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AGREEMENT AND PLAN OF MERGER
by and among
Summit Medical Systems, Inc.
CLM Acquisition Corp.
and
▇.▇. ▇▇▇▇▇▇▇▇ & Associates, Inc.
December 31, 1996
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER 2
1.01 The Merger................................................. 2
1.02 Effect of Merger........................................... 2
1.03 Effective Time............................................. 2
1.04 Directors and Officers..................................... 2
1.05 Articles of Incorporation; Bylaws.......................... 3
1.06 Taking of Necessary Action; Further Action................. 3
1.07 The Closing................................................ 3
ARTICLE II
CONVERSION OF SECURITIES.............................................. 3
2.01 Conversion of Securities................................... 3
2.02 Delivery of Certificates................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... 5
3.01 Incorporation and Corporate Power.......................... 5
3.02 Execution, Delivery; Valid and Binding Agreement........... 6
3.03 Approval of the Plan of Merger............................. 6
3.04 No Breach.................................................. 6
3.05 Governmental Authorities; Consents......................... 7
3.06 Subsidiaries............................................... 7
3.07 Capital Stock.............................................. 7
3.08 Financial Statements....................................... 7
3.09 Absence of Undisclosed Liabilities......................... 8
3.10 No Material Adverse Changes................................ 8
3.11 Absence of Certain Developments............................ 8
3.12 Title to Properties........................................ 10
3.13 Accounts Receivable........................................ 11
3.14 Tax Matters................................................ 11
3.15 Contracts and Commitments.................................. 13
3.16 Intellectual Property Rights............................... 14
3.17 Litigation................................................. 14
3.18 Warranties................................................. 15
3.19 Employees.................................................. 15
3.20 Employee Benefit Plans..................................... 15
3.21 Insurance.................................................. 17
3.22 Affiliate Transactions..................................... 17
3.23 Customers.................................................. 17
3.24 Officers and Directors; Bank Accounts...................... 17
3.25 Compliance with Laws; Permits.............................. 18
3.26 Brokerage.................................................. 18
3.27 Accounting Matters......................................... 19
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3.28 Disclosure................................................. 19
3.29 S Corporation.............................................. 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND MERGER SUBSIDIARY................................................. 19
4.01 Incorporation and Corporate Power.......................... 19
4.02 Execution, Delivery; Valid and Binding Agreement........... 20
4.03 No Breach.................................................. 20
4.04 Merger Subsidiary.......................................... 20
4.05 Governmental Authorities; Consents......................... 20
4.06 Brokerage.................................................. 21
4.07 Capital Stock.............................................. 21
4.08 Exchange Act Reports....................................... 21
4.09 Validity of Purchaser Common Stock......................... 22
4.10 No Material Adverse Changes................................ 22
4.11 Litigation................................................. 22
4.12 Disclosure................................................. 22
ARTICLE V
COVENANTS OF THE COMPANY.............................................. 23
5.01 Conduct of the Business.................................... 23
5.02 Access to Books and Records................................ 25
5.03 Regulatory Filings......................................... 25
5.04 Conditions................................................. 25
5.05 No Negotiations............................................ 25
ARTICLE VI
COVENANTS OF PURCHASER AND MERGER SUBSIDIARY.......................... 26
6.01 Regulatory Filings......................................... 26
6.02 Conditions................................................. 26
ARTICLE VII
CONDITIONS TO CLOSING................................................. 26
7.01 Conditions to Purchaser's and Merger Subsidiary's
Obligations................................................ 26
7.02 Conditions to the Company's Obligations.................... 29
ARTICLE VIII
TERMINATION........................................................... 31
8.01 Termination................................................ 31
8.02 Effect of Termination...................................... 31
ARTICLE IX
ADDITIONAL AGREEMENTS................................................. 32
9.01 Pooling Accounting......................................... 32
9.02 Employee Benefit Plans..................................... 32
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9.03 Incentive Stock Program................................... 32
9.04 Product Development....................................... 32
9.05 Profit Sharing Plan....................................... 33
9.06 Outstanding Line of Credit and Term Note.................. 33
ARTICLE X
MISCELLANEOUS......................................................... 33
10.01 Press Releases and Announcements.......................... 33
10.02 Expenses.................................................. 33
10.03 Amendment and Waiver...................................... 33
10.04 Notices................................................... 34
10.05 Assignment................................................ 34
10.06 Severability.............................................. 34
10.07 Complete Agreement........................................ 34
10.08 Counterparts.............................................. 35
10.09 Governing Law............................................. 35
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AGREEMENT AND PLAN OF MERGER
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This Agreement and Plan of Merger (this "Agreement") dated as of December
31, 1996, is made and entered into by and among Summit Medical Systems, Inc., a
Minnesota corporation ("Purchaser"), CLM Acquisition Corp., a Minnesota
corporation and wholly owned subsidiary of Purchaser ("Merger Subsidiary"), and
▇.▇. ▇▇▇▇▇▇▇▇ & Associates, Inc., a Maryland corporation (the "Company").
