption or other
acquisition by the Company or any Subsidiary (other than any
wholly-owned subsidiary) of any outstanding shares of capital
stock or other equity or debt securities of, or other
ownership interests in, the Company;
(c) any split, combination or reclassification of any of its
capital stock;
(d) any amendment of any provision of the Articles of
Incorporation, Bylaws or other governing documents of, or of
any material term of any outstanding security issued by, the
Company or any Subsidiary (other than any wholly-owned
subsidiary);
(e) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money;
(f) any change in any method of accounting or accounting practice
by the Company or any Subsidiary, except for any such change
required by reason of a change in GAAP and concurred with by
the Company's independent public accountants;
(g) issuance of any equity or debt securities of the Company other
than pursuant to the Company Stock Plans, Company Stock
Options or Company Warrants in the ordinary course of business
and consistent with past practice;
(h) acquisition or disposition of assets material to the Company
or its Subsidiaries taken as a whole, except for sales of
inventory in the ordinary course of business consistent with
past practice, any acquisition or disposition of capital stock
of any third party, or any merger or consolidation with any
third party, by the Company or any Subsidiary;
(i) any creation or assumption by the Company or any Subsidiary of
any Lien;
(j) any individual capital expenditure (or series of related
capital expenditures) either involving more than $20,000 or
outside the ordinary course of business;
(k) any material damage, destruction or loss (whether or not
covered by insurance) from fire or other casualty to its
tangible property;
(l) any material increase in the base salary of any officer or
employee of the Company;
(m) adoption, amendment, modification, or termination any bonus,
profit-sharing, incentive, severance or other similar plan for
the benefit of any of its directors, officers or employees or
any Benefit Plan;
(n) entry by the Company into any joint venture, partnership or
similar agreement with any person other than a Company
Subsidiary; or
19
(o) any authorization of, or commitment or agreement to take any
of, the foregoing actions except as otherwise permitted by
this Agreement.
2.9 Assets and Properties.
(a) The Company and each Subsidiary has good and valid right,
title and interest in and to or, in the case of leased
properties or properties held under license, good and valid
leasehold or license interests in, all of its assets and
properties, including, but not limited to, all of the
machinery, equipment, terminals, computers, vehicles, and all
other assets and properties (real, personal or mixed, tangible
or intangible) reflected in the Latest Balance Sheet and all
of the assets purchased or otherwise acquired since the date
of the Latest Balance Sheet, except those assets and
properties disposed of in the ordinary course of business
after the date of the Latest Balance Sheet. Except as
disclosed in the Disclosure Schedule, the Company or each
Subsidiary holds title to each such property and asset free
and clear of all Liens, except Permitted Liens.
(b) Except as disclosed in the Disclosure Schedule, (i) to the
Company's knowledge, the current use and operation of all real
property is in compliance with all Applicable Laws (including
without limitation laws relating to parking, zoning and land
use) and public and private covenants and restrictions, (ii)
the Company has not received notice of noncompliance with any
Applicable Laws and (iii) to the Company's knowledge, the
utilities, access and parking, if any, for each such real
property are adequate for the current use and operation of
each such real property. To the Company's knowledge, there are
no zoning, building code, occupancy restriction or other
land-use regulation proceedings or any proposed change in any
Applicable Laws, which could materially detrimentally affect
the use or operation of any real property, nor has the Company
received any notice of any special assessment proceedings
affecting the real property, or applied for any change to the
zoning or land use status of the real property. To the
Company's knowledge, it has obtained all licenses, permits,
approvals, easements and rights of way (and all such items are
currently in full force and effect) required from any
Governmental Authority having jurisdiction over each real
property or from private parties for the current use and
operation of each real property.
2.10 Manufacturing Compliance. All products manufactured and sold by the
Company or any Subsidiary were designed, manufactured, labeled,
packaged and sold in accordance with all Applicable Laws pertaining to
medical devices including, but not limited to, the United States Food,
Drug and Cosmetic Act (the "FDC Act") and the regulations promulgated
thereunder, and the Good Manufacturing Practices/Quality System
Regulations ("GMP/QSR Regulations") promulgated under the FDC Act. All
of the manufacturing facilities of the Company and the Subsidiaries are
in compliance with all GMP/QSR Regulations and ISO 9001, 9002, EN
29001, 46001 requirements and the Company and each Subsidiary has
obtained all approvals and consents required to mark the Company's
products with the "CE" mark.
20
2.11 Inventories. Except as set forth in the Disclosure Schedule, all
inventories of the Company and each Subsidiary reflected in the Latest
Balance Sheet (i) consist of items of merchantable quality and quantity
usable and salable at its carrying value in the ordinary course of
business, consistent with past practice and (ii) conform in all
material respects to the specifications established therefor.
2.12 Receivables. The accounts receivables and other receivables reflected
on the Latest Balance Sheet, and those arising in the ordinary course
of business after the date thereof, are valid receivables that have
arisen from bona fide transactions in the ordinary course of business,
are not subject to valid counterclaims or setoffs, and are collectible
in accordance with their terms, except as and to the extent of the bad
debt allowance reflected on the Latest Balance Sheet.
2.13 Litigation. Except as set forth in the Disclosure Schedule, (i) there
are no actions, suits, claims, hearings, arbitrations, proceedings
(public or private) or governmental investigations that have been
brought by or against any Governmental Authority or any other Person
(collectively, "Proceedings"), nor, to the Company's knowledge, any
investigations or reviews by any Governmental Authority against or by
the Company or any Subsidiary, pending or, to the Company's knowledge,
threatened, against or by the Company or any Subsidiary or any of their
assets or which seek to enjoin or rescind the transactions contemplated
by this Agreement; and (ii) there are no existing orders, judgments or
decrees of any Governmental Authority naming the Company or any
Subsidiary as an affected party or otherwise affecting any of the
assets or the business of the Company or any Subsidiary.
2.14 Contracts.
(a) The Disclosure Schedule lists the following Contracts of the
Company and the Subsidiaries (collectively, the "Scheduled
Contracts"):
(i) Each Contract providing for the lease of real
property by the Company or any Subsidiary or which is
used by Company or any Subsidiary in connection with
the operation of their respective businesses.
(ii) Each Contract relating to all machinery, tools,
equipment, motor vehicles, rolling stock and other
tangible personal property (other than inventory and
supplies) owned, leased or used by the Company or a
Subsidiary, except for items having a value of less
than $10,000 which do not, in the aggregate, have a
total value of more than $25,000 or having a
remaining term of longer than six (6) months or that
are not cancelable by the Company in its discretion
and without penalty upon notice of sixty (60) days or
less.
(iii) Each Contract to which the Company or any Subsidiary
is a party that would reasonably be expected to
involve payments by or to the Company or any
Subsidiary in excess of $25,000, or would have a
Material Adverse Effect.
21
(iv) All Contracts relating to, or evidences of, or
guarantees of, or providing security for,
indebtedness or the deferred purchase price of
property (whether incurred, assumed, guaranteed or
secured by any asset).
(v) Each independent sales representative or distribution
agreement, supply agreement or similar Contracts
relating to or providing for the marketing or
manufacturing of the Company's products.
(vi) Each consulting, development, joint development,
research and development or similar Contracts
relating to development of the Company's products or
Intellectual Property and each Contract under which
the Company has granted or obtained a license to
Intellectual Property, other than commercial software
licenses.
(vii) All acquisition, partnership, joint venture, teaming
arrangements or other similar Contracts.
(viii) Any Contract under which the Company has agreed not
to compete or has granted to a third party an
exclusive right that restricts or otherwise adversely
affects the ability of the Company or any Subsidiary
to conduct its business.
(ix) All Benefit Plans.
(x) All Contracts with any "disqualified individual" (as
defined in Section 280G(c) of the Code) which
contains any severance or termination pay liabilities
which would result in a disallowance of the deduction
for any "excess parachute payment" (as defined in
Section 280G(b)(l) of the Code) under Section 280G of
the Code.
(xi) Every Contract between the Company or any Subsidiary
and any of the Company's officers, directors or more
than 5% stockholders, or any entity in which any of
the Company's officers, directors or more than 5%
stockholders has a greater than 2% equity interest.
(xii) All Contracts for clinical or marketing trials
relating to the Company's products and all Contracts
with physicians, hospitals or other healthcare
providers, or other scientific or medical advisors.
(b) The Company has delivered or made available to Parent true and
correct copies (or summaries, in the case of any oral
Contracts) of all such Scheduled Contracts. Except as
otherwise specified in the Disclosure Schedule, none of the
Scheduled Contracts contain a provision requiring the consent
of any party with respect to the consummation of the
transaction contemplated herein. No notice of default arising
under any Scheduled Contract has been delivered to or by the
Company or the Subsidiaries. Each Scheduled Contract is a
legal, valid and binding obligation of the Company or a
Subsidiary, as applicable, and, to the Company's knowledge,
each other party thereto, enforceable against each such party
thereto in accordance
22
with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally and subject to
general principles of equity, and neither the Company, the
Subsidiaries or the other party thereto is in breach,
violation or default thereunder. The Company is not a party to
and is not bound by any contract, agreement or instrument that
currently has or would have a Material Adverse Effect.
2.15 Permits. Each of the Company and the Subsidiaries holds all approvals,
authorizations, certificates, consents, licenses, orders and permits
and other similar authorizations of all Governmental Authorities (and
all other Persons) materially necessary for the Company and each
Subsidiary to conduct their respective businesses and own and operate
their respective properties (the "Permits"). Except as set forth in the
Disclosure Schedule, each Permit is valid and in full force and effect
and none of the Permits will be terminated, revoked, modified or become
terminable or impaired in any respect for any reason, except as would
not have a Material Adverse Effect. The Company and each Subsidiary has
conducted its business in compliance with all material terms and
conditions of the Permits.
2.16 Compliance with Applicable Laws. Neither the Company nor any Subsidiary
has materially violated or infringed, nor is it in material violation
or infringement of, any Applicable Law or any order, writ, injunction
or decree of any Governmental Authority in connection with its
activities and/or the activities of each of its Subsidiaries. The
Company and each Subsidiary, and each of their respective officers,
directors, agents and employees have complied in all material respects
with all Applicable Laws, including, but not limited to, Applicable
Laws relating to the design, development, manufacture, marketing or
sale of the products of the Company. No claims have been filed against
the Company or any Subsidiary alleging a violation of any Applicable
Law.
2.17 Employee Benefit Matters. Except as set forth in the Disclosure
Schedule:
(a) None of the Company, any Subsidiary or any other ERISA
Affiliate sponsors, maintains, contributes to, is required to
contribute to or has or could have any liability of any
nature, whether known or unknown, direct or indirect, fixed or
contingent, with respect to, any Pension Plan, including,
without limitation, any such plan that is excluded from
coverage by Section 4 of ERISA or is a "Multiemployer Plan"
within the meaning of Section 3(37) or 4001(a)(3) of ERISA. To
the knowledge of the Company, each such Pension Plan that is a
Multiemployer Plan has been operated in all material respects
in accordance with its terms and in compliance in all material
respects with the applicable provisions of ERISA, the Code and
other Applicable Law. Each such other Pension Plan has been
operated in all material respects in accordance with its terms
and in compliance in all material respects with the applicable
provisions of ERISA, the Code and all other Applicable Law.
All Pension Plans which the Company operates as plans that are
qualified under the provisions of Section 401(a) of the Code
satisfy in form and operation all applicable qualification
requirements and has not received or committed to receive a
transfer of assets and/or liabilities or
23
spin-off from another plan, except transfers, which qualify as
transfers from eligible rollover distributions within the
meaning of Code Section 402(c)(4).
(b) No Pension Plan is now nor has ever been "top-heavy" pursuant
to Section 416 of the Code.
(c) The Disclosure Schedule sets forth the name of each ERISA
Affiliate.
(d) None of the Company, any Subsidiary or any other ERISA
Affiliate has or could have any liability of any nature,
whether known or unknown, direct or indirect, fixed or
contingent, to any Pension Plan, the Pension Benefit Guaranty
Corporation or any other person, arising directly or
indirectly under Title IV of ERISA other than liability
pursuant to Section 4007 for premiums which are not yet due
(without regard to any waiver). No "reportable event," within
the meaning of Section 4043 of ERISA, has occurred with
respect to any Pension Plan subject to Title IV of ERISA. None
of the Company, any Subsidiary or any other ERISA Affiliate
has ceased operations at any facility or withdrawn from any
Company Pension Plan in a manner which could subject the
Company, any Subsidiary or any other ERISA Affiliate to
liability under Section 4062(e), 4063 or 4064 of ERISA. None
of the Company, any Subsidiary or any other ERISA Affiliate
maintains, contributes to or has participated in or agreed to
participate in any Pension Plan that is a Multiemployer Plan.
None of the Company, any Subsidiary or any other ERISA
Affiliate has been a party to a sale of assets to which
Section 4204 of ERISA applied with respect to which it could
incur any withdrawal liability (including any contingent or
secondary withdrawal liability) to any Multiemployer Plan.
None of the Company, any Subsidiary or any other ERISA
Affiliate has incurred, or has experienced an event that will,
within the ensuing 12 months, result in, a "complete
withdrawal" or "partial withdrawal," as such terms are defined
respectively in Sections 4203 and 4205 of ERISA, with respect
to a Pension Plan which is a Multiemployer Plan, and nothing
has occurred that could result in such a complete or partial
withdrawal. None of the Company, any Subsidiary or any other
ERISA Affiliate has incurred a decline in contributions to any
Multiemployer Plan such that, if the current rate of
contributions continues, a 70 percent decline in contributions
(as defined in Section 4205 of ERISA) will occur within the
next three plan years.
(e) None of the Company, any Subsidiary or any other ERISA
Affiliate sponsors, maintains, contributes to, is required to
contribute to, or has or could have any liability of any
nature, whether known or unknown, direct or indirect, fixed or
contingent, with respect to any Welfare Plan, whether insured
or otherwise, including, without limitation, any such plan
that is a Multiemployer Plan within the meaning of Section
3(37) of ERISA. To the knowledge of the Company, each such
Welfare Plan that is a Multiemployer Plan has been operated in
all material respects in accordance with its terms and in
compliance in all material respects with applicable provisions
of ERISA, the Code and other applicable law. Each such other
Welfare Plan has been operated in all material respects in
accordance with its terms and in compliance in all material
respects with the applicable
24
provisions of ERISA, the Code and all other applicable law.