WHEREAS, the respective Boards of Directors of Purchaser, Merger Subsidiary
and the Company have determined that it is advisable and in the best interests
of the respective corporations and their shareholders that Merger Subsidiary be
merged with and into the Company in accordance with the Business Corporation Act
of the State of Minnesota (the "MBCA") and the Maryland General Corporation Law
(the "MGCL") and the terms of this Agreement and the Plan of Merger (as herein
defined) pursuant to which the Company will be the surviving corporation and
will become a wholly owned subsidiary of Purchaser (the "Merger");
WHEREAS, Purchaser, Merger Subsidiary, and the Company desire to make
certain representations, warranties, covenants, and agreements in connection
with, and establish various conditions precedent to, the Merger;
WHEREAS, concurrently with the execution hereof, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ are entering into employment agreements between such persons
and the Company, a copy of each of which is attached as Exhibits A and B hereto,
respectively (collectively, the "Employment Agreements") and Purchaser is
granting employee stock options to each of such persons pursuant to stock option
agreements, a copy of each of which is attached as Exhibits C and D hereto,
respectively (collectively, the "Stock Options"); and
WHEREAS, concurrently with the execution hereof, the shareholders,
constituting all holders of record of shares of common stock, without par value,
of the Company (the "Company Common Stock") have entered into (i) an
Indemnification Agreement, among the holders of the Company Common Stock (the
"Shareholders") and Purchaser, in the form of Exhibit E hereto (the
"Indemnification Agreement") and (ii) an Investment and Registration Rights
Agreement, among the Shareholders and Purchaser, in the form of Exhibit F hereto
(the "Registration Agreement");
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under Section 368 of the United States
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, it is intended that the Merger shall qualify as a pooling-of-
interests for accounting purposes;
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NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth in this Agreement and in the Plan of Merger,
the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
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1.01 The Merger. At the Effective Time (as defined in Section 1.03
hereof) subject to the terms and conditions of this Agreement and the Articles
of Merger (as defined in Section 1.03 hereof), Merger Subsidiary shall be merged
with and into the Company, the separate existence of Merger Subsidiary shall
cease, and the Company shall continue as the surviving corporation under the
corporate name it possesses immediately prior to the Effective Time. The
Company, in its capacity as the corporation surviving the Merger, is hereinafter
sometimes referred to as the "Surviving Corporation."
1.02 Effect of Merger. The effect of the Merger shall be as set forth in
the applicable provisions of the MBCA and the MGCL and the Surviving Corporation
shall succeed to and possess all the properties, rights, privileges, immunities,
powers, franchises and purposes, and be subject to all the duties, liabilities,
debts, obligations, restrictions and disabilities, of the Company and Merger
Subsidiary, all without further act or deed.
1.03 Effective Time. The consummation of the Merger shall be effected as
promptly as practicable, but in no event more than three business days, after
the satisfaction or waiver of the conditions set forth in Article VII of this
Agreement, and the parties hereto will cause a copy of the Articles of Merger,
attached hereto as Exhibit 1.03 (the "Articles of Merger") and including a Plan
of Merger (the "Plan of Merger") to be executed, delivered and filed with the
Secretary of State of the State of Minnesota and the Maryland State Department
of Assessments and Taxation ("SDAT") in accordance with the MBCA and the MGCL.
The Merger shall become effective immediately upon the filing of such Articles
of Merger with the Secretary of State of the State of Minnesota and SDAT. The
date and time on which the Merger shall become effective is referred to herein
as the "Effective Time."
1.04 Directors and Officers. From and after the Effective Time, the
directors of the Surviving Corporation shall be the persons who were the
directors of Merger Subsidiary immediately prior to the Effective Time and the
officers of the Surviving Corporation shall be the persons who were the officers
of Merger Subsidiary immediately prior to the Effective Time. Said directors and
officers of the Surviving Corporation shall hold office for the term specified
in, and subject to the provisions contained in, the Articles of Incorporation
and Bylaws of the Surviving Corporation and applicable law. If, at or after the
Effective Time, a vacancy shall exist on the Board of Directors or in any of the
offices of the Surviving Corporation, such
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vacancy shall be filled in the manner provided in the Articles of Incorporation
and Bylaws of the Surviving Corporation.
1.05 Articles of Incorporation; Bylaws. From and after the Effective Time
and until further amended in accordance with applicable law, the Articles of
Incorporation of Merger Subsidiary as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation. From and after the Effective Time and until further amended in
accordance with law, the Bylaws of Merger Subsidiary as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation.
1.06 Taking of Necessary Action; Further Action. Purchaser, Merger
Subsidiary and the Company, respectively, shall each use its best efforts to
take all such action as may be necessary or appropriate to effectuate the Merger
under the MBCA and MGCL at the time specified in Section 1.03. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all properties, rights, privileges,
immunities, powers and franchises of either of the constituent corporations, the
officers of the Surviving Corporation are fully authorized in the name of each
constituent corporation or otherwise to take, and shall take, all such lawful
and necessary action.
1.07 The Closing.
(a) The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, on the date of this Agreement (the
"Closing Date"), or such later date as necessary to enable the satisfaction or
waiver of the conditions set forth in Article VII hereof and the consummation of
the Merger in accordance with Section 1.03, and will be effective as of the
Effective Time.
(b) The parties shall deliver to each other the documents required to be
delivered pursuant to Article VII hereof at the Closing.
ARTICLE II
CONVERSION OF SECURITIES
------------------------
2.01 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of the Purchaser, the Merger
Subsidiary, the Company or the Surviving Corporation:
(a) each share of common stock, $.01 par value, of Merger Subsidiary
("Merger Subsidiary Common Stock") issued and outstanding immediately prior to
the Effective Time shall be converted into one fully paid and nonassessable
share of
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common stock, $.01 par value, of the Surviving Corporation ("Surviving
Corporation Common Stock").
(b) Subject to the provisions of this Section 2.01 and Section 2.02, each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive that number of
shares of fully paid and non-assessable shares of common stock, par value $.01
per share, of Purchaser ("Purchaser Common Stock"), rounded to the nearest
thousandth of a share (or, if there shall not be a nearest thousandth of a
share, to the next lower thousandth of a share), equal to the quotient (the
"Exchange Ratio") derived by dividing the Consideration Value (as defined below)
by the Average Stock Price (as defined below); provided, however, that, for
purposes of determining the Exchange Ratio, (x) if the Average Stock Price is
$7.00 or less, the Average Stock Price shall be deemed to be $7.00, and (y) if
the Average Stock Price is $10.00 or more, the Average Stock Price shall be
deemed to be $10.00. Upon the issuance to the Shareholders of the Merger Shares
(as defined below), all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and extinguished. As used in
this Agreement, the term (i) "Average Stock Price" shall mean the average
Closing Price for one share of Purchaser Common Stock during the period of the
10 most recent trading days ending on the second business day prior to the
Closing Date; (ii) "Closing Price" shall mean, on any day, the last reported
sale price of one share of Purchaser Common Stock on the Nasdaq National Market
("Nasdaq"); (iii) "Consideration Value" shall be equal to the quotient derived
by dividing (A) the sum of $7,000,000 by (B) the number of shares of Company
Common Stock outstanding immediately prior to the Effective Time; and (iv)
"Merger Shares" shall be the shares of Purchaser Common Stock issued to the
Shareholders under this Agreement.
2.02 Delivery of Certificates.
(a) Delivery Procedures. At the Closing, each Shareholder shall surrender
to Purchaser all certificates held by such Shareholder which immediately prior
to the Effective Time evidenced all outstanding shares of Company Common Stock
(the "Certificates"), together with a letter of transmittal and other
customary documents as may be required. At the Closing, each Shareholder of
such Certificates shall be entitled to receive in exchange therefor (i)
certificates evidencing that number of whole shares of Purchaser Common Stock
into which the shares formerly evidenced by such Certificates are to be
converted in accordance with Section 2.01, and (ii) cash in lieu of fractional
shares of Purchaser Common Stock to which such holder is entitled pursuant to
Section 2.02(c) (the shares of Purchaser Common Stock and cash in lieu of
fractional shares described in clauses (i) and (ii) being collectively referred
to herein as the "Merger Consideration"), and the Certificate so surrendered
shall forthwith be canceled.
(b) No Further Rights in Company Common Stock. All shares of Purchaser
Common Stock issued and any cash paid in lieu of fractional shares as
contemplated
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by Section 2.02(c) upon conversion of the shares of Company Common Stock in
accordance with the terms hereof shall be deemed to have been issued or paid in
full satisfaction of all rights pertaining to such shares of Company Common
Stock.
(c) Fractional Shares. No fractional shares of Purchaser Common Stock
shall be issued in the Merger. Each Shareholder shall be entitled to receive in
lieu of any fractional shares of Purchaser Common Stock to which such
Shareholder otherwise would have been entitled pursuant to Section 2.01 (after
taking into account all shares of Company Common Stock then held of record by
such Shareholder) a cash payment in an amount equal to the product of (i) the
fractional interest in a share of Purchaser Common Stock to which such
Shareholder otherwise would have been entitled and (ii) the Average Stock Price.
(d) No Transfer. After the Effective Time, there shall be no transfers on
the stock transfer books of the Surviving Corporation of the shares of the
Company Common Stock which were outstanding immediately prior to the Effective
Time.
(e) No Liability. Neither Purchaser nor the Surviving Corporation shall
be liable to any Shareholder for any shares of Purchaser Common Stock (or
dividends or distributions with respect thereto) or in accordance with Section
2.02(c), cash in lieu of fractional shares, delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to Purchaser and Merger
Subsidiary that, except as set forth in the Disclosure Schedule delivered by the
Company to Purchaser and Merger Subsidiary on the date hereof (the "Company's
Disclosure Schedule") (which Disclosure Schedule sets forth the exceptions to
the representations and warranties contained in this Article III under captions
referencing the Sections to which such exceptions apply):
3.01 Incorporation and Corporate Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Maryland and, has the requisite corporate power and authority to execute and
deliver this Agreement and the Articles of Merger and to perform its obligations
hereunder and thereunder. The Company has the corporate power and authority and
all authorizations, licenses, permits and certifications necessary to own and
operate its properties and to carry on its business as now conducted. The
copies of the Company's Articles of Incorporation and Bylaws which have been
furnished by the Company to Purchaser and Merger Subsidiary prior to the date
hereof reflect all amendments made thereto and are correct and complete as of
the date hereof. The Company is qualified to do business as a foreign
corporation in every jurisdiction in which the nature of its business or its
ownership of property requires it to be so
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qualified, except for those jurisdictions in which the failure to be so
qualified would not, individually or in the aggregate, have a material adverse
effect on the Company's business or results of operations.
3.02 Execution, Delivery; Valid and Binding Agreement. The execution,
delivery and performance of this Agreement, and the Articles of Merger, by the
Company, and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite corporate action,
and no other corporate proceedings on the part of the Company are necessary to
authorize the execution, delivery and performance of this Agreement and the
Articles of Merger. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms, and the Articles of Merger, when
executed and delivered by the Company, will constitute the valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
laws affecting the enforcement of creditors' rights and remedies generally and
by general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or at equity).
3.03 Approval of the Plan of Merger. The Company hereby represents that
its Board of Directors has, by resolutions duly adopted at a meeting held on
December 31, 1996, approved this Agreement and the Articles of Merger and the
transactions contemplated hereby and thereby, including the Merger. The Company
further represents that the Shareholders have duly approved the Plan of Merger
by requisite corporate action and have thereby waived any dissenters' rights
under the MGCL with respect to the Merger. None of the resolutions or other
actions described in this Section 3.03 has been amended or otherwise modified in
any respect since the date of adoption thereof and all such resolutions or
actions remain in full force and effect.