Benefits under each Welfare Plan are fully insured by an
insurance company unrelated to the Company, any Subsidiary or
any other ERISA Affiliate. No insurance policy or contract
requires or permits retroactive increase in premiums or
payments due thereunder. None of the Company, any Subsidiary
or any other ERISA Affiliate has established or contributed
to, is required to contribute to or has or could have any
liability of any nature, whether known or unknown, direct or
indirect, fixed or contingent, with respect to any "voluntary
employees' beneficiary association" within the meaning of
Section 501(c)(9) of the Code, "welfare benefit fund" within
the meaning of Section 419 of the Code, "qualified asset
account" within the meaning of Section 419A of the Code or
"multiple employer welfare arrangement" within the meaning of
Section 3(40) of ERISA. No Welfare Plan that is a
Multiemployer Plan imposes any post-withdrawal liability or
contribution obligations upon the Company or any ERISA
Affiliate. None of the Company, any Subsidiary or any other
ERISA Affiliate maintains, contributes to or has or could have
any liability of any nature, whether known or unknown, direct
or indirect, fixed or contingent, with respect to medical,
health, life or other welfare benefits for present or future
terminated employees or their spouses or dependents other than
as required by Part 6 of Subtitle B of Title I of ERISA or any
comparable state law.
(f) None of the Company, any Subsidiary or any other ERISA
Affiliate is a party to, maintains, contributes to, is
required to contribute to or has or could have any liability
of any nature, whether known or unknown, direct or indirect,
fixed or contingent, with respect to any Compensation Plan.
Each Compensation Plan has been operated in all material
respects in accordance with its terms and in compliance in all
material respects with the applicable provisions of all
Applicable Law.
(g) There are no facts or circumstances which could, directly or
indirectly, subject the Company, any Subsidiary or any other
ERISA Affiliate to any (i) excise tax or other liability under
Chapters 43, 46 or 47 of Subtitle D of the Code, (ii) penalty
tax or other liability under Chapter 68 of Subtitle F of the
Code or (3) civil penalty, damages or other liabilities
arising under Section 502 of ERISA.
(h) Full payment has been made of all amounts which the Company,
any Subsidiary or any other ERISA Affiliate is required, under
applicable law, the terms of any Benefit Plan, or any
agreement relating to any Benefit Plan, to have paid as a
contribution, premium or other remittance thereto or benefit
thereunder. Each Pension Plan that is subject to the minimum
funding standards of Section 412 of the Code and/or Section
302 of ERISA meets those standards and has not incurred any
accumulated funding deficiency within the meaning of Section
412 or 418B of the Code or Section 302 of ERISA and no waiver
of any minimum funding requirements has been applied for or
obtained with respect to any Pension Plan. The Company, the
Subsidiaries and each other ERISA Affiliate has made adequate
provisions for reserves or accruals in accordance with GAAP to
meet contribution, benefit or funding obligations arising
under applicable law or the
25
terms of any Benefit Plan or related agreement. There will be
no change on or before Closing Date in the operation of any
Benefit Plan or any documents with respect thereto which will
result in an increase in the benefit liabilities under such
Benefit Plans, except as may be required by law.
(i) The Company, the Subsidiaries and each other ERISA Affiliate
has timely complied in all material respects with all
reporting and disclosure obligations with respect to the
Benefit Plans imposed by the Code, ERISA or other Applicable
Law.
(j) There are no pending or, to the Company's knowledge,
threatened audits, investigations, claims, suits, grievances
or other proceedings, and there are no facts that could give
rise thereto, involving, directly or indirectly, any Benefit
Plan, or any rights or benefits thereunder, other than the
ordinary and usual claims for benefits by participants,
dependents or beneficiaries.
(k) The transactions contemplated herein do not result in any
payment (whether of severance pay or otherwise), forgiveness
of debt, distribution, increase in benefits, obligation to
fund, or the acceleration of accrual, vesting, funding or
payment of any contribution or benefit under any Benefit Plan.
(l) No employer other than the Company and/or an ERISA Affiliate
is permitted to participate or participates in the Benefit
Plans. No leased employees (as defined in Section 414(n) of
the Code) or independent contractors are eligible for, or
participate in, any Benefit Plans.
(m) No action or omission of the Company, any Subsidiary or any
other ERISA Affiliate or any director, officer, employee, or
agent thereof in any way restricts, impairs or prohibits the
Parent, the Company, any Subsidiary, any other ERISA Affiliate
or any successor from amending, merging, or terminating any
Benefit Plan in accordance with the express terms of any such
plan and applicable law.
(n) The Disclosure Schedule lists and the Company has delivered to
the Parent true and complete copies of all Benefit Plan
documents and related trust agreements or other agreements or
contracts evidencing any funding vehicle with respect thereto,
including all amendments. The Company has delivered to the
Parent true and complete copies of: (i) the three most recent
annual reports on Treasury Form 5500, including all schedules
and attachments thereto, with respect to any Benefit Plan for
which such a report is required; (ii) the three most recent
actuarial reports with respect to any Pension Plan that is a
"defined benefit plan" within the meaning of Section 414(j) of
the Code; (iii) the form of summary plan description,
including any summary of material modifications thereto or
other modifications communicated to participants, currently in
effect with respect to each Benefit Plan; (iv) the most recent
determination letter with respect to each Pension Plan
intended to qualify under Section 401(a) of the Code and the
full and complete application therefor submitted to the
Internal Revenue Service; and (v) all professional opinions,
material internal memoranda, material
26
correspondence with regulatory authorities and administrative
policies, manuals, interpretations and the like with respect
to each Benefit Plan.
2.18 Labor and Employment Matters.
(a) The Disclosure Schedule sets forth a list of the current
employees, officers and directors of the Company and each
Subsidiary. The Company has previously delivered to Parent a
complete and accurate list of all current employees, officers
and directors of the Company and each Subsidiary that includes
their base salaries and bonus. Except as set forth in the
Disclosure Schedule, all employees of the Company are employed
on an "at-will" basis. The Disclosure Schedule identifies all
employees who are currently on leave for any reason or
receiving disability or workers' compensation or any other
similar type of benefit from the Company or any Subsidiary.
(b) The Company and each Subsidiary is and has been in compliance
in all material respects with all Applicable Laws respecting
employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation
any such Applicable Laws respecting employment discrimination
and occupational safety and health requirements, and has not
and is not engaged in any unfair labor practice. There is no
unfair labor practice complaint against the Company or any
Subsidiary pending or, to the Company's knowledge, threatened
before the National Labor Relations Board or any other
comparable Governmental Authority. There is no labor strike,
dispute, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened against or directly affecting
the Company or any Subsidiary. To the Company's knowledge, no
labor representation question exists respecting the employees
of the Company or any Subsidiary and there is not pending or,
to the Company's knowledge, threatened any activity intended
or likely to result in a labor representation vote respecting
the employees of the Company or any Subsidiary. No grievance
or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claims
therefor exist or, to the Company's knowledge, have been
threatened. No collective bargaining agreement is binding and
in force against the Company or any Subsidiary or currently
being negotiated by the Company or any Subsidiary. The Company
and its Subsidiaries have not experienced any significant work
stoppage or other significant labor difficulty. The Company
and its Subsidiaries are not delinquent in payments to any
persons for any wages, salaries, commissions, bonuses or other
direct or indirect compensation for any services performed by
them or amounts required to be reimbursed to such persons,
including without limitation any amounts due under any Benefit
Plan, except for reimbursement owed to employees for travel
and other business expenses incurred in the ordinary course of
business and consistent with past practice. Upon termination
of the employment of any person, neither the Company, any
Subsidiary, Parent or any subsidiary of Parent will, by reason
of any agreement or understanding to which the Company or any
Subsidiary is a party, be liable to any of such persons for
so-called "severance pay" or any other payments, except as set
forth in Schedule
27
10.1(xx). Within the six-month period prior to the date hereof
there has not been any expression of intention to the Company
or any Subsidiary by any current officer or key employee to
terminate such employment.
(c) To the Company's knowledge, all individuals who are performing
or have performed services for the Company or any of its
Affiliates and who are or were classified by the Company or
any of its Affiliates as "independent contractors" qualify for
such classification under Section 530 of the Revenue Act of
1978 or Section 1706 of the Tax Reform Act of 1986, as
applicable, and such individuals are not entitled to any
benefits under the Benefit Plans maintained by the Company or
any Subsidiary.
2.19 Intellectual Property.
(a) Except for software purchased or licensed by the Company under
commodity or shrink-wrap license agreements for use in the
operation of the business in the ordinary course, Section
2.19(a) of the Disclosure Schedule lists all Intellectual
Property that is registered with the U.S. Patent and Trademark
Office or a corresponding foreign governmental or public
authority and that: (i) is owned by, licensed to or otherwise
controlled by the Company and the Company Subsidiaries; (ii)
is necessary to the conduct of their business as now conducted
or planned to be conducted; or (iii) has been licensed to or
from third parties. The Company has delivered or made
available to Parent complete and accurate copies of
correspondence, litigation documents, agreements, file
histories and office actions relating to the patents and
patent applications listed on Section 2.19(a) of the
Disclosure Schedule. Each item of Intellectual Property owned
or used by the Company and the Subsidiaries immediately prior
to the Effective Time hereunder will be owned or available for
use by the Surviving Corporation on substantially the same
terms and conditions immediately after the Effective Time.
(b) The Company owns, free and clear of any Lien (other than
Permitted Lines), and possesses all right, title and interest,
or hold a valid license, in and to all Intellectual Property,
and has taken all reasonable action to protect the
Intellectual Property. To the knowledge of the Company, all
patents included in the Intellectual Property are valid and
enforceable. The Intellectual Property owned or licensed by
the Company constitutes all the intellectual property
necessary to the conduct of the business of the Company and
its Subsidiaries as it is currently conducted. Excepts as set
forth in the Disclosure Schedule, there are no royalties,
fees, honoraria or other payments payable by the Company or
any of its Subsidiaries to any Person by reason of the
ownership, development, modification, use, license,
sublicense, sale, distribution or other disposition of the
Intellectual Property other than salaries and sales
commissions paid to employees and sales agents in the ordinary
course of business. The Company and its Subsidiaries have
taken all reasonable security measures to protect the secrecy,
confidentiality and value of the Intellectual Property.
28
(c) Section 2.19(c) of the Company Disclosure Schedule lists the
Internet domain names included in the Intellectual Property.
The Company or one of its Subsidiaries is the registrant and
sole legal and beneficial owner of the Internet domain names
included in the Intellectual Property, free and clear of all
Liens (other than Permitted Liens). The Company or one of its
Subsidiaries is the registered owner of the trademarks
underlying each of the domain names included in the
Intellectual Property. The Company is not aware of any pending
or threatened actions, suits, claims, litigation or
proceedings relating to the domain names included in the
Intellectual Property. The Company has operated the websites
identified in Section 2.19(c) of the Disclosure Schedule.
(d) All personnel, including employees, agents, consultants and
contractors, who have, to a material extent, contributed to or
participated in the conception or development, or both, of the
Intellectual Property on behalf of the Company or any of its
Subsidiaries and all officers and technical employees of the
Company or its Subsidiaries either (i) have been a party to
"work-for-hire" arrangements or agreements with the Company or
one or more of its Subsidiaries in accordance with applicable
national and state law, or (ii) have executed appropriate
instruments of assignment in favor of the Company or its
Subsidiaries as assignee that have conveyed to the Company or
its Subsidiaries effective and exclusive ownership of all
tangible and intangible property arising thereby.
(e) To the knowledge of the Company, the conduct of the Company's
and its Subsidiaries' businesses has not infringed,
misappropriated or conflicted with and does not infringe,
misappropriate or conflict with any intellectual property
right of any other Person, nor has the Company or any
Subsidiary received any notice of any infringement,
misappropriation or violation by the Company or any Subsidiary
of any intellectual property right of any third party. No
claim by any third party contesting the validity of any
Intellectual Property has been made, is currently outstanding
or, to the knowledge of the Company, is threatened or
reasonably expected to arise. To the knowledge of the Company,
no third party is infringing any Intellectual Property right
of the Company or any Subsidiary.
2.20 Environmental Compliance. Except as set forth in the Disclosure
Schedule:
(a) Neither the Company or any Subsidiary, nor, to the Company's
knowledge, any previous owner, tenant, occupant or user of any
Properties (which Properties are listed on the Disclosure
Schedule) engaged in or permitted, direct or indirect,
operations or activities upon, or any use or occupancy of the
Properties, or any portion thereof, for the purpose of or in
any way involving the handling, manufacture, treatment,
storage, use, generation, emission, release, discharge,
refining, dumping or disposal of any Environmentally Regulated
Materials (whether legal or illegal, accidental or
intentional, direct or indirect) on, under, in or about the
Properties, or transported any Environmentally Regulated
Materials to, from or across the Properties, nor, to the
knowledge of the Company, are any Environmentally Regulated
Materials presently constructed, deposited, stored, placed or
otherwise located on, under, in or about the Properties, nor,
to the
29
knowledge of the Company, have any Environmentally Regulated
Materials migrated from the Properties upon or beneath other
properties, nor have any Environmentally Regulated Materials
migrated or threatened to migrate from other properties upon,
about or beneath the Properties. To the knowledge of the
Company, the Properties do not contain any: (i) underground or
aboveground storage tanks; (ii) asbestos; (iii) equipment
containing polychlorinated biphenyls ("PCBs"); (iv)
underground injection wells; or (v) septic tanks in which
process waste water or any Environmentally Regulated Materials
have been disposed.
(b) The Company and the Subsidiaries are in material compliance
with applicable Environmental, Safety and Health Laws and have
obtained all Permits required under applicable Environmental,
Safety and Health Laws.
(c) No enforcement, investigation, cleanup, removal, remediation
or response or other governmental or regulatory actions have
been, asserted or, to the Company's knowledge, threatened with
respect to operations conducted on the Properties by the
Company or any Subsidiary or against the Company or the
Subsidiaries with respect to or regarding the Properties
pursuant to any Environmental, Safety and Health Laws.
(d) To the Company's knowledge, there are no past or present
events, conditions, circumstances, incidents, actions or
omissions relating to or affecting the Company or any
Subsidiary or their business or assets that violate, or would
reasonably be expected to violate after the Closing, any
Environmental, Safety and Health Laws, or that would
reasonably be expected to give rise to any Environmental
Liability.
(e) Neither the Company nor the Subsidiaries are aware of any past
or present events, conditions, circumstances, activities,
practices, incidents, actions or plans with respect to or of
the Company or any Subsidiary which may reasonably be expected
to interfere with or prevent compliance or continued
compliance with Environmental, Safety and Health Laws.