3.04 No Breach. Except as set forth in the Company's Disclosure Schedule
under the caption referencing this Section 3.04, the execution, delivery and
performance of this Agreement and the Articles of Merger by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not conflict with or result in any breach of any of the provisions of,
constitute a default (except for such defaults as would not, individually or in
the aggregate, have a material adverse effect on the Company's business or
results of operations or on the ability of the parties hereto to consummate the
transactions contemplated by this Agreement) under, result in a violation of,
result in the creation of a right of termination or acceleration or any lien,
security interest, charge or encumbrance upon any assets of the Company, or
require any authorization, consent, approval, exemption or other action by or
notice to any court or other governmental body, under the provisions of the
Articles of Incorporation or Bylaws of the Company or any indenture, mortgage,
lease, loan agreement or other agreement or instrument by which the Company is
bound or affected, or any law,
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statute, rule or regulation or order, judgment or decree to which the Company is
subject.
3.05 Governmental Authorities; Consents. Except for the filing of the
Articles of Merger with the Secretary of State of the State of Minnesota and
SDAT, the Company is not required to submit any notice, report or other filing
with any governmental authority in connection with the execution or delivery by
it of this Agreement or the Articles of Merger or the consummation of the
transactions contemplated hereby or thereby. Except as set forth in the
Company's Disclosure Schedule under the caption referencing this Section 3.05,
no consent, approval or authorization of any governmental or regulatory
authority or any other party or person is required to be obtained by the Company
in connection with its execution, delivery and performance of this Agreement or
the Articles of Merger or the transactions contemplated hereby or thereby.
3.06 Subsidiaries. The Company does not own any stock, partnership
interest, joint venture interest or any other security or ownership interest
issued by any other corporation, organization or entity.
3.07 Capital Stock. The authorized capital stock of the Company consists
of 100 shares of Common Stock, without par value, of which, as of the date
hereof, 100 shares are issued and outstanding. All of such outstanding shares
of Company Common Stock have been duly authorized and are validly issued, fully
paid and nonassessable. The Company has no other equity securities or
securities containing any equity features authorized, issued or outstanding.
Except as set forth in the Company's Disclosure Schedule under the caption
referencing this Section 3.07, there are no agreements or other rights or
arrangements existing which provide for the sale or issuance of capital stock by
the Company and there are no rights, subscriptions, warrants, options,
conversion rights or agreements of any kind outstanding to purchase or otherwise
acquire from the Company any shares of capital stock or other securities of the
Company of any kind. There are no agreements or other obligations (contingent
or otherwise) which may require the Company to repurchase or otherwise acquire
any shares of its capital stock.
3.08 Financial Statements. The Company has delivered to Purchaser copies
of (a) the balance sheet and income statement, as of September 30, 1996, of the
Company (the "Latest Financial Statements") and (b) the balance sheets and
income statements, as of December 31, 1993, 1994 and 1995, of the Company
(collectively, the "Annual Financial Statements"). The Latest Financial
Statements and the Annual Financial Statements are based upon the information
contained in the books and records of the Company and fairly present the
financial condition of the Company as of the dates thereof and results of
operations for the periods referred to therein.
3.09 Absence of Undisclosed Liabilities. Except as reflected in the
Latest Balance Sheet, the Company has no liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due, whether
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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 (i) liabilities which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a material
uninsured liability for breach of contract, breach of warranty, tort,
infringement, claim or lawsuit), or (ii) as otherwise set forth in the Company's
Disclosure Schedule under the caption referencing this Section 3.09.
3.10 No Material Adverse Changes. Since the date of the Latest Balance
Sheet (the "Balance Sheet Date"), there has been no material adverse change in
the assets, financial condition, operating results, customer, employee or
supplier relations, business condition or prospects of the Company.
3.11 Absence of Certain Developments. Since the Balance Sheet Date, the
Company has not:
(a) borrowed any amount or incurred or become subject to any liability
in excess of $10,000, except (i) current liabilities incurred in the
ordinary course of business, (ii) liabilities under contracts entered into
in the ordinary course of business, and (iii) borrowings set forth in the
Company's Disclosure Schedule under the caption referencing this Section
3.11 incurred solely for the purpose of distributions to the Shareholders
in accordance with Section 5.01(b)(iv);
(b) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any of its assets with a fair market value in excess of
$10,000, except (i) liens for current property taxes not yet due and
payable, (ii) liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers,
materialmen and the like, (iii) liens in respect of pledges or deposits
under workers' compensation laws, (iv) liens set forth under the caption
referencing this Section 3.11 in the Company's Disclosure Schedule, or (v)
liens voluntarily created in the ordinary course of business, all of which
liens aggregate less than $10,000;
(c) discharged or satisfied any lien or encumbrance or paid any
liability, in each case with a value in excess of $10,000, other than
current liabilities paid in the ordinary course of business;
(d) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or shareholders) any tangible assets
with a fair market value in excess of $10,000, or canceled any debts or
claims, in each case, except in the ordinary course of business;
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(e) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or shareholders) any patents,
trademarks, trade names, copyrights, trade secrets or other intangible
assets;
(f) disclosed, to any person other than Purchaser or Merger Subsidiary
and authorized representatives of Purchaser or Merger Subsidiary, any
proprietary confidential information, other than pursuant to a
confidentiality agreement prohibiting the use or further disclosure of such
information, which agreement is identified in the Company's Disclosure
Schedule under the caption referencing this Section 3.11 and is in full
force and effect on the date hereof;
(g) waived any rights of material value or suffered any extraordinary
losses or adverse changes in collection loss experience, whether or not in
the ordinary course of business or consistent with past practice;
(h) declared or paid any dividends or other distributions with respect
to any shares of the Company's capital stock or redeemed or purchased,
directly or indirectly, any shares of the Company's capital stock or any
options, except distributions to the Shareholders, in accordance with
Section 5.01(b)(iv) as set forth in the Company's Disclosure Schedule under
the caption referencing this Section 3.11;
(i) issued, sold or transferred any of its equity securities,
securities convertible into or exchangeable for its equity securities or
warrants, options or other rights to acquire its equity securities, or any
bonds or debt securities;
(j) taken any other action or entered into any other transaction other
than in the ordinary course of business and in accordance with past custom
and practice, or entered into any transaction with any "insider" (as
defined in Section 3.22 hereof) other than employment arrangements
otherwise disclosed in this Agreement and the Company's Disclosure
Schedule, or the transactions contemplated by this Agreement;
(k) suffered any material theft, damage, destruction or loss of or to
any property or properties owned or used by it, whether or not covered by
insurance;
(l) made or granted any bonus or any wage, salary or compensation
increase to any director, officer, employee who earns more than $50,000 per
year, or consultant or made or granted any increase in any employee benefit
plan or arrangement, or amended or terminated any existing employee benefit
plan or arrangement, or adopted any new employee benefit plan or
arrangement or made any commitment or incurred any liability to any labor
organization, except bonuses paid to the directors of the Company as set
forth
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in the Company's Disclosure Schedule under the caption referencing this
Section 3.11;
(m) made any single capital expenditure or commitment therefor in
excess of $5,000;
(n) made any loans or advances to, or guarantees for the benefit of,
any persons such that the aggregate amount of such loans, advances or
guarantees at any time outstanding is in excess of $5,000;
(o) made charitable contributions or pledges which in the aggregate
exceed $5,000; or
(p) made any change in accounting principles or practices from those
utilized in the preparation of the Annual Financial Statements.
3.12 Title to Properties.
(a) The Company does not own any real property. The real property demised
by the leases (the "Leases") described under the caption referencing this
Section 3.12 in the Company's Disclosure Schedule constitutes all of the real
property used or occupied by the Company (the "Real Property").
(b) The Leases are in full force and effect, and the Company holds a valid
and existing leasehold interest under each of the Leases for the term set forth
under such caption in the Company's Disclosure Schedule. The Company has
delivered to Purchaser and Merger Subsidiary complete and accurate copies of
each of the Leases, and none of the Leases has been modified in any respect,
except to the extent that such modifications are disclosed by the copies
delivered to Purchaser and Merger Subsidiary. The Company is not in material
default, and to the best knowledge of the Company, no circumstances exist which,
if unremedied, would, either with or without notice or the passage of time or
both, result in such material default under any of the Leases or permit
termination, modification or acceleration thereof; and, to the best knowledge of
the Company, no other party to any of the Leases is in material default thereof.
(c) The Company owns good and marketable title to each of the tangible
properties and tangible assets reflected on the Latest Balance Sheet or acquired
since the date thereof, free and clear of all liens and encumbrances, except for
(i) liens for current taxes not yet due and payable, (ii) liens set forth under
the caption referencing this Section 3.12 in the Company's Disclosure Schedule,
(iii) the properties subject to the Leases, (iv) assets disposed of since the
date of the Latest Balance Sheet in the ordinary course of business, (v) liens
imposed by law and incurred in the ordinary course of business for obligations
not yet due to carriers, warehousemen, laborers and materialmen and (vi) liens
in respect of pledges or
-10-
deposits under workers' compensation laws, all of which liens aggregate less
than $5,000.
3.13 Accounts Receivable. To the best knowledge of the Company, the
accounts receivable reflected on the Latest Balance Sheet are valid receivables,
are not subject to valid counterclaims or setoffs, and are collectible in
accordance with their terms, except as otherwise described in the Company's
Disclosure Schedule under the caption referencing this Section 3.13, and except
to the extent of the bad debt reserve reflected on the Latest Balance Sheet.
3.14 Tax Matters.
(a) To the best knowledge of the Company, the Company has: (i) timely filed
(or has had timely filed on its behalf) all returns, declarations, reports,
estimates, information returns, and statements ("Returns") required to be filed
or sent by it in respect of any "Taxes" (as defined in subsection (j) below) or
required to be filed or sent by it by any taxing authority having jurisdiction;
(ii) timely and properly paid (or has had paid on its behalf) all Taxes shown to
be due and payable on such Returns; (iii) established on its Latest Balance
Sheet reserves that are adequate for the payment of any Taxes not yet due and
payable; (iv) complied with all applicable laws, rules, and regulations relating
to the withholding of Taxes and the payment thereof (including, without
limitation, withholding of Taxes under Sections 1441 and 1442 of the Internal
Revenue Code of 1986, as amended (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 authorities all amounts required to be
so withheld and paid over under all applicable laws.
(b) There are no liens for Taxes upon any assets of the Company, except
liens for Taxes not yet due.
(c) No deficiency for any Taxes has been proposed, asserted or assessed
against the Company that has not been resolved and paid in full. No waiver,
extension or comparable consent given by the Company regarding the application
of the statute of limitations with respect to any Taxes or Returns is
outstanding, nor is any request for any such waiver or consent pending. There
has been no Tax audit or other administrative proceeding or court proceeding
with regard to any Taxes or Returns, nor is any such Tax audit or other
proceeding pending, nor has there been any notice to the Company by any taxing
authority regarding any such Tax, audit or other proceeding, or, to the best
knowledge of the Company, is any such Tax audit or other proceeding threatened
with regard to any Taxes or Returns. The Company does not expect the assessment
of any additional Taxes of the Company and is not aware of any unresolved
questions, claims or disputes concerning the liability for Taxes of the Company.
(d) The Company is not a party to any agreement, contract or arrangement
that would result, separately or in the aggregate, in the payment of any "excess
-11-
parachute payments" within the meaning of Section 280G of the Code and the
consummation of the transactions contemplated by this Agreement will not be a
factor causing payments to be made by the Company that are not deductible (in
whole or in part) under Section 280G of the Code.