(f) All machinery, tools, devices and equipment operated by the
Company or any Subsidiary on the Properties have been operated
in compliance with all Environmental, Safety and Health Laws,
and all such equipment currently is operational and in good
condition.
(g) The Company has delivered to Parent all environmental
documents, studies and reports in its possession or under its
control relating to: (i) any facilities or real property ever
owned, operated or leased by the Company; or (ii) any actual
Environmental Liability of the Company or any Subsidiary.
2.21 Insurance. The Disclosure Schedule contains an accurate and complete
list of all insurance policies owned or held by the Company and the
Subsidiaries, including, but not limited to, fire and other casualty,
general liability, theft, life, workers' compensation, health,
directors and officers, business interruption and other forms of
insurance owned
30
or held by the Company and the Subsidiaries, specifying the insurer the
policy number, and the term of the coverage. All present policies are
in full force and effect and all premiums with respect thereto have
been paid. The Company has not been denied any form of insurance and no
policy of insurance has been revoked or rescinded during the past five
years, except as described on the Disclosure Schedule.
2.22 Tax Matters.
(a) Except as set forth in the Disclosure Schedule, each of the
Company and its Subsidiaries, and any combined or unitary
group of which the Company or any Subsidiary is or was a
member, has prepared and timely filed or will timely prepare
and timely file all material Tax Returns it is required to
file (taking into account any extensions) on or prior to the
Closing Date. As of the time of filing, such Tax Returns were
or will be accurate and correct in all material respects and
did not or will not contain a disclosure statement under
Section 6662 of the Code (or any predecessor provision or
comparable provision of state, local or foreign law).
(b) Each of the Company and its Subsidiaries has paid or
adequately provided for (on its Latest Financial Statements,
Estimated Closing Balance Sheet and Closing Balance Sheet in
accordance with GAAP (exclusive of any reserves for deferred
taxes established to reflect timing differences between book
and taxable income pursuant to Statement of Financial
Accounting Standards No. 109)) all Taxes (whether or not shown
on any Tax Return) that are due and owing with respect to all
taxable periods (or portions thereof) ending on or before the
Closing Date.
(c) Except as set forth in the Disclosure Schedule, no claim for
assessment or collection of Taxes is presently being asserted
against the Company or any Subsidiary, and neither the Company
nor any Subsidiary is a party to any pending action,
proceeding, or investigation by any Governmental Authority,
nor has any such action, proceeding or investigation been
threatened in a writing delivered to the Company. No claim has
been made in any jurisdiction where the Company or a
Subsidiary do not file Tax Returns that the Company or a
Subsidiary may be subject to Tax by that jurisdiction.
(d) Except as set forth in the Disclosure Schedule for
informational purposes only, neither the Company, nor any
Subsidiary is a party to any agreement, contract, arrangement
or plan that (i) has resulted or would result, separately or
in the aggregate, in connection with this Agreement or any
change of control of the Company or any Subsidiary, in the
payment of any "excess parachute payments" within the meaning
of Section 280G of the Code; or (ii) would obligate the
Company or any Subsidiary to provide "gross-up" benefits with
respect to any excise tax due on any "excess parachute
payments" within the meaning of Section 280G of the Code.
(e) All deficiencies and assessments of Taxes of the Company or
any Subsidiary resulting from an examination of any Tax
Returns by any Governmental
31
Authority have been paid and there are no pending examinations
currently being made by any Governmental Authority nor has
there been any written or oral notification to the Company or
any Subsidiary of any intention to make an examination of any
Tax Returns by any Governmental Authority. There are no
outstanding agreements or waivers extending the statutory
period of limitations applicable to any Tax Return for any
period.
(f) For purposes of computing Taxes and the filing of Tax Returns,
neither the Company nor any Subsidiary of the Company has
failed to treat as "employees" any individual providing
services to the Company or a Subsidiary who reasonably would
be expected to be classified as an "employee" under the
applicable rules or regulations of any Governmental Authority
with respect to such classification.
(g) The Company and each Subsidiary have complied with all
Applicable Laws relating to the withholding of Taxes and the
payment thereof (including, without limitation, withholding of
Taxes under Sections 1441 and 1442 of the Code, or similar
provisions under any foreign laws), and timely and properly
withheld from individual employee wages and paid over to the
proper Governmental Authority all amounts required to be so
withheld and paid over under all Applicable Laws.
(h) Neither the Company nor any Subsidiary is involved in, subject
to, or a party to any joint venture, partnership, contract or
other arrangement that is treated as a "partnership" for
federal, state, local or foreign income Tax purposes.
(i) Neither the Company nor any Subsidiary has requested any
extension of time within which to file any Tax Return, which
Tax Return has not since been filed.
(j) Neither the Company nor any Subsidiary is required to include
in income any adjustment under Section 481(a) of the Code by
reason of a voluntary change in accounting method initiated by
the Company or any Subsidiary.
(k) Neither the Company nor any Subsidiary has made an election
under Section 341(f) of the Code for any taxable years not yet
closed for statute of limitation purposes.
(l) The Company and each Subsidiary are, and at all times have
been, corporations or associations taxable as corporations for
United States income tax purposes
(m) Neither the Company nor any Subsidiary is, or has been at any
time, a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code.
(n) Neither the Company nor any Subsidiary is a party to or bound
by any obligations under any Tax sharing, Tax allocation, Tax
indemnity or similar agreement or arrangement.
(o) Neither the Company nor any Subsidiary has, within three (3)
years preceding the date hereof, been either a "distributing"
or "controlled" corporation (as such terms
32
are defined in Section 355(a)(1) of the Code) in a transaction
structured to qualify as a tax-free distribution under Section
355 of the Code.
(p) Neither the Company nor any Subsidiary has received any
written ruling related to Taxes, entered into any agreement
with a taxing authority relating to Taxes or authorized any
person to represent them before a taxing authority pursuant to
a power of attorney or otherwise.
(q) There are no liens for Taxes upon any of the assets or
properties of the Company or any Subsidiary other than liens
for Taxes not yet due and payable. There is no outstanding
closing agreement, ruling request, request to consent to
change a method of accounting, subpoena or request for
information with or by a Governmental Authority with respect
to the Company or any Subsidiary, their income, assets,
properties, payroll, operation or business.
2.23 Bank Accounts; Powers of Attorney. The Disclosure Schedule sets forth:
(i) the names of all financial institutions, investment banking and
brokerage houses, and other similar institutions at which the Company
or its Subsidiaries maintain accounts, deposits, safe deposit boxes of
any nature, and the names of all persons authorized to draw thereon or
make withdrawals therefrom and a description of such accounts; and (ii)
the names of all persons or entities holding general or special powers
of attorney from the Company or any of its Subsidiaries.
2.24 Orders, Commitments and Returns. All accepted and unfulfilled orders
for the sale of products and the performance of services entered into
by the Company or any of its Subsidiaries and all outstanding contracts
or commitments for the purchase of supplies, materials and services by
or from the Company or any of its Subsidiaries were made in bona fide
transactions in the ordinary course of business. There are no material
claims against the Company or any of its Subsidiaries to return
products by reason of alleged over-shipments, defective products or
otherwise, or of products in the hands of customers, retailers or
distributors under an understanding that such products would be
returnable.
2.25 Product Liability Claims. Neither the Company nor any Subsidiary has
ever received a claim, or, to its knowledge, incurred any uninsured or
insured liability, for or based upon failure to warn, Proposition 65,
breach of product warranty (other than warranty service and repair
claims incurred in the ordinary course of business and expensed as
warranty expense on the Latest Financial Statements for the period in
which incurred), strict liability in tort, general negligence,
negligent manufacture of product, negligent provision of services or
any other allegation of liability, including or resulting in, but not
limited to, product recalls, arising from the materials, design,
testing, manufacture, packaging, labeling (including instructions for
use) or sale of its products or from the provision of services
("Product Liability Claim"). The Company has disclosed to Parent each
Product Liability Claim received by the Company or any Subsidiary.
2.26 Warranties. All products manufactured or sold, and all services
provided, by the Company or any Subsidiary have materially complied,
and are in material compliance
33
with all contractual requirements, warranties or covenants, express or
implied, applicable thereto, and with all applicable governmental,
trade association or regulatory specifications therefor or applicable
thereto. No product or service manufactured, sold, delivered or
performed by the Company or any Subsidiary is subject to any guaranty,
warranty or other indemnity beyond the applicable standard terms and
conditions set forth in the Disclosure Schedule. The Disclosure
Schedule sets forth or references the terms of all standard and all
material non-standard product and service warranties and product
return, sales credit, discount, warehouse allowance, advertising
allowance, demo sales and credit policies of the Company and each
Subsidiary. The Company has delivered or made available to Parent prior
to the date hereof complete and accurate copies of all such warranties
and policies.
2.27 Relations with Suppliers and Customers. No material current supplier of
the Company or any Subsidiary has canceled any contract or order for
provision of, and, to the knowledge of the Company's officers, there
has been no threat by any such supplier not to provide, raw materials,
products, supplies or services to the businesses of the Company and its
Subsidiaries either prior to or following the Effective Time. Neither
the Company nor any Subsidiary has received any information from any
customer that accounted for more than 5% of the consolidated revenues
of the Company and its Subsidiaries during the last full fiscal year to
the effect that such customer intends to materially decrease the amount
of business it does with the businesses of the Company and its
Subsidiaries either prior to or following the Effective Time. The
Disclosure Schedule lists each supplier to the Company or any
Subsidiary that is the source of a particular raw material, product,
supply or service with respect to which locating and qualifying a
replacement source would, to the Company's knowledge, involve
significant cost or delay.
2.28 Indemnification Obligations. Except as set forth in the Disclosure
Schedule, neither the Company nor any Subsidiary is a party to any
Contract which contain any provisions requiring the Company or any
Subsidiary to indemnify any Person (excluding indemnities contained in
the Company's standard terms and conditions of sale, copies of which
have been provided to Parent).
2.29 Absence of Certain Business Practices. Neither the Company, the
Subsidiaries nor, to the Company's knowledge, any director, officer,
employee or agent of the Company or the Subsidiaries, nor any other
person acting on behalf of the Company or the Subsidiaries, has,
directly or indirectly, within the past five (5) years given or agreed
to give any gift or similar benefit or agreed to make or made any
payment to any customer, supplier, governmental employee or other
person who is or may be in a position to help or hinder the business of
the Company, taken as a whole (or assist it in connection with any
actual or proposed transaction) which (a) would reasonably be expected
to subject the Company, the Subsidiaries, Parent or Merger Subsidiary
to any damage or penalty in any civil, criminal or governmental
litigation proceeding, or (b) violated or violates any Applicable Law.
2.30 Brokers. Except as set forth in the Disclosure Schedule, neither the
Company nor its Subsidiaries, nor any of their directors, officers or
employees has employed any broker, finder, or financial advisor or
incurred any liability for any brokerage fee or commission,
34
finder's fee or financial advisory fee, in connection with the
transactions contemplated hereby.
2.31 Minute Books. The minute books of the Company and each Subsidiary, as
previously made available to Parent and its representatives, contain,
in all material respects, complete and accurate records of all meetings
of and corporate actions or written consents by the stockholders,
Boards of Directors, and committees of the Boards of Directors of the
Company and each Subsidiary.
2.32 Shareholder Agreements. Concurrently with the execution and delivery of
this Agreement, the Company has delivered to Parent the shareholder
agreements in substantially the form attached hereto as Exhibit B (the
"Shareholder Agreements") from Persons who hold in the aggregate a
number of shares of Company Common Stock (assuming the exercise by such
Persons of all Company Stock Options held by them and the issuance to
such Persons of the underlying shares of Company Common Stock) and
Company Preferred Stock sufficient to adopt and approve this Agreement
and the Merger under the CGCL. Among other things, in the Shareholder
Agreement, such Shareholders shall: (i) agree to vote their shares in
favor of the Merger; (ii) agree to negotiate exclusively with Parent
regarding the transaction contemplated hereby and not, directly or
indirectly, encourage or solicit the submission of, entertain
inquiries, proposals or offers from, or enter into any agreement or
negotiate with any person or entity (other than Parent) for the
acquisition of the Company; and (iii) release the Parent, Merger
Subsidiary and the Company and their respective subsidiaries, officers,
directors, stockholders, employees and Affiliates (collectively, the
"Released Parties") of and from any and all claims, complaints, causes
of action or demands of whatever kind, known or unknown, which any of
the such Shareholders has or may have against the Released Parties for
any actions, conduct, decisions, behavior or events relating to or
arising out of the Shareholders' status or relationship as an employee,
officer, director or shareholder of the Company, except for claims
arising under this Agreement.
2.33 Disclosure. No representation or warranty by Company in this Agreement
and no statement contained or to be contained in any document,
certificate or other writing furnished or to be furnished by the
Company to the Parent or Merger Subsidiary in connection with the
transactions contemplated by this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state
any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
2.34 Investigation by Parent. Notwithstanding anything to the contrary in
this Agreement, (a) no investigation by Parent shall affect the
representations and warranties of the Company under this Agreement or
contained in any other writing to be furnished to Parent in connection
with the transactions contemplated hereunder and (b) such
representations and warranties shall not be affected or deemed waived
by reason of the fact that Parent knew or should have known that any of
the same is or might be inaccurate in any respect.
35
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUBSIDIARY
As a material inducement to the Company to enter into this Agreement,
with the understanding that the Company will be relying thereon in consummating
the transactions contemplated hereunder, Parent and Merger Subsidiary hereby,
jointly and severally, represent and warrant to the Company that the statements
contained in this Article 3 are true and correct.
3.1 Corporate Existence and Power. Parent and Merger Subsidiary are
corporations duly organized, validly existing and in good standing
under the laws of their respective states of incorporation and each has
all requisite corporate power and authority required to own, operate
and lease their respective assets and properties as now owned, leased
and operated and to carry on their respective businesses as now being
conducted. Parent and Merger Subsidiary are each duly qualified or
licensed to do business as a foreign corporation and are in good
standing in every jurisdiction in which the character or location of
their properties and assets owned, leased or operated by them or the
nature of their business require such licensing or qualification,
except where the failure to be so qualified, licensed or in good
standing in such other jurisdiction would not, individually or in the
aggregate, have a Material Adverse Effect on Parent or Merger
Subsidiary. Merger Subsidiary is a recently-formed California
corporation that has not conducted, and prior to the Effective Time
will not conduct, any activities other than those incident to its
formation and in connection with the consummation of the Merger.