(e) The Company has not requested any extension of time within which to
file any Return, which Return has not since been filed.
(f) No property of the Company is property that the Company is or will be
required to treat as being owned by another person under the provisions of
Section 168(f)(8) of the Code (as in effect prior to amendment by the Tax Reform
Act of 1986) or is "tax-exempt use property" within the meaning of Section 168
of the Code.
(g) The Company is not 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 as a result of the Tax Reform Act of 1986 and the
Company has no knowledge that the Internal Revenue Service has proposed any such
adjustment or change in accounting method.
(h) To the best knowledge of the Company, all transactions that could give
rise to an understatement of federal income tax (within the meaning of Section
6661 of the Code as it applied prior to repeal) or an underpayment of tax
(within the meaning of Section 6662 of the Code) were reported in a manner for
which there is substantial authority or were adequately disclosed (or, with
respect to Returns filed before the Closing Date, will be reported in such a
manner or adequately disclosed) on the Returns required in accordance with
Sections 6661(b)(2)(B) and 6662(d)(2)(B) of the Code.
(i) The Company has not engaged in any transaction that would result in a
deemed election under Section 338(e) of the Code, and the Company will not
engage in any such transaction within any applicable "consistency period" (as
such term is defined in Section 338 of the Code).
(j) For purposes of this Agreement, the term "Taxes" means all taxes,
charges, fees, levies, or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, social security,
unemployment, excise, estimated, severance, stamp, occupation, property, or
other taxes, customs duties, fees, assessments, or charges of any kind
whatsoever, including, without limitation, all interest and penalties thereon,
and additions to tax or additional amounts imposed by any taxing authority,
domestic or foreign, upon the Company.
3.15 Contracts and Commitments.
(a) The Company's Disclosure Schedule, under the caption referencing this
Section 3.15, lists the following agreements, whether oral or written, to which
the
-12-
Company is a party, which are currently in effect, and which relate to the
operation of the Company's business: (i) collective bargaining agreement or
contract with any labor union; (ii) bonus, pension, profit sharing, retirement
or other form of deferred compensation plan, other than as described under the
caption referencing Section 3.20 hereof (or excluded by such Section from
inclusion thereunder) in the Company's Disclosure Schedule; (iii)
hospitalization insurance or other welfare benefit plan or practice, whether
formal or informal, other than as described under the caption referencing
Section 3.20 hereof in the Company's Disclosure Schedule (or excluded by such
Section from inclusion thereunder); (iv) stock purchase or stock option plan;
(v) contract for the employment of any officer, individual employee or other
person on a full-time or consulting basis or relating to severance pay for any
such person; (vi) confidentiality agreement; (vii) contract, agreement or
understanding relating to the voting of Common Stock or the election of
directors of the Company; (viii) agreement or indenture relating to the
borrowing of money or to mortgaging, pledging or otherwise placing a lien on any
of the assets of the Company; (ix) guaranty of any obligation for borrowed money
or otherwise; (x) lease or agreement under which it is lessee of, or holds or
operates any property, real or personal, owned by any other party, for which the
annual rental exceeds $10,000; (xi) lease or agreement under which it is lessor
of, or permits any third party to hold or operate, any property, real or
personal, for which the annual rental exceeds $10,000; (xii) contract or group
of related contracts with the same party for the purchase of products or
services under which the undelivered balance of such products or services is in
excess of $10,000; (xiii) contract or group of related contracts with the same
party for the sale of products or services under which the undelivered balance
of such products or services has a sales price in excess of $10,000; (xiv)
contract or group of related contracts with the same party (other than any
contract or group of related contracts for the purchase or sale of products or
services) continuing over a period of more than six months from the date or
dates thereof, not terminable by it on 30 days' or less notice without penalty
and involving more than $10,000; (xv) contract which prohibits the Company from
freely engaging in business anywhere in the world; (xvi) contract for the
delivery or distribution of the Company's services or products (including any
distributor, sales and original equipment manufacturer contract); (xvii)
franchise agreement; (xviii) license agreement or agreement providing for the
payment or receipt of royalties or other compensation by the Company in
connection with the intellectual property rights listed under the caption
referencing Section 3.16 hereof in the Company's Disclosure Schedule; (xix)
contract or commitment for capital expenditures in excess of $10,000; (xx)
agreement for the sale of any capital asset; (xxi) contract with any affiliate
which in any way relates to the Company (other than for employment on customary
terms); or (xxii) other agreement which is either material to the Company's
business or was not entered into in the ordinary course of business.
(b) The Company has performed all obligations required to be performed by
it in connection with the contracts or commitments required to be disclosed in
the Company's Disclosure Schedule under the caption referencing this Section
3.15 and is not in receipt of any claim of default under any contract or
commitment required
-13-
to be disclosed under such caption; the Company has no present expectation or
intention of not fully performing any material obligation pursuant to any
contract or commitment required to be disclosed under such caption; and the
Company has no knowledge of any material breach or anticipated breach by any
other party to any contract or commitment required to be disclosed under such
caption.
(c) Prior to the date of this Agreement, Purchaser and Merger Subsidiary
have been supplied with a true and correct copy of each written contract or
commitment, and a written description of each oral contract or commitment,
referred to under the caption referencing this Section 3.15 in the Company's
Disclosure Schedule, together with all amendments, waivers or other changes
thereto.
3.16 Intellectual Property Rights. The Company's Disclosure Schedule
describes under the caption referencing this Section 3.16 all rights in patents,
patent applications, trademarks, service marks, trade names, corporate names,
copyrights, mask works, trade secrets, know-how or other intellectual property
rights owned by, licensed to or otherwise controlled by the Company or used in,
developed for use in or necessary to the conduct of the Company's business as
now conducted. The Company owns and possesses all right, title and interest, or
holds a valid license, in and to the rights set forth under such caption. The
Company's Disclosure Schedule describes under the caption referencing this
Section 3.16 all intellectual property rights which have been licensed to third
parties and those intellectual property rights which are licensed from third
parties. The Company has taken all commercially reasonable action to protect the
intellectual property rights set forth under such caption. The Company has not
received any notice of, nor are there any facts known to the Company which
indicate a likelihood of, any infringement or misappropriation by, or conflict
from, any third party with respect to the intellectual property rights which are
listed; no claim by any third party contesting the validity of any intellectual
property rights listed in the Company's Disclosure Schedule has been made, is
currently outstanding or, to the best knowledge of the Company, is threatened;
the Company has not received any notice of any infringement, misappropriation or
violation by the Company of any intellectual property rights of any third
parties and to the best knowledge of the Company, it has not infringed,
misappropriated or otherwise violated any such intellectual property rights;
and, to the best knowledge of the Company, no infringement, illicit copying,
misappropriation or violation has occurred or will occur with respect to
products currently being sold by the Company or with respect to the products
currently under development (in their present state of development) or with
respect to the conduct of the Company's business as now conducted.
3.17 Litigation. Except as set forth in the Company's Disclosure Schedule
under the caption referencing this Section 3.17, there are no actions, suits,
proceedings, orders or investigations pending or, to the best knowledge of the
Company, threatened against the Company, at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign.
-14-
3.18 Warranties. The Company's Disclosure Schedule summarizes under the
caption referencing this Section 3.18 all claims outstanding, pending or, to the
best knowledge of the Company, threatened for breach of any warranty relating to
any services sold by the Company prior to the date hereof. The description of
the Company's service warranties set forth under the caption referencing this
Section 3.18 is correct and complete. The reserves for warranty claims on the
Latest Balance Sheet are consistent with the Company's prior practices and are
projected in good faith to be fully adequate to cover all warranty claims made
or to be made against any services of the Company sold prior to the date
thereof.
3.19 Employees. (a) To the best knowledge of the Company, no executive
employee of the Company and no group of the Company's employees has any plans to
terminate his or its employment; (b) the Company has complied in all material
respects with all laws relating to the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other taxes; (c) the Company has no material
labor relations problem pending and its labor relations are satisfactory; (d)
there are no workers' compensation claims pending against the Company nor is the
Company aware of any facts that would give rise to such a claim; (e) to the best
knowledge of the Company, no employee of the Company is subject to any secrecy
or noncompetition agreement or any other agreement or restriction of any kind
that would impede in any way the ability of such employee to carry out fully all
activities of such employee in furtherance of the business of the Company; and
(f) to the best knowledge of the Company, no employee or former employee of the
Company has any claim with respect to any intellectual property rights of the
Company set forth under the caption referencing Section 3.16 hereof in the
Disclosure Schedule. The Company's Disclosure Schedule, under the caption
referencing this Section 3.19, lists, as of the date set forth in the Company's
Disclosure Schedule, each employee of the Company and the position, title,
remuneration (including any scheduled salary or remuneration increases), date of
employment and accrued vacation pay of each such employee.
3.20 Employee Benefit Plans.
(a) Except as set forth under the caption referencing Section 3.20 hereof
in the Company's Disclosure Schedule, with respect to all employees and former
employees of the Company and all dependents and beneficiaries of such employees
and former employees, (i) the Company does not maintain or contribute to any
nonqualified deferred compensation or retirement plans, contracts or
arrangements; (ii) the Company does not maintain or contribute to any qualified
defined contribution plans (as defined in Section 3(34) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 414(i)
of the Code); (iii) the Company does not maintain or contribute to any qualified
defined benefit plans (as defined in Section 3(35) of ERISA or Section 414(j) of
the Code); and (iv) the Company does not maintain or contribute to any employee
welfare benefit plans (as defined in Section 3(1) of ERISA).
-15-
(b) To the extent required (either as a matter of law or to obtain the
intended tax treatment and tax benefits), all employee benefit plans (as defined
in Section 3(3) of ERISA) which the Company does maintain or to which it does
contribute (collectively, the "Plans") comply in all material respects with the
requirements of ERISA and the Code. With respect to the Plans, (i) all required
contributions which are due have been made and a proper accrual has been made
for all contributions due in the current fiscal year; (ii) there are no actions,
suits or claims pending, other than routine uncontested claims for benefits; and
(iii) there have been no prohibited transactions (as defined in Section 406 of
ERISA or Section 4975 of the Code).
(c) Purchaser and Merger Subsidiary have received true and complete copies
of (i) the most recent determination letter, if any, received by the Company
from the Internal Revenue Service regarding the Plans which the Company
maintains or to which it contributes and any amendment to any Plan made
subsequent to any Plan amendments covered by any such determination letter; (ii)
the most recent financial statements and annual report or return for the Plans;
and (iii) the most recently prepared actuarial valuation reports.
(d) The Company does not contribute (and has not ever contributed) to any
multi-employer plan, as defined in Section 3(37) of ERISA. The Company has no
actual or potential liabilities under Section 4201 of ERISA for any complete or
partial withdrawal from a multi-employer plan. The Company has no actual or
potential liability for death or medical benefits after separation from
employment, other than (i) death benefits under the employee benefit plans or
programs (whether or not subject to ERISA) set forth under the caption
referencing this Section 3.20 in the Company's Disclosure Schedule and (ii)
health care continuation benefits described in Section 4980B of the Code.