3.2 Authorization. Parent and Merger Subsidiary have the requisite
corporate power and authority to enter into this Agreement and to carry
out the transactions contemplated hereunder. The Boards of Directors of
Parent and Merger Subsidiary and Parent, as the sole shareholder of
Merger Subsidiary, have taken all action required by law, their
respective Certificates of Incorporation and bylaws and otherwise to
duly and validly authorize and approve the execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions
contemplated herein and no other corporate proceedings on the part of
Parent or Merger Subsidiary are, or will be, 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 them and, assuming the due authorization, execution and delivery by
the Company of this Agreement, constitutes the legal, valid and binding
obligations of Parent and Merger Subsidiary enforceable against each of
them in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally
and rules of law governing specific performance, injunctive relief or
other equitable remedies.
3.3 Consents and Approvals. No Consent by any individual or entity,
including without limitation any Governmental Authority or Person, is
required in connection with the execution, delivery or performance of
this Agreement by Parent and Merger Subsidiary or the consummation by
Parent and Merger Subsidiary of the transactions contemplated herein,
other than (a) requirements of the CGCL for filing of appropriate
documents to
36
effect the Merger, or (b) where the failure to make any such filing, or
to obtain such permit, authorization, Consent or approval, would not
prevent or delay consummation of the Merger or would not otherwise
prevent Parent or Merger Subsidiary from performing their obligations
under this Agreement.
3.4 Available Capital Resources. The Parent has existing cash reserves and
borrowing capacity under existing credit facilities necessary to pay
the Merger Consideration and satisfy the obligations of Parent and
Merger Subsidiary hereunder.
3.5 Disclosure. No representation or warranty by Parent or Merger
Subsidiary in this Agreement and no statement contained or to be
contained in any document, certificate or other writing furnished or to
be furnished by either Parent or Merger Subsidiary to the Company in
connection with the transactions contemplated by this Agreement,
contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
3.6 Non-Contravention. Neither the execution, delivery and performance by
Parent or Merger Subsidiary of this Agreement nor the consummation of
the transactions contemplated herein will (a) contravene or conflict
with the respective Certificate of Incorporation or Bylaws of Parent
and Merger Subsidiary; (b) contravene or conflict with or constitute a
violation of any provision of any Applicable Law binding upon or
applicable to Parent or Merger Subsidiary or any of the Parent's or
Merger Subsidiary's assets (c) result in the creation or imposition of
any Lien on any of Parent's or Merger Subsidiary's assets, other than
Permitted Liens or (d) be in conflict with, constitute (with or without
due notice or lapse of time or both) a default under, result in the
loss of any material benefit under, or give rise to any right of
termination, cancellation, increased payments or acceleration under any
terms, conditions or provisions of any note, bond, lease, mortgage,
indenture, license, contract, franchise, permit, instrument or other
agreement or obligation to which Parent or Merger Subsidiary is a
party, or by which any of their respective properties or assets may be
bound, except in the cases of clause (b) where such conflicts or other
occurrences would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
3.7 Brokers. Except for the engagement by Parent of U.S. Bancorp Piper
Jaffray Inc., neither Parent nor Merger Subsidiary, nor any of their
directors, officers or employees has employed any broker, finder, or
financial advisor or incurred any liability for any brokerage fee or
commission, finder's fee or financial advisory fee, in connection with
the transactions contemplated hereby. Parent shall be solely
responsible for all fees payable to U.S. Bancorp Piper Jaffray Inc. in
connection with such engagement.
3.8 Financial Statements. Parent has previously furnished or made available
to the Company complete and accurate copies, as amended or
supplemented, of its (a) Form 10-Q for the period ended September 28,
2002 as filed with the Securities and Exchange Commission ("SEC") and
(b) all other reports filed by Parent under Section 13 or subsections
(a) or (c) of Section 14 of the Securities Exchange Act of 1934, as
amended (the " of 1934, as amended (the "Exchange Act") (such reports
are collectively referred to herein as
37
the "Parent Reports"). The Parent Reports have been duly filed, were in
compliance in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder when filed, and
were complete and correct in all material respects as of the dates at
which the information therein was furnished. As of their respective
dates, the Parent Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
financial statements and unaudited interim financial statements of
Parent included in the Parent Reports (i) complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto when
filed, (ii) were prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as may
be indicated therein or in the notes thereto, and in the case of
quarterly financial statements, as permitted by Form 10-Q under the
Exchange Act), (iii) fairly present the consolidated financial
condition, results of operations and cash flows of Parent as of the
respective dates thereof and for the periods referred to therein, and
(iv) are consistent with the books and records of Parent. Since the
date of the filing with the SEC of Parent's most recent Form 10-Q,
there has been no material adverse change in the financial condition or
results of operations of Parent that has resulted in a material adverse
change in the businesses, assets, properties, operations or condition
(financial or otherwise) of Parent.
3.9 Litigation. There are no claims, actions, suits, proceedings or
investigations pending against Parent or Merger Subsidiary or, to
Parent's or Merger Subsidiary's knowledge, threatened against Parent or
Merger Subsidiary (a) that if determined adversely to Parent or Merger
Subsidiary would be reasonably likely to have a Material Adverse Affect
on Parent or Merger Subsidiary or (b) that challenge or seek to
prevent, enjoin, alter or delay any of the transactions contemplated
hereby.
ARTICLE 4
COVENANTS
4.1 Conduct of the Business. Except as contemplated by this Agreement or to
the extent that Parent otherwise consents in writing, during the period
from the date of this Agreement until the earlier of the termination of
this Agreement or the Closing, the Company shall maintain and cause
each Subsidiary to maintain its assets and properties and carry on its
businesses and operations in the ordinary course of business in a
manner consistent with past practice; and the Company shall use and
cause each Subsidiary to use their commercially reasonable efforts to
preserve intact its business organizations, existing business
relationships (including without limitation its relationships with
officers, employees, dealers, distributors, independent contractors,
customers and suppliers), good will and going concern value.
4.2 Company's Agreements as to Specified Matters. Except as specifically
set forth on the Disclosure Schedule or as may be otherwise agreed in
writing by Parent, from the date hereof until the earlier of the
termination of this Agreement or the Closing, neither the Company nor
any of its Subsidiaries shall:
38
(a) Amend its articles or certificate of incorporation, except as
contemplated by the Restated Company Charter or bylaws (or
other similar governing instruments);
(b) Borrow or agree to borrow any funds;
(c) Except for trade payables incurred in the ordinary course of
business and consistent with past practice, create, incur or
assume any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse the obligations of
any Person, or make any loans, advances or capital
contributions to, or investments in, any other Person;
(d) Pay, discharge or satisfy any claims, liabilities or
obligations in an amount in excess of $25,000 in the
aggregate, other than in the ordinary course of business,
consistent with past practice;
(e) Permit or allow any of its properties or assets which are
material to the operation of their businesses to be subjected
to any Lien, except Permitted Liens;
(f) Except to the extent consistent with past practice, write down
the value of any inventory or write off as uncollectible any
notes or accounts receivable or any trade accounts or trade
notes;
(g) Except in the ordinary course of business, license, sell,
transfer, pledge, modify, disclose, dispose of or permit to
lapse any right of the Company to the use of any Intellectual
Property Rights other than for such Intellectual Property
Rights which, individually or in the aggregate, are not
material to the conduct of their businesses;
(h) Sell, assign, lease, license, transfer or otherwise dispose
of, or mortgage, pledge or encumber (other than with Permitted
Liens), any of their respective assets, except for sales of
inventory in the ordinary course of business consistent with
past practice;
(i) (A) Terminate, enter into, adopt, institute or otherwise
become subject to or amend in any material respect any
collective bargaining agreement or employment or similar
agreement or arrangement with any of its directors, officers
or employees; (B) terminate, enter into, adopt, institute or
otherwise become subject to or amend in any material respect
any Benefit Plan; (C) contribute, set aside for contribution
or authorize the contribution of any amounts for any such
Benefit Plan except as required (and not discretionary) by the
terms of such Benefit Plan; or (D) grant or become obligated
to grant any bonus or general increase in the compensation of
any directors, officers or employees (including without
limitation any such increase pursuant to any Benefit Plan);
(j) Make or enter into any commitment for capital expenditures for
additions to property, plant or equipment individually in
excess of $25,000;
39
(k) Except as specifically contemplated by this Agreement, (A)
declare, pay or set aside for payment any dividend or other
distribution in respect of its capital stock or other
securities (including without limitation distributions in
redemption or liquidation) or redeem, purchase or otherwise
acquire any shares of its capital stock or other securities;
(B) issue, grant or sell any shares of its capital stock or
equity securities of any class, or any options, warrants,
conversion or other rights to purchase or acquire any such
shares or equity securities or any securities convertible into
or exchangeable for such shares or equity securities, except
for the repricing of the exercise price of Company Stock
Options outstanding on the date hereof to $.001 per share, the
amendment of any such options to accelerate in full the
vesting of such options and to terminate any such options that
remain unexercised as of the Closing, and the issuance of
Company Common Stock pursuant to the exercise of Company Stock
Options outstanding on the date hereof; (C) become a party to
any merger, exchange, reorganization, recapitalization,
liquidation, dissolution or other similar corporate
transaction; or (D) organize any new subsidiary, acquire any
capital stock or other equity securities or other ownership
interest in, or assets of, any person or entity or otherwise
make any investment by purchase of stock or securities,
contributions to capital, property transfer or purchase of any
properties or assets of any person or entity;
(l) Except for the payment of bonuses to certain employees of the
Company in an aggregate amount not to exceed $225,000, pay,
lend or advance any amounts to (except in the ordinary course
of business consistent with past practice), or sell, transfer
or lease any properties or assets to, or enter into any
agreement or arrangement with, any director, officer, employee
or shareholder;
(m) Terminate, enter into or amend in any material respect any
Scheduled Contract, or take any action or omit to take any
action which will cause a breach, violation or default
(however defined) under any Scheduled Contract; or
(n) Agree, whether in writing or otherwise, to take any action
described in this subsection.
4.3 Full Access. The Company shall afford to Parent and its directors,
officers, employees, counsel, accountants, investment advisors and
other authorized representatives and agents at Parent's expense,
reasonable access to the facilities, properties, books and records of
the Company and its Subsidiaries in order that Parent may have full
opportunity to make such investigations as it shall desire to make of
the affairs of the Company and its Subsidiaries; provided, however,
that any such investigation shall be conducted in such a manner as not
to interfere unreasonably with business operations; and the Company and
its Subsidiaries shall furnish such additional financial and operating
data and other information as Parent shall, from time to time,
reasonably request, including without limitation access to the working
papers of their independent certified public accountants; and,
provided, further, that any such investigation shall not affect or
otherwise diminish or obviate in any respect any of the representations
and warranties of the Company herein.
40
4.4 Confidentiality. Each of the parties hereto agrees that it will not
use, or permit the use of, any of the information relating to any other
party hereto furnished or made available to it in connection with the
transactions contemplated herein ("Information") for any purpose or in
any manner other than solely in connection with its evaluation or
consummation of the transactions contemplated by this Agreement in a
manner that the disclosing party has approved and shall in no event use
or permit the use of any of such Information in a manner or for a
purpose detrimental to such other party, and that they will not
disclose, divulge, provide or make accessible (collectively,
"Disclose"), or permit the Disclosure of, any of the Information to any
person or entity, other than solely to their responsible directors,
officers, employees, investment advisors, accountants, counsel and
other authorized representatives and agents (collectively, the
"Representatives") who have a "need to know" to carry out the purposes
of this Agreement, except as may be required by judicial or
administrative process or, in the opinion of such party's regular
counsel, by other requirements of Applicable Law; provided, however,
that prior to any Disclosure of any Information permitted hereunder,
the disclosing party shall first obtain the recipients' undertaking to
comply with the provisions of this subsection with respect to such
Information. Each party shall instruct its Representatives to observe
the terms of this Agreement and shall be responsible for any breach of
this Agreement by any of its Representatives. The term "Information" as
used herein shall not include any information relating to a party which
the party receiving such information can show: (i) to have been
rightfully in its possession prior to its receipt from another party
hereto; (ii) to be now or to later become generally available to the
public through no fault of the receiving party; (iii) to have been
received separately by the receiving party in an unrestricted manner
from a person entitled to disclose such information; or (iv) to have
been developed independently by the receiving party without regard to
any Information received in connection with this transaction. Each
party hereto also agrees to promptly return to the party from whom
originally received all original and duplicate copies of materials
containing Information and to destroy any summaries, analyses or
extracts thereof or based thereon (whether in hard copy form or
intangible media) should the transactions contemplated herein not
occur. A party hereto shall be deemed to have satisfied its obligations
to hold the Information confidential if it exercises the same care as
it takes with respect to its own similar information, which shall in no
event be less than reasonable care. The provisions of this Section 4.4
shall survive indefinitely any termination of this Agreement.
4.5 Filings; Consents; Removal of Objections. Subject to the terms and
conditions herein, the parties hereto shall use commercially reasonable
efforts to take or cause to be taken all actions and do or cause to be
done all things necessary, proper or advisable under Applicable Laws to
consummate and make effective, as soon as reasonably practicable, the
transactions contemplated hereby, including without limitation
obtaining all Consents of any person or entity, whether private or
governmental, required in connection with the consummation of the
transactions contemplated herein. In furtherance, and not in limitation
of the foregoing, it is the intent of the parties to consummate the
transactions contemplated herein at the earliest practicable time, and
they respectively agree to exert commercially reasonable efforts to
that end, including without limitation: (a) the removal or
satisfaction, if possible, of any objections to the validity or
legality of the transactions
41
contemplated herein; and (b) the satisfaction of the conditions to
consummation of the transactions contemplated hereby.
4.6 Further Assurances; Cooperation; Notification.
(a) Each party hereto shall, before, at and after Closing, execute
and deliver such instruments and take such other actions as
the other party or parties, as the case may be, may reasonably
require in order to carry out the intent of this Agreement
including the satisfaction of all conditions contained in
Articles 5 and 6 of this Agreement.
(b) The Company shall cooperate with Parent to promptly develop
plans for the management of the businesses after the Closing,
including without limitation plans relating to productivity,
marketing, operations and improvements, and the Company shall
further cooperate with Parent to provide for the
implementation of such plans as soon as practicable after the
Closing. Subject to Applicable Law, Company shall confer on a
regular and reasonable basis with one or more representatives
of Parent to report on material operational matters and the
general status of ongoing operations.