(e) Neither the Company nor any of its directors, officers, employees or
other "fiduciaries", as such term is defined in Section 3(21) of ERISA, has
committed any breach of fiduciary responsibility imposed by ERISA or any other
applicable law with respect to the Plans which would subject the Company,
Purchaser, Merger Subsidiary, the Surviving Corporation, Purchaser's
subsidiaries or any of their respective directors, officers or employees to any
liability under ERISA or any applicable law.
(f) The Company has not incurred any liability for any tax or civil penalty
or any disqualification of any employee benefit plan (as defined in Section 3(3)
of ERISA) imposed by Sections 4980B and 4975 of the Code and Part 6 of Title I
and Section 502(i) of ERISA.
3.21 Insurance. The Company's Disclosure Schedule, under the caption
referencing this Section 3.21, lists and briefly describes each insurance policy
maintained by the Company with respect to the Company's properties, assets and
operations and sets forth the date of expiration of each such insurance policy.
All of such insurance policies are in full force and effect and are issued by
insurers of
-16-
recognized responsibility. The Company is not in default in any material respect
with respect to its obligations under any of such insurance policies.
3.22 Affiliate Transactions. Except as disclosed under the caption
referencing this Section 3.22 in the Company's Disclosure Schedule, and other
than pursuant to this Agreement, neither the Shareholders nor any officer,
director or employee of the Company or any member of the immediate family of any
such Shareholder, officer, director or employee, or any entity in which any of
such persons owns any beneficial interest (other than any publicly-held
corporation whose stock is traded on a national securities exchange or in the
over-the-counter market and less than one percent of the stock of which is
beneficially owned by any of such persons) (collectively "insiders"), has any
agreement with the Company (other than normal employment arrangements) or any
interest in any property, real, personal or mixed, tangible or intangible, used
in or pertaining to the business of the Company (other than ownership of capital
stock of the Company). None of the insiders has any direct or indirect interest
in any competitor, supplier or customer of the Company or in any person, firm or
entity from whom or to whom the Company leases any property, or in any other
person, firm or entity with whom the Company transacts business of any nature.
For purposes of this Section 3.22, the members of the immediate family of an
officer, director or employee shall consist of the spouse, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers-
and sisters-in-law of such officer, director or employee.
3.23 Customers. The Company's Disclosure Schedule, under the caption
referencing this Section 3.23, lists the 10 largest customers for the fiscal
year ended December 31, 1995 and for the six-month period ended June 30, 1996
and sets forth opposite the name of each such customer the approximate
percentage of revenues for the Company attributable to such customer for each
such period. Since the Balance Sheet Date, no customer listed on the Company's
Disclosure Schedule under the caption referencing this Section 3.23 has
indicated that it will stop or decrease the rate of business done with the
Company except for changes in the ordinary course of the Company's business.
3.24 Officers and Directors; Bank Accounts. The Company's Disclosure
Schedule, under the caption referencing this Section 3.24, lists all officers
and directors of the Company and all of the Company's bank accounts (designating
each authorized signer).
3.25 Compliance with Laws; Permits.
(a) To the best knowledge of the Company, the Company and its officers,
directors, agents and employees have complied in all material respects with all
applicable laws, regulations and other requirements, including, but not limited
to, federal, state, local and foreign laws, ordinances, rules, regulations and
other requirements pertaining to product labeling, consumer products safety,
equal employment opportunity, employee retirement, affirmative action and other
hiring
-17-
practices, occupational safety and health, workers' compensation, unemployment
and building and zoning codes, which materially affect the business of the
Company or the Real Property and to which the Company may be subject, and the
Company is not aware of any claims filed against it alleging a violation of any
such laws, regulations or other requirements. The Company has no knowledge of
any action, pending or threatened, to change the zoning or building ordinances
or any other laws, rules, regulations or ordinances affecting the Real Property.
The Company is not relying on any exemption from or deferral of any such
applicable law, regulation or other requirement that would not be available to
Purchaser after it acquires the Company's properties, assets and business.
(b) The Company has, in full force and effect, all licenses, permits and
certificates (collectively "Permits"), from federal, state and local authorities
(including, without limitation, federal and state agencies regulating
occupational health and safety) necessary to conduct its business and own and
operate its properties. A true, correct and complete list of all the Permits is
set forth under the caption referencing this Section 3.25 in the Company's
Disclosure Schedule. The Company has conducted its business in compliance with
all material terms and conditions of the Permits.
(c) The Company has not made or agreed to make gifts of money, other
property or similar benefits (other than incidental gifts of articles of nominal
value) to any actual or potential customer, supplier, governmental employee or
any other person in a position to assist or hinder the Company in connection
with any actual or proposed transaction.
(d) In particular, but without limiting the generality of the foregoing,
the Company has not violated and has no liability, and has not received a notice
or charge asserting any violation of or liability under, the federal
Occupational Safety and Health Act of 1970 or any other federal or state acts
(including rules and regulations thereunder) regulating or otherwise affecting
employee health and safety.
3.26 Brokerage. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company.
3.27 Accounting Matters. Neither the Company nor, to the best of its
knowledge, any of its affiliates, has taken or agreed to take any action not
authorized or provided for in this Agreement that would prevent Purchaser from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests.
3.28 Disclosure. Neither this Agreement nor any of the Exhibits hereto
nor any of the documents delivered by or on behalf of the Company pursuant to
Article VII hereof nor the Company's Disclosure Schedule nor any of the
financial
-18-
statements referred to in Section 3.08 hereof, taken as a whole, contains any
untrue statement of a material fact regarding the Company or its business or any
of the other matters dealt with in this Article III relating to the Company or
the transactions contemplated by this Agreement. This Agreement, the Exhibits
hereto, the documents delivered to Purchaser and Merger Subsidiary by or on
behalf of the Company pursuant to Article VII hereof