(c) At all times from the date hereof until the Closing, each
party shall promptly notify the other in writing of the
occurrence or non-occurrence of any event which it reasonably
believes will or is reasonably likely to result in a failure
by such party to satisfy the conditions specified in Articles
5 or 6 hereof, as applicable.
4.7 Approval of Shareholders. As promptly as practicable after the
execution of this Agreement, the Company will take all action necessary
in accordance with the CGCL and its Articles of Incorporation and
Bylaws to convene a meeting of the Shareholders to consider and vote
upon or to solicit consent in writing regarding the adoption and
approval of this Agreement and the consummation of the transactions
contemplated hereby, including without limitation, the delivery to the
Shareholders of an information statement (the "Information Statement")
which shall not, on the date the Information Statement is mailed to
Shareholders or at the Effective Time, 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 were made, not misleading.
The Information Statement shall be subject to review and reasonable
approval by Parent and include information regarding the Company, the
terms of the Merger and this Agreement and the unanimous recommendation
of the Board of Directors of the Company in favor of the Merger and
this Agreement and the transactions contemplated hereby. The Company
shall also seek Shareholder approval of any payments of cash or stock
that are described in Section 2.22 of the Disclosure Schedule that may
be deemed to constitute "parachute payments" pursuant to Section 280G
of the Code, such that all such payments will not be deemed to be
"parachute payments" pursuant to Section 280G of the Code or shall be
exempt from such treatment under such Section 280G. The Board of
Directors of the Company has on the date of this Agreement unanimously
adopted a resolution recommending that the Shareholders vote to adopt
and approve the Merger and this Agreement and the
42
consummation of the transactions contemplated herein. The Company will
use commercially reasonable efforts to solicit from the Shareholders
votes in favor of the proposal to adopt and approve the Merger and this
Agreement and will take other action reasonably necessary or advisable
to secure a vote in favor of the Merger and the adoption and approval
of this Agreement.
4.8 Additions to and Modification of the Disclosure Schedule; Breaches. At
or prior to the Closing the Company shall provide to Parent a revised
Disclosure Schedule that updates the Company's representations made in
Section 2.4 (Capitalization of the Company) to account for the filing
of the Restated Company Charter, the reclassification of shares of
Company Common Stock into shares of Series G Preferred Stock and the
issuance of shares of Company Common Stock upon exercise of Company
Stock Options or conversion of shares of Series G Preferred Stock prior
to the Closing (the "Bringdown Disclosures"). The Bringdown Disclosures
shall not be deemed to constitute an exception to the Company's
representations and warranties under Section 2.4. In addition, from and
after the date of this Agreement until the Closing, the Company shall
promptly notify Parent by written update to the Disclosure Schedule (a)
if any representation or warranty made by the Company in this Agreement
was when made, or has subsequently become, untrue in any material
respect or (b) the failure of the Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
pursuant to this Agreement which would be likely to result in any
condition to the obligations of any party hereto to effect the
transactions contemplated hereby not to be satisfied. The delivery of
any notice pursuant to this Section 4.8 shall not cure any breach of
any representation or warranty requiring disclosure of such matter
prior to the date of this Agreement or otherwise limit or affect the
rights of, or the remedies available to, Parent.
4.9 No Solicitation. The Company agrees (i) it will negotiate exclusively
with Parent and its authorized representatives regarding the
transaction contemplated hereby and will not, directly or indirectly,
encourage or solicit the submission of, entertain inquiries, proposals
or offers from, or enter into any agreement or negotiate with any
person or entity (other than Parent) for the acquisition of the Company
(whether by merger, combination, sale of assets, sale of stock or
otherwise or other disposition of assets or technology other than in
the ordinary course of business, and (ii) it will not furnish to any
person any information with respect to any transaction prohibited by
this Section 4.9. The Company agrees to take the necessary steps to
promptly inform any such third party of the obligations undertaken in
this Section 4.9 and this Agreement. The Company agrees to immediately
inform Parent of any such inquiry from any such third party, including
the material terms thereof (including without limitation, any terms
regarding price) and the identity of the Person making such inquiry,
and to keep the Parent informed, on a current basis, of the status and
terms of any such proposals or offers.
4.10 Public Announcements. None of the parties hereto shall make any public
announcement with respect to the transactions contemplated herein
without the prior written consent of the other parties, which consent
shall not be unreasonably withheld or delayed. The parties shall
maintain this Agreement and the terms hereof in strict confidence, and
neither party shall disclose this Agreement or any of its terms to any
third party unless
43
specifically ordered to do so by a court of competent jurisdiction
after consulting with the other party or unless required by Applicable
Law or regulation including, but no limited to, the rules and
regulation of the Securities and Exchange Commission and the Nasdaq
Stock Market. Notwithstanding the foregoing, the parties may, on a
confidential basis, advise and release information regarding the
existence and content of this Agreement or the transactions
contemplated hereby to their respective Affiliates or any of their
agents, accountants, attorneys and prospective lenders or investors in
connection with or related to the transactions contemplated by this
Agreement.
4.11 Preparation of Tax Returns: Tax Matters.
(a) The Company shall timely file at its expense all Tax Returns
required to be filed by the Company or any Subsidiary on or
before the Closing Date; provided, however, that, after the
date hereof, the Company shall not file any such Tax Returns,
or other returns, elections, claims for refund or information
statements with respect to any liabilities for Taxes (other
than federal, state or local sales, use, property, withholding
or employment tax returns or statements) for any Tax period
without prior written consent from Parent.
(b) Parent will file (or cause to be filed) all Tax Returns of the
Company and any Subsidiary required to be filed after the
Closing Date, including Tax Returns for Tax Periods (or
portions thereof) ending on or prior to the Closing Date.
Neither Parent nor its Affiliates or representatives shall
take any action (i) inconsistent with the tax treatment of the
Merger as a sale of stock by the Shareholders or (ii) which
has the direct or indirect effect of treating the Merger as a
purchase of assets by Parent or the Merger Subsidiary.
4.12 Restated Company Charter. The Company shall use commercially reasonable
efforts to amend and restate its articles of incorporation, as in
effect on the date hereof, to provide for, among other things, the
reclassification of shares of Company Common Stock into shares of
Series G Preferred Stock and to amend the liquidation preferences of
the Company Preferred Stock in order to provide for the allocation of
the aggregate Merger Consideration among the Company Shareholders in
the manner set forth in Section 1.11(c) hereof (the "Restated Company
Charter"), which Restated Company Charter shall be in substantially the
form as Exhibit F attached hereto.
4.13 Top Heavy Report. The Company shall use commercially reasonable efforts
to provide Parent, prior to Closing, with a written report from the
recordkeeper for the Company's 401(k) plan stating that the plan is not
"top-heavy" pursuant to Section 416 of the Code.
4.14 Lessor Consents. The Company shall use commercially reasonable efforts
to obtain, prior to Closing, Consents from (i) Comdisco, Inc., with
regard to that Master Lease Agreement with Comdisco, Inc. dated August
25, 1997, and from (ii) GE Capital (as successor in interest), with
regard to that Master Loan and Security Agreement with Lease Management
Services, Inc. dated January 28, 1999, as amended on August 23, 2000.
44
ARTICLE 5
CONDITIONS TO PARENT'S AND MERGER SUBSIDIARY'S OBLIGATIONS
The obligation of Parent and Merger Subsidiary to effect the
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions, any of which may be
waived by Parent:
5.1 Representations and Warranties True. The representations and warranties
of the Company contained in this Agreement qualified by "materiality"
or "Material Adverse Effect" shall be true and correct in all respects
and the representations and warranties of the Company not so qualified
shall be true and correct in all material respects, in each case, as of
the date when made and at and as of the Closing as though such
representations and warranties were made at and as of such time (it
being understood that, in determining the accuracy of such
representations and warranties for purposes of this Section 5.1, the
Bringdown Disclosures shall be regarded but any other disclosure made
pursuant to Section 4.8 shall be disregarded), except for changes
specifically permitted or contemplated by this Agreement, and except
insofar as the representations and warranties relate expressly and
solely to a particular date or period, in which case they shall be true
and correct in all material respects at the Closing with respect to
such date or period.
5.2 Performance. The Company shall have performed and complied in all
material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with
by the Company on or prior to the Closing.
5.3 Filed Agreement of Merger. The Agreement of Merger shall have been
filed with the Secretary of State of California.
5.4 Estimated Closing Balance Sheet. Parent shall have received the
Estimated Closing Balance Sheet, which shall be prepared in accordance
with this Agreement, subject entirely to Parent's rights under Section
1.10.
5.5 Required Approvals and Consents.
(a) All action required by law and otherwise to be taken by the
Board of Directors of the Company and the Shareholders to
authorize the Restated Company Charter and the execution,
delivery and performance of this Agreement by the Company and
the consummation of the transactions contemplated hereby shall
have been duly and validly taken.
(b) All Consents of or from all Governmental Authorities required
hereunder to consummate the transactions contemplated herein,
and all Consents of or from all persons and entities other
than Governmental Authorities that are identified in Exhibit C
shall have been delivered, made or obtained, and Parent shall
have received copies thereof.
5.6 No Proceeding or Litigation. No suit, action, investigation, inquiry or
other proceeding by any Governmental Authority or other person or
entity shall have been instituted or
45
threatened which questions the validity or legality of the transactions
contemplated hereby or which is reasonably expected either individually
or in the aggregate, to have a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole.
5.7 Legislation. No Applicable Law shall have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated
hereby or any of the conditions to the consummation of such
transaction.
5.8 No Material Adverse Effect. Parent shall not have discovered any fact,
event or circumstance which has not been disclosed to Parent in the
Disclosure Schedule as of the date of this Agreement which has had, or
would reasonably be expected to have, a Material Adverse Effect.
5.9 Certificates. Parent shall have received such certificates of the
Company's officers, in a form and substance reasonably satisfactory to
Parent, dated the Closing Date, to evidence compliance with the
conditions set forth in this Article 5 and such other matters as may be
reasonably requested by Parent.
5.10 Other Receipts; Good Standing. Parent shall have received copies of the
Articles of Incorporation, or similar governing document of the Company
and each of the Subsidiaries, in the case of the Company's Articles of
Incorporation certified by the Secretary of State of the State of
California; and Certificates of Good Standing (or their equivalent)
from the Secretary of State of California evidencing the good standing
(or its equivalent) of the Company in such jurisdiction.
5.11 Opinion of Company Counsel. Parent shall have received an opinion from
Brobeck, Phleger & Harrison LLP, counsel to the Company dated the
Closing Date, in substantially the form attached hereto as Exhibit D.
5.12 Escrow Agreement. The Company, the Shareholders' Representative and
Escrow Agent shall have executed and delivered the Escrow Agreement.
5.13 Shareholder Agreements. The Shareholder parties thereto shall have
executed and delivered the Shareholder Agreements.
5.14 Shareholder Approval. At least ninety percent (90%) of the shares of
Company Capital Stock issued and outstanding as of the Closing Date
shall have voted in favor of this Agreement and the Merger.
5.15 Resignation. Parent shall have received Letters of Resignation dated
effective as of the Effective Time, from the officers and directors of
the Company and its Subsidiaries.
5.16 Restated Company Charter. The Restated Company Charter shall have been
approved by the Shareholders in accordance with Applicable Law and
shall have been duly filed with and accepted and approved by the
Secretary of State of California.
46
5.17 Termination of Marketing and Sales Agreement. The Marketing and Sales
Agreement, dated as of October 20, 2000, between the Company and JHK
Investments, LLC shall have been terminated.
5.18 Termination of Management Rights Agreement. The letter agreement
regarding "Management Rights", dated as of January 27, 1997, between
the Company and Kleiner Perkins Caufield & Byers VIII shall have been
terminated.
5.19 Termination of Observation Rights Agreement. The letter agreement
regarding "Observation Rights", dated as of February 20, 1998, between
the Company and Tredegar Investments, Inc. shall have been terminated.
5.20 Termination of Voting Agreement. The Voting Agreement, dated as of
October 20, 2000, between the Company and certain other parties listed
therein, shall have been terminated.
5.21 Termination of Investor Rights Agreement. The Investor Rights
Agreement, dated as of December 28, 2001, between the Company and the
Investors (as such term is defined therein), shall have been
terminated.
ARTICLE 6
CONDITIONS TO COMPANY'S OBLIGATIONS
The obligation of the Company to effect the transactions contemplated
herein shall be subject to the satisfaction at or prior to the Closing of each
of the following conditions, any of which may be waived by the Company:
6.1 Representations and Warranties True. The representations and warranties
of Parent and Merger Subsidiary contained in this Agreement qualified
by "materiality" or "Material Adverse Effect" shall be true and correct
in all respects and the representations and warranties of Parent and
Merger Subsidiary not so qualified shall be true and correct in all
material respects as of the date when made and at and as of the
Closing, as though such representations and warranties were made at and
as of such time, except for changes permitted or contemplated in this
Agreement, and except insofar as the representations and warranties
relate expressly and solely to a particular date or period, in which
case they shall be true and correct in all material respects at the
Closing with respect to such date or period.
6.2 Performance. Parent shall have performed and complied in all material
respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Parent
at or prior to the Closing.
6.3 Filed Agreement of Merger. The Agreement of Merger shall have been
filed with the Secretary of State of California.
6.4 Corporate Approvals.
47
(a) The Boards of Directors of Parent and Merger Subsidiary and
Parent, as sole stockholder of Merger Subsidiary, shall have
approved the transactions contemplated hereby. All action
required to be taken by Parent to authorize the execution,
delivery and performance of this Agreement by Parent and the
consummation of the transactions contemplated hereby shall
have been duly and validly taken.
(b) All Consents of or from all Governmental Authorities required
hereunder to consummate the transactions contemplated herein.
6.5 No Proceeding or Litigation. No suit, action, investigation, inquiry or
other proceeding by any Governmental Authority or other person or
entity shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby or which
is reasonably expected either individually or in the aggregate, to have
a Material Adverse Effect on Parent.
6.6 Legislation. No Applicable Law shall have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated
hereby or any of the conditions to the consummation of such
transaction.
6.7 Certificates. Parent shall have furnished the Company with such
certificates of Parent's officers, in a form and substance reasonably
acceptable to the Company, dated the Closing Date, to evidence
compliance with the conditions set forth in this Article 6 and such
other matters as may be reasonably requested by the Company.
6.8 Other Receipts; Good Standing. The Company shall have received copies
of the Certificate of Incorporation, or similar governing document of
Parent and Merger Subsidiary, certified by the Secretary of State of
the state of incorporation of Parent and Merger Subsidiary; and
Certificates of Good Standing (or their equivalent) from the Secretary
of State of each state in which Parent and Merger Subsidiary is
incorporated.
6.9 Opinion of Parent Counsel. Parent shall have delivered to Company an
opinion from Oppenheimer Wolff & Donnelly LLP, counsel to Parent, dated
the Closing Date, in substantially the form of Exhibit E.
6.10 Escrow Agreement. Parent and the Escrow Agent shall have executed and
delivered the Escrow Agreement and the appropriate funding obligations
with respect thereto shall have been satisfied.
ARTICLE 7
TERMINATION
7.1 Methods of Termination. Subject to the other provisions of this Article
7, this Agreement may be terminated and the transactions contemplated
herein may be abandoned at any time notwithstanding approval thereof by
the Shareholders, at any time prior to the Closing:
(a) By mutual written consent of Parent, Merger Subsidiary and the
Company; or
48
(b) By Parent and Merger Subsidiary on or after the Termination
Date, or such later date as may be established pursuant to
Section 1.3, if any of the conditions provided for in Article
5 of this Agreement have not been reasonably satisfied or
waived in writing by Parent prior to such date (unless the
failure results primarily from a breach by Parent or Merger
Subsidiary of any representation, warranty or covenant
contained in this Agreement); or
(c) By the Company on or after the Termination Date, or such later
date as may be established pursuant to Section 1.3, if any of
the conditions provided for in Article 6 of this Agreement
have not been reasonably satisfied or waived in writing by the
Company prior to such date (unless the failure results
primarily from a breach by the Company of any representation,
warranty or covenant contained in this Agreement); or
(d) By the Parent and Merger Subsidiary if there has been a
material breach of any representation, warranty, covenant or
agreement on the part of the Company or any Subsidiary set
forth in this Agreement; or
(e) By the Company if there has been a material breach of any
representation, warranty, covenant or agreement on the part of
Parent or Merger Subsidiary set forth in this Agreement; or
(f) By either party if any court of competent jurisdiction or any
other governmental body has issued an order, decree or ruling
or taken any other action permanently enjoining, restraining
or otherwise prohibiting the transactions contemplated hereby
and such order, decree, ruling or other action has become
final and nonappealable.
7.2 Procedure Upon Termination. In the event of termination and abandonment
pursuant to Section 7.1, written notice thereof will forthwith be given
to the other party or parties, and, Subject to Article 8, the
transactions contemplated herein will be abandoned, without further
action by any party hereto.
7.3 Effect of Termination. If this Agreement is terminated as provided
herein:
(a) each party will, upon request, return all documents, work
papers and other material of any other party (and all copies
thereof) relating to the transactions contemplated herein,
whether so obtained before or after the execution hereof, to
the party furnishing the same;
(b) the obligations of Sections 4.4, 4.10 and 11.3 and Article 9
will continue to be applicable; and
(c) any and all remedies available to each party either in law or
equity shall be preserved and survive the termination of this
Agreement.
ARTICLE 8
SURVIVAL AND INDEMNIFICATION
49
8.1 Survival. The representations and warranties of each party contained in
this Agreement, and all claims in respect of any breach of any such
representation or warranty, will survive the Closing and shall expire
upon the later of (a) eighteen (18) months after the Closing Date or
(b) the Earnout Payment DATE. Notwithstanding the foregoing, any
representation or warranty that would otherwise terminate in accordance
with this Section 8.1 shall continue to survive, if a notice of Claim
pursuant to this Article 8 shall have been timely given under Section
8.4 on or prior to such termination date, until the related claim has
been satisfied or otherwise resolved as provided herein. The covenants
set forth in this Agreement shall survive the Closing indefinitely. The
right to indemnification or any other remedy based on representations,
warranties, covenants and obligations in this Agreement will not be
affected by any investigation conducted, whether before or after the
execution and delivery of this Agreement or the Closing Date, with
respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or
on the performance of or compliance with any covenant or obligation,
will not affect the right to indemnification or any other remedy based
on such representations, warranties, covenants and obligations.
8.2 Indemnification by Shareholders. Subject to Section 8.5, the
Shareholders, severally and not jointly, agree to indemnify, defend and
hold harmless Parent, its directors, officers, employees and agents,
from and against any and all Damages asserted against, relating to,
imposed upon, suffered or incurred by Parent, Merger Subsidiary, its
officers, directors, employees, agents and Affiliates, out of and to
the extent of the Escrow Funds and/or Parent's right of off set against
the Earnout Payment, if any, in connection with enforcing their
indemnification rights pursuant to this Section 8.2 by reason of or
resulting from (i) any untrue representation of, or breach of warranty
by, the Company or its Subsidiaries in any part of this Agreement, (ii)
any nonfulfillment of any covenant, agreement or undertaking of the
Company or its Subsidiaries in any part of this Agreement, (iii) any
Product Liability Claim or other third party claim relating to the
Company or its Subsidiaries, whether presently in existence or arising
hereafter from acts, events, conditions or circumstances existing or
occurring on or before the Effective Time, regardless of whether such
Product Liability Claim or third party claim arises out of or
constitutes a breach of any representation, warranty or covenant in
this Agreement, (iv) any payments made to Dissenting Shareholders
pursuant to the CGCL in excess of the Merger Consideration per share of
Company Common Stock or Company Preferred Stock held by Dissenting
Shareholders, and (v) any negative Purchase Price Adjustment made
pursuant to Section 1.10 (each of the above shall be referred to herein
as an "Indemnification Liability").
8.3 Indemnification by Parent. Subject to Section 8.5, Parent agrees to
indemnify, defend and hold harmless each of the Shareholders from and
against any and all Damages asserted against, relating to, imposed
upon, suffered or incurred by the Shareholders in connection with
enforcing their indemnification rights pursuant to this Section 8.3 by
reason of or resulting from (i) any untrue representation of, or breach
of warranty by, Parent or Merger Subsidiary in any part of this
Agreement, (ii) any nonfulfillment of any covenant, agreement or
undertaking of Parent or Merger Subsidiary in any part of this
Agreement; (iii) any liability of the Company arising out of the
operation of the
50
Company, any Subsidiary or any of their respective businesses after the
Closing Date; (iv) any Liabilities for Taxes of the Company, any
Subsidiary or any respective predecessor in interest with respect to
any tax period or portion thereof beginning after the Closing Date; and
(v) any Product Liability Claim or other third party claim relating to
the Company or any Subsidiary, arising from acts, events, conditions or
circumstances existing or occurring after the Effective Time. Subject
to the limitations set forth in Section 11.13(b), each of the
Shareholders is an intended third party beneficiary of the foregoing
covenants
8.4 Claims for Indemnification.
(a) Subject to Section 8.1, whenever any claim arises for
indemnification hereunder the party seeking indemnification
(the "Indemnified Party"), will promptly notify the party from
whom indemnification is sought (the "Indemnifying Party") of
the claim and, when known, the facts constituting the basis
for such claim. In the event that the Shareholders are seeking
indemnification as the Indemnified Party hereunder, or
indemnification is sought against the Shareholders as an
Indemnifying Party hereunder, then in either such case, the
Shareholders' Representative shall be entitled to act on
behalf of, and receive notice on behalf of, the Shareholders
for any and all purposes stated therein. In the case of any
such claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings of a third
party (a "Third Party Claim"), the notice to the Indemnifying
Party will specify with reasonable specificity, if known, the
basis under which the right to indemnification is being
asserted and the amount or an estimate of the amount of the
liability arising therefrom. The Indemnifying Party shall have
the right to dispute and defend all Third Party Claims and
thereafter so defend and pay any adverse final judgment or
award or settlement amount in regard thereto. Such defense
shall be controlled by the Indemnifying Party, and the cost of
such defense shall be borne by the Indemnifying Party, except
that the Indemnified Party shall have the right to participate
in such defense at its own expense, and provided, however that
the Indemnifying Party must first acknowledge that the claim
is a bona fide indemnification claim under this Agreement. The
Indemnified Party shall cooperate in all reasonable respects
in the investigation, trial and defense of any such claim,
including making personnel, books, and records relevant to the
claim available to the Indemnifying Party, without charge,
except for reasonable out-of-pocket expenses. If the
Indemnifying Party fails to take action within thirty (30)
days as set forth above, then the Indemnified Party shall have
the right to pay, compromise or defend any Third Party Claim
and to assert the amount of any payment on the Third Party
Claim plus the reasonable expenses of defense or settlement as
the claim. The Indemnified Party shall also have the right and
upon delivery of advance written notice to such effect to the
Indemnifying Party, exercisable in good faith, to take such
action as may be reasonably necessary to avoid a default prior
to the assumption of the defense of the Third Party Claim by
the Indemnifying Party, and any reasonable expenses incurred
by Indemnified Party so acting shall be paid by the
Indemnifying Party. Except as otherwise provided herein, the
Indemnified Party will not, except at its own cost and
expense, settle or compromise any Third
51
Party Claim for which it is entitled to indemnification
hereunder without the prior written consent of the
Indemnifying Party, which will not be unreasonably withheld.
The parties intend that all indemnification claims be made as
promptly as practicable.
(b) If the Indemnifying Party is of the opinion that the
Indemnified Party is not entitled to indemnification, or is
not entitled to indemnification in the amount claimed in such
notice, the Indemnifying Party will deliver, within ten (10)
business days after the receipt of such notice, a written
objection to such claim and written specifications in
reasonable detail of the aspects or details objected to, and
the grounds for such objection. If the Indemnifying Party
filed timely written notice of objection to any claim for
indemnification, the validity and amount of such claim will be
determined by arbitration pursuant to Article 9. If timely
notice of objection is not delivered or if a claim by an
Indemnified Party is admitted in writing by an Indemnifying
Party or if an arbitration award is made in favor of an
Indemnified Party, the Indemnified Party, as a non-exclusive
remedy, will have the right to set-off the amount of such
claim or award against any amount yet owed, whether due or to
become due, by the Indemnified Party or any subsidiary thereof
to any Indemnifying Party by reason of this Agreement or any
agreement or arrangement or contract to be entered into at the
Closing.
8.5 Indemnification Limits.
(a) Subject to the remainder of this Section 8.5 and except for
fraud, the indemnification provisions set forth in this
Article 8 shall be the exclusive remedy for the Indemnified
Party for a breach of any representation, warranty or covenant
by the Indemnifying Party and shall be in lieu of any rights
the Indemnified Party may have under law or in equity with
respect to any such breaches or otherwise. The liability of
each Shareholder as an Indemnifying Party under Section 8.2
shall be limited to such Shareholder's interest in the Escrow
Fund and the Earnout Payment, if any (the "Maximum Amount").
(b) Except as expressly provided otherwise herein, and subject to
the provisions of Section 8.4, neither the Shareholders nor
the Parent, as the case may be, will be entitled to
indemnification for any Damages under this Article 8 unless
the aggregate of all Damages is more than Two Hundred Thousand
U.S. Dollars ($200,000) (the "Basket Amount"), other than
Damages under clauses (iv) and (v) of Section 8.2 or for a
breach of the representation in Section 2.17(b), which shall
not be subject to the Basket Amount. When the aggregate amount
of all such Damages hereunder, other than Damages under
clauses (iv) and (v) of Section 8.2 or for a breach of the
representation in Section 2.17(b), equals or exceeds the
Basket Amount, the Parent or the Shareholders, as the case may
be, will be entitled to full indemnification of all claims,
including the Two Hundred Thousand U.S. Dollars ($200,000)
that amounted to the Basket Amount. The parties hereto agree
that the Basket Amount is not a deductible amount, nor that
the Basket Amount will be deemed to be a definition of
"material" for any purpose in this Agreement.
52
8.6 Right of Off-Set. Parent shall be entitled to set-off against any
amounts otherwise payable by Parent to the Shareholders under this
Agreement (including without limitation the Earnout Payment) any
amounts to which Parent is entitled based on a claim for
indemnification by Parent under this Article 8. Neither the exercise
of, nor the failure to exercise, such right of set-off will constitute
an election of remedies nor limit Parent in any manner in the
enforcement of any other remedies that may be available to it.
8.7 Escrow Funds. The Escrow Funds will be held in an interest-bearing
escrow account as established pursuant to the Escrow Agreement for the
purpose of satisfying claims by an Indemnified Party for
indemnification under this Article 8 and will be released to an
Indemnified Party only in accordance with the terms of the Escrow
Agreement. Subject to, and in accordance with, the terms and conditions
set forth in the Escrow Agreement, the Escrow Agent shall deliver or
cause to be delivered to the Shareholders the balance, if any, of the
Escrow Funds.
8.8 Expenses of Shareholders' Representative. The reasonable out-of-pocket
costs and expenses of the Shareholders' Representative incurred on the
Shareholders' behalf in connection with this Agreement or the Escrow
Agreement (including legal and other fees incurred in connection with
the defense of claims under Article 8 ) shall be paid out of the Escrow
Funds; provided, that in the event the Escrow Funds are insufficient or
have been released pursuant to the terms of the Escrow Agreement then
such costs and expenses shall be paid out of the Earnout Payment, if
any.
ARTICLE 9
ARBITRATION
9.1 Dispute. Except for any controversy, claim or dispute arising out of
the failure by any party to this Agreement to consummate the Merger and
the transactions contemplated by this Agreement and subject to the last
sentence of this Section 9.1, any controversy, claim or dispute of
whatever nature arising between the parties under this Agreement or in
connection with the transactions contemplated hereunder, including
those arising out of or relating to the breach, termination,
enforceability, scope or validity hereof, whether such claim existed
prior to or arises on or after the Effective Time (a "Dispute"), shall
be resolved by mediation or, failing mediation, by binding arbitration.
The agreement to mediate and arbitrate contained in this Article 9
shall continue in full force and effect despite the expiration,
rescission or termination of this Agreement. Notwithstanding the
foregoing, either party may seek injunctive relief with respect to any
controversy or claim arising out of or relating to any provision of
this Agreement in any court of competent jurisdiction.
9.2 Mediation. No party shall commence an arbitration proceeding pursuant
to the provisions set forth below unless such party shall first give a
written notice (a "Dispute Notice") to the other parties setting forth
the nature of the Dispute. The parties shall attempt in good faith to
resolve the Dispute by mediation under the CPR Institute for Dispute
Resolution ("CPR") Model Mediation Procedure for Business Disputes (the
"CPR Procedure") in effect at the time of the Dispute. If the parties
cannot agree on
53
the selection of a mediator within 20 days after receipt of the Dispute
Notice, the mediator will be selected in accordance with the CPR
Procedure.
9.3 Arbitration.
(a) If the Dispute has not been resolved by mediation as provided
in Sections 9.1 and 9.2 within 60 days after receipt of the
Dispute Notice or such greater period as the parties may agree
upon in writing, or if a party fails to participate in a
mediation, then the Dispute shall be determined by binding
arbitration in Chicago, Illinois. The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association ("AAA") in effect on
the date on which the Dispute Notice is sent, subject to any
modifications contained in this Agreement. The Dispute shall
be determined by one arbitrator, except that if the Dispute
involves an amount in excess of $250,000 (exclusive of
interest and costs), three arbitrators shall be appointed.
Persons eligible to serve as arbitrators shall be members of
the AAA Large, Complex Case Panel or a CPR Panel of
Distinguished Neutrals, or persons who have professional
credentials similar to those persons listed on such AAA or CPR
panels. The arbitrator(s) shall have the right to appoint an
independent expert (including an independent accounting firm)
and the costs and expenses of such expert, together with the
costs and expenses of the arbitrator(s), shall be born
one-half by the Shareholders and one-half by Parent. The award
shall be in writing and include the findings of fact and
conclusions of law upon which it is based.
(b) The arbitration shall be governed by the substantive laws of
the State of Minnesota, without regard to conflicts-of-law
rules, and by the arbitration law of the Federal Arbitration
Act (Title 9, U.S. Code). Judgment upon the award rendered may
be entered in any court having jurisdiction.
(c) Except as otherwise required by law, the parties and the
arbitrator(s) agree to keep confidential and not disclose to
third parties any information or documents obtained in
connection with the arbitration process, including the
resolution of the Dispute. If a party fails to proceed with
arbitration as provided in this Agreement, or unsuccessfully
seeks to stay the arbitration, or fails to comply with the
arbitration award, or is unsuccessful in vacating or modifying
the award pursuant to a petition or application for judicial
review, the other party or parties, as applicable, shall be
entitled to be awarded costs, including reasonable attorneys'
fees, paid or incurred in successfully compelling such
arbitration or defending against the attempt to stay, vacate
or modify such arbitration award and/or successfully defending
or enforcing the award.
54
ARTICLE 10
DEFINITIONS
10.1 Definitions. The following terms, as used herein, have the following
meanings:
(a) "Affiliate" means, with respect to any Person, (a) any Person
directly or indirectly controlling, controlled by or under
direct or indirect common control with such other Person,
through the ownership of all or part of any Person, or (b) any
Person who may be deemed to be an "affiliate" under Rule 145
of the Securities Act of 1933, as amended.
(b) "Applicable Law" means, with respect to any Person, any
domestic or foreign, federal, state or local common law or
duty, caselaw or ruling, statute, law, ordinance, policy,
guidance, rule, administrative interpretation, regulation,
code, order, writ, injunction, directive, judgment, decree or
other requirement of any Governmental Authority (including any
Environmental, Safety and Health Laws) applicable to such
Person or any of its Affiliates or Plan Affiliates or any of
their respective properties, assets, officers, directors,
employees, consultants or agents (in connection with such
officer's, director's, employee's, consultant's or agent's
activities on behalf of such Person or any of its Affiliates
or Plan Affiliates).
(c) "Benefit Plan" means all Pension Plans, Welfare Plans and
Compensation Plans.
(d) "Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in Minneapolis, Minnesota
are authorized or required by law to close.
(e) "COBRA" means the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, as set forth in Section 4980B of the
Code, part 6 of Title I of ERISA and applicable regulations
issued thereunder.
(f) "Code" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
(g) "Company" means, unless the context otherwise specifically
requires, the Company and its consolidated Subsidiaries.
(h) "Company Capital Stock" means shares of Company Common Stock
and Company Preferred Stock.
(i) "Company Common Stock" means the common stock of the Company.
(j) "Company Preferred Stock" means the Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series
C Convertible Preferred Stock, Series D Convertible Preferred
Stock, Series E Convertible Preferred Stock, Series F
Convertible Preferred Stock, and Series G Preferred Stock of
the Company.
55
(k) "Company Stock Option" means an option to purchase a share of
the Company's Common Stock granted pursuant to the Company
Stock Option Plans.
(l) "Company Stock Option Plans" collectively means the Company's
1995 Stock Option/Stock Issuance Plan and the 1998 Stock
Option/Stock Issuance Plan, each as may be amended from time
to time.
(m) "Company Warrant" shall mean a warrant to purchase shares of
Company Common Stock or Company Preferred Stock.
(n) "Compensation Plan" means any material benefit or arrangement
that is not either a Pension Plan or a Welfare Plan,
including, without limitation, (a) each employment or
consulting agreement, (b) each arrangement providing for
insurance coverage or workers' compensation benefits, (c) each
bonus, incentive bonus or deferred bonus arrangement, (d) each
arrangement providing termination allowance, severance or
similar benefits, (e) each equity compensation plan, (f) each
current or deferred compensation agreement, arrangement or
policy, and (g) each compensation policy and practice
maintained by the Company, any Subsidiary or any other ERISA
Affiliate covering the employees, former employees, directors
and former directors of the Company, any Subsidiary or any
other ERISA Affiliate and the beneficiaries of any of them.
(o) "Contracts" means all contracts, agreements, options, leases,
licenses, sales and accepted purchase orders, commitments and
other instruments of any kind, whether written or oral, to
which the Company is a party on the Closing Date, including
the Scheduled Contracts.
(p) "Damages" means all demands, claims, actions or causes of
action, assessments, losses, damages, costs, expenses,
liabilities, judgments, awards, fines, sanctions, penalties,
charges and amounts paid in settlement, net of insurance
proceeds actually received, including, but not limited to, (i)
interest on cash disbursements in respect of any of the
foregoing at the "prime rate" as published in The Wall Street
Journal, from time to time from the date each such cash
disbursement is made until the Person incurring the same shall
have been indemnified in respect thereof, and (ii) reasonable
costs, fees and expenses of attorneys, accountants, bankers
and other agents of the Person incurring such expenses.
Notwithstanding the foregoing, in no event shall Damages
include (x) expenses incurred in connection with
investigations unless a claim is made, (y) Damages
specifically identified (as to scope and amount) in the
Disclosure Schedule, or (z) liabilities specifically disclosed
(as to scope and amount) on the Latest Balance Sheet.
(q) "Earnout Payment" shall have the meaning set forth in Section
1.9.
(r) "Environmental, Safety and Health Laws" means all Applicable
Laws in any way relating to Environmentally Regulated
Materials, toxic torts, occupational health and safety, or the
environment, including, without limitation, the Safe Drinking
Water and Toxic Enforcement Act ("Proposition 65"), the
Federal Resource
56
Conservation and Recovery Act ("RCRA"), the Federal
Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), the Federal Clean Air Act, the
Federal Water Pollution Control Act, the Federal Safe Drinking
Water Act, the Federal Toxic Substances Control Act ("TSCA"),
the Federal National Environmental Policy Act, the Federal
Insecticide Fungicide and Rodenticide Act, the Federal
Emergency Planning and Community Right to Know Act, the
Federal Hazard Communication Act, the Federal Occupational
Safety and Health Act, any requirements promulgated pursuant
to these Applicable Laws, amendments, or restatements thereof
or similar enactments thereof, as is now or at any time
hereafter may be in effect, or any analogous foreign, state or
local Applicable Laws.
(s) "Environmental Liabilities" means all Liabilities of a Person
(whether such Liabilities are owed by such Person to
Governmental Authorities, third parties, or otherwise) whether
currently in existence or arising hereafter solely with
respect to facts or circumstances as they exist on the Closing
Date which arise under or relate to any Environmental Law.
(t) "Environmentally Regulated Material" means any element,
compound, waste, pollutant, contaminant, substance, material
or any mixture thereof: (a) the presence of which requires
investigation or remediation under any Applicable Law; (b)
that is defined as a "hazardous waste" or "hazardous
substance," or chemicals known to cause cancer or reproductive
toxicity under any Applicable Law; (c) that is toxic,
explosive, corrosive, flammable, infectious, radioactive,
carcinogenic or mutagenic or otherwise hazardous and is
regulated by any Governmental Authority having or asserting
jurisdiction over the Company; (d) the presence of which
causes a nuisance, trespass or other tortious condition; (e)
the presence of which poses a hazard to the health or safety
of Persons; (f) without limitation, that contains gasoline,
diesel fuel or other petroleum hydrocarbons, polychlorinated
biphenols (PCBs) or asbestos, (g) that gives rise to any
exposure prohibition or warning requirement under any
Environmental Law; or (h) that is otherwise regulated in any
way under any Environmental Law.
(u) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(v) "ERISA Affiliate" means any "person," within the meaning of
Section 7701(a)(1) of the Code, that together with the Company
or any Subsidiary is considered a single employer pursuant to
Section 414(b), (c), (m) or (o) of the Code or Section 3(5) or
4001(b)(1) of ERISA.
(w) "Escrow Agent" shall have the meaning set forth in Section
1.13.
(x) "Escrow Agreement" means the agreement, in substantially the
form attached hereto as Exhibit G, to be entered into by and
among Parent, the Company and the Escrow Agent, pursuant to
which a portion of the Initial Merger Consideration will be
held in escrow in accordance with Section 1.8.
57
(y) "Estimated Initial Merger Consideration" shall have the
meaning set forth in Section 1.8(a).
(z) "FDA" means the United States Food and Drug Administration.
(aa) "Final Initial Merger Consideration" shall have the meaning
set forth in Section 1.10(d).
(bb) "GAAP" means generally accepted accounting principles in the
United States.
(cc) "Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority,
quasi-governmental authority, instrumentality, court,
government or self-regulatory organization, commission,
tribunal or organization or any regulatory, administrative or
other agency, or any political or other subdivision,
department or branch of any of the foregoing.
(dd) "Group Health Plan" means any group health plan, as defined in
Section 5000(b)(1) of the Code.
(ee) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
(ff) "IRS" means the Internal Revenue Service.
(gg) "Intellectual Property" shall mean all rights in patents,
patent applications, trademarks (whether registered or not),
trademark applications, service mark registrations and service
mark applications, trade names, trade dress, logos, slogans,
tag lines, uniform resource locators, Internet domain names,
Internet domain name applications, corporate names, copyright
applications, registered copyrighted works and commercially
significant unregistered copyrightable works (including
proprietary software, books, written materials, prerecorded
video or audio tapes, and other copyrightable works),
technology, software, trade secrets, know-how, technical
documentation, specifications, data, designs and other
intellectual property and proprietary rights, other than
off-the-shelf computer programs, used in or necessary to the
conduct of the business of the Company and its Subsidiaries.
(hh) "Liability" or "Liabilities" means any liabilities,
obligations or claims of any kind whatsoever whether absolute,
accrued or unaccrued, fixed or contingent, matured or
unmatured, asserted or unasserted, known or unknown, direct or
indirect, contingent or otherwise and whether due or to become
due, including without limitation any foreign or domestic tax
liabilities or deferred tax liabilities incurred in respect of
or measured by the Company's or any Subsidiary's income, or
any other debts, liabilities or obligations relating to or
arising out of any act, omission, transaction, circumstance,
sale of goods or services, state of facts or other condition
which occurred or existed on or before the date hereof,
whether or not known, due or payable, whether or not the same
is required to be accrued on the financial statements or is
disclosed on the Disclosure Schedule.
58
(ii) "Lien" means, with respect to any asset, any mortgage, title
defect or objection, lien, pledge, charge, security interest,
hypothecation, restriction, encumbrance, adverse claim or
charge of any kind in respect of such asset.
(jj) "Material Adverse Effect" means, with respect to the Company
or any of its Subsidiaries (together as one party for purposes
of this Section), or Parent, in either case as applicable, an
individual or cumulative adverse change in or effect on the
business, customers, customer relations, operations,
properties, working capital condition (financial or
otherwise), assets, properties, liabilities or prospects
(financial or otherwise) of such party which (a) would be
materially adverse to the business, properties, working
capital condition (financial or otherwise), assets,
liabilities or prospects (financial or otherwise) of such
party or its Subsidiaries taken as a whole but shall not
include any of the foregoing arising out of, related to or
otherwise by virtue of (i) conditions affecting the United
States economy or the United States financial markets
generally, (ii) events, circumstances of conditions generally
affecting the medical device industry, (iii) any change in law
or GAAP, (iv) commencement or material escalation of a war,
armed hostilities or other international or national crisis or
security event directly or indirectly involving the United
States or any of its territories after the date of this
Agreement; (b) would prevent such party from consummating the
transactions contemplated hereby.
(kk) "Merger Consideration" means the aggregate consideration that
becomes payable to the Shareholders under this Agreement,
including the Final Initial Merger Consideration and the
Earnout Payment.
(ll) "Net Product Revenues" means Parent's properly recognized
consolidated aggregate gross revenues received from sales of
the Products for any use or indication, less the sum of the
following deductions paid by the Parent where applicable and
not otherwise reimbursed by distributors, customers or another
third party: shipping, handling, freight and similar costs of
the Parent; sales, use or other excise or similar taxes
imposed upon particular sales of the Products (excluding
income taxes); customs duties; allowances or credits to
customers because of rejections or returns of Product;
commercially reasonable trade or quantity discounts and fees
given by the Parent to distributors or customers, as
calculated in accordance with generally accepted accounting
principles consistently applied by Parent in accordance with
its revenue recognition policies. In the event that Parent
bundles the Product with any other of Parent's products or
services, the amount of Net Product Revenue to be attributed
as having been received by Parent hereunder for the bundled
products and services will be calculated by the determining
the relevant proportion that the standard list price of the
Product bears to the standard list prices of the other
products and services bundled with the Product.
(mm) "Payment Agent" shall have the meaning set forth in Section
1.13.
59
(nn) "Pension Plan" means an "employee pension benefit plan" as
such term is defined in Section 3(2) of ERISA.
(oo) "Permitted Liens" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet
due, or for Taxes the validity of which are being contested in
good faith by appropriate proceedings; (ii) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics,
materialmen and other similar Persons and other Liens imposed
by Applicable Law incurred in the ordinary course of business
for sums not yet delinquent or being contested in good faith;
(iii) Liens relating to deposits made in the ordinary course
of business in connection with workers' compensation,
unemployment insurance and other types of social security or
to secure the performance of leases, trade contracts or other
similar agreements; (iv) Liens and Encumbrances specifically
identified in the Latest Balance Sheet; (v) Liens securing
executory obligations under any lease that constitutes an
"operating lease" under GAAP; and (vi) other Liens set forth
on the Disclosure Schedule; provided, however, that, with
respect to each of clauses (i) through (v), to the extent that
any such Lien on any of the Company's or its Subsidiaries'
assets arose prior to the date of the Latest Balance Sheet and
relates to, or secures the payment of, a Liability that is
required to be accrued for under GAAP, such Lien shall not be
a Permitted Lien unless all such Liabilities have been fully
accrued or otherwise reflected on the Latest Balance Sheet.
Notwithstanding the foregoing, no Lien arising under the Code
or ERISA with respect to the operation, termination,
restoration or funding of any Benefit Plan sponsored by,
maintained by or contributed to by the Company or any of its
ERISA Affiliates or arising in connection with any excise tax
or penalty tax with respect to such Benefit Plan shall be a
Permitted Lien.
(pp) "Person" means an individual, corporation, partnership,
limited liability company, association, trust, estate or other
entity or organization, including a Governmental Authority.
(qq) "Plan Affiliate" means, with respect to any Person, any
Benefit Plan sponsored by, maintained by or contributed to by
such Person, and with respect to any Benefit Plan, any Person
sponsoring, maintaining or contributing to such plan or
arrangement.
(rr) "Product" or "Products" means the Her Option(TM) Cryoblation
Therapy(TM) System and any of its individual component parts,
including without limitation, consoles and disposables and any
other products developed, modified or derived after the
Closing that (i) cryoablate the uterine lining or uterine
fibroids, or (ii) are covered by any claim in any patents
listed in Section 2.19 of the Disclosure Schedule, any patent
issuing from any patent application listed in Section 2.19 of
the Disclosure Schedule or any claim in any issued patent
claiming priority to any of the foregoing.
(ss) "Properties" means any real property owned or leased by or to
the Company or a Subsidiary.
60
(tt) "Restated Company Charter" shall have the meaning set forth in
Section 4.12.
(uu) "Scheduled Contracts" shall have the meaning set forth in
Section 2.13(a).
(vv) "Securities Act" means the Securities Act of 1933, as amended.
(ww) "Series D, E & F Preference Amount" means the aggregate total
of the liquidation preference amounts determined in clauses
(i), (ii) and (iii) of Article III, Section B.2(a) of the
Restated Company Charter.
(xx) "Severance Accruals" means severance payments and relocation
expenses, if any, payable to employees of the Company at or
after the Closing, pursuant to written agreements between the
Company and such employees entered into prior to, and in
accordance with the terms existing as of, the Closing, all of
which are listed on Schedule 10.1(xx) attached hereto.
(yy) "Shareholders" means the Persons who hold of record
immediately prior to the Effective Time shares of Company
Capital Stock.
(zz) "Subsidiary" or "Subsidiaries" means each corporation or other
legal entity as to which more than fifty percent (50%) of the
outstanding equity securities having ordinary voting rights or
power at the time of determination is being made is owned or
controlled, directly or indirectly, by the Company.
(aaa) "Tax" or "Taxes" means all taxes imposed of any nature
including federal, state, local or foreign net income tax,
alternative or add-on minimum tax, profits or excess profits
tax, franchise tax, gross income, adjusted gross income or
gross receipts tax, employment related tax (including employee
withholding or employer payroll tax, FICA or FUTA), real or
personal property tax or ad valorem tax, sales or use tax,
excise tax, stamp tax or duty, any withholding or back up
withholding tax, value added tax, severance tax, prohibited
transaction tax, premiums tax, environmental tax, intangibles
tax or occupation tax, together with any interest or any
penalty, addition to tax or additional amount imposed by any
Governmental Authority (domestic or foreign) responsible for
the imposition of any such tax. The term Tax shall also
include any Liability of the Company or the Subsidiaries for
the Taxes of any other Person under U.S. Treasury Regulations
Section 1.1502-6 (or similar provisions of state, local or
foreign law), as a transferee or successor by contract or
otherwise.
(bbb) "Tax Return" means all returns, declarations, reports,
estimates, forms, information returns and statements or other
information required to be filed with respect to any Tax.
(ccc) "Transaction Expenses" means (i) all fees and expenses
incurred by or on behalf of the Company in connection with the
Merger payable to a third party including, without limitation,
all legal, accounting, financial advisory, investment banking,
consulting and all other fees and expenses of third parties
incurred in connection with the negotiation and preparation of
this Agreement and the transactions
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contemplated hereby, and (ii) all bonuses payable to employees
of the Company solely as a result of the Closing, all of which
are listed on Schedule 1.8 (d) hereto.
(ddd) "U.S. Government" means the United States Government,
including any agencies, commissions, branches,
instrumentalities and departments thereof.
(eee) "Welfare Plan" means an "employee welfare benefit plan" as
such term is defined in Section 3(1) of ERISA (including
without limitation a plan excluded from coverage by Section 4
of ERISA).
ARTICLE 11
MISCELLANEOUS
11.1 Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given (i) if personally delivered, when so delivered, (ii) if mailed,
two Business Days after having been sent by registered or certified
mail, return receipt requested, postage prepaid and addressed to the
intended recipient as set forth below, (iii) if given by facsimile,
once such notice or other communication is transmitted to the facsimile
number specified below and electronic confirmation is received,
provided that such notice or other communication is promptly thereafter
mailed in accordance with the provisions of clause (ii) above or (iv)
if sent through an overnight delivery service in circumstances to which
such service guarantees next day delivery, the day following being so
sent:
If to Company prior to Closing:
To: Cryogen, Inc.
11065 Sorrento Valley Court
San Diego, CA 92121
Attn: Chief Executive Officer
Fax: (858) 453-2663
With a copy to:
Brobeck, Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92121
Attn: Michael S. Kagnoff, Esq.
Fax: (858) 720-2555
If to the Company after Closing or to the Parent or Merger Subsidiary:
To: American Medical Systems, Inc.
10700 Bren Road West
Minnetonka, Minnesota 55343
Attn: Chief Executive Officer
Fax: (612) 930-6695
62
With a copy to:
Oppenheimer Wolff & Donnelly LLP
Plaza VII, 45 South Seventh Street, Suite 3400
Minneapolis, Minnesota 55402
Attn: Thomas A. Letscher, Esq.
Fax: (612) 607-7100
If to the Shareholders' Representative:
To: Robert Knarr
JHK Investments LLC
One Gorham Island
Westport, CT 06880
Telephone: (203) 341-9200
Fax: (203) 341-9800
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
11.2 Amendments; No Waivers.
(a) Subject to Applicable Law, any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver
is in writing and signed, in the case of an amendment, by all
parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No waiver by a party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional
or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of
any prior or subsequent occurrence. No failure or delay by a
party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies
provided by law.
11.3 Expenses. All costs, fees and expenses incurred in connection with the
negotiation, preparation, execution, delivery and performance of this
Agreement and in closing and carrying out the transactions contemplated
hereby shall be paid by the party incurring such cost or expense. This
Section 11.3 shall survive the termination of this Agreement.
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11.4 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors
and permitted assigns. No party hereto may assign either this Agreement
or any of its rights, interests or obligations hereunder without the
prior written approval of each other party.
11.5 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the internal laws of the State of Minnesota
(regardless of the laws that might otherwise govern under applicable
principles of conflicts of law).
11.6 Counterparts; Effectiveness. This Agreement may be signed in any number
of counterparts and the signatures delivered by facsimile, each of
which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received a
counterpart hereof signed by the other parties hereto.
11.7 Entire Agreement. This Agreement (including the Disclosure Schedule,
all Exhibits and Schedules and all other agreements referred to herein
or therein which are hereby incorporated by reference and the other
agreements executed simultaneously herewith) constitutes the entire
agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements, understandings and negotiations,
both written and oral, between the parties with respect to the subject
matter of this Agreement. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
11.8 Captions. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
All references to an Article or Section include all subparts thereof.
11.9 Severability. If any provision of this Agreement, or the application
thereof to any Person, place or circumstance, shall be held by a court
of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other
Persons, places and circumstances shall remain in full force and effect
only if, after excluding the portion deemed to be unenforceable, the
remaining terms shall provide for the consummation of the transactions
contemplated hereby in substantially the same manner as originally set
forth at the later of the date this Agreement was executed or last
amended.
11.10 Construction. The parties hereto intend that each representation,
warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or
covenant contained herein in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter (regardless of the relative levels of specificity) that
the party has not breached shall not detract from or mitigate the fact
that the party is in breach of the first representation, warranty or
covenant.
64
11.11 Cumulative Remedies. The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.
11.12 Third Party Beneficiaries. No provision of this Agreement shall create
any third party beneficiary rights in any Person, including any
employee of Parent or Merger Subsidiary or employee or former employee
of the Company or any Affiliate thereof (including any beneficiary or
dependent thereof).
11.13 Appointment of Shareholders' Representative; Enforcement of Rights,
Benefits and Remedies.
(a) By adopting this Agreement, the Shareholders hereby
irrevocably constitute and appoint Robert Knarr as the
Shareholders' Representative, effective as of the Effective
Time, for the purpose of performing and consummating the
transactions contemplated by this Agreement and the Escrow
Agreement. The appointment of such Shareholders'
Representative is coupled with an interest and all authority
hereby conferred shall be irrevocable and such Shareholders'
Representative is hereby authorized and directed to perform
and consummate all of the transactions contemplated by this
Agreement. Not by way of limiting the authority of the
Shareholders' Representative, each and all of the
Shareholders, by their adoption of this Agreement, for
themselves and their respective heirs, executors,
administrators, successors and assigns hereby authorize the
Shareholders' Representative to:
(i) effect any amendment to this Agreement or the Escrow
Agreement which the Shareholders' Representative
deems necessary or desirable,
(ii) execute and deliver on their behalf all documents and
instruments which may be executed and delivered
pursuant to this Agreement or the Escrow Agreement,
except that all stock powers and letters of
transmittal with respect to the transfer of the
Company Common Stock or Company Preferred Stock shall
be personally executed by the Shareholders,
(iii) make and receive notices and other communications
pursuant to this Agreement or the Escrow Agreement
and service of process in any legal action or other
proceeding arising out of or related to this
Agreement or the Escrow Agreement or any of the
transactions hereunder,
(iv) settle any dispute, claim, action, suit or proceeding
arising out of or related to this Agreement or the
Escrow Agreement or any of the transactions
hereunder, including, without limitation, the
calculation of the Merger Consideration or the
defense, settlement or compromise of any claim,
action or proceeding for which Parent or Merger
Subsidiary may be entitled to indemnification,
(v) receive and distribute the Initial Merger
Consideration and Earnout Payment,
65
(vi) appoint or provide for successor agents, and
(vii) pay expenses incurred or which may be incurred by or
on behalf of the Shareholders (and to be reimbursed
by the Shareholders for their pro rata share of such
expenses out of the sums held by the Escrow Agent
pursuant to the Escrow Agreement) in connection with
this Agreement and the Escrow Agreement.
In the event of the death or disability of the Shareholders'
Representative, a majority of the remaining Shareholders shall
promptly appoint a replacement. No person serving as the
Shareholders' Representative under this Agreement shall have
any personal liability to any Shareholder or its permitted
assigns with respect to any action taken, suffered or omitted
by him hereunder as a Shareholders' Representative while
acting in good faith and in the absence of gross negligence or
willful misconduct, and any act done, suffered or omitted
pursuant to the advice of counsel shall be deemed hereunder to
have been done in good faith, except to the extent that such
person may have liability as a Shareholder hereunder. The
Shareholders shall severally and not jointly indemnify the
Shareholders' Representative and hold him harmless against any
loss, liability or expense incurred without bad faith or gross
negligence on the part of the Shareholders' Representative and
arising out of or in connection with the acceptance or
administration of their duties hereunder.
(b) Any claim, action, suit, or other proceeding, whether in law
or equity, to enforce any right, benefit or remedy granted to
Shareholders under this Agreement or the Escrow Agreement
shall be asserted, brought, prosecuted or maintained only by
the Shareholders' Representative. With respect to any matter
contemplated by this Section 11.13, the Shareholders shall be
bound by any determination in favor of or against the
Shareholders' Representative or the terms of any settlement or
release to which the Shareholders' Representative shall become
a party.
(c) Any notice given the Shareholders' Representative will
constitute notice to each and all of the Shareholders at the
time the notice is given to the Shareholders' Representative.
Any action taken by, or instruction received from, the
Shareholders' Representative will be deemed to be action be,
or notice or instruction from, each and all of the
Shareholders. Parent may, and the Escrow Agent will, disregard
any notice or instruction received directly from any of the
Shareholders other than the Shareholders' Representative.
(d) At any time during the term of the Escrow Agreement, holders
of a majority in interest of the Escrow Funds can remove and
replace the Shareholders' Representative by sending notice and
a copy of the written consent appointing such new individual
or individuals signed by holders of a majority in interest of
the Escrow Funds to Parent and the Escrow Agent.
66
(Following Page is the Signature Page)
67
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
AMERICAN MEDICAL SYSTEMS, INC. CRYOGEN, INC.
a Delaware corporation a California corporation
By: /s/ M. James Call By: /s/ Charles Tribie
------------------------------- -------------------------------
Name: M. James Call Name: Charles Tribie
----------------------------- -----------------------------
Title: Executive Vice President and Title: President and Chief Executive Officer
Chief Financial Officer
SNOWBALL ACQUISITION CORP. SHAREHOLDERS' REPRESENTATIVE
a California corporation
By: /s/ M. James Call /s/ Robert A. Knarr
------------------------------- -----------------------------------
Name: M. James Call Robert Knarr
-----------------------------
Title: Chief Financial Officer
68
SCHEDULES INDEX
Schedule 1.8(d) Schedule of Transaction Expenses
Schedule 1.11(c) Schedule of Shareholders
Schedule 1.11(c)(i) Schedule of Percentage Interests in the
Series D, E & F Preference Amount
Schedule 1.11(c)(iv) Schedule of Percentage Interests in the Fourth
Preference Amount
Schedule 10.1(xx) Schedule of Severance Accruals
EXHIBIT INDEX
EXHIBIT A Form of Agreement of Merger
EXHIBIT B Form of Shareholder Agreement
EXHIBIT C Third Party Consents
EXHIBIT D Form of Brobeck, Phleger & Harrison LLP Legal Opinion
EXHIBIT E Form of Oppenheimer Wolff & Donnelly LLP Legal Opinion
EXHIBIT F Form of Restated Company Charter
EXHIBIT G Form of Escrow Agreement
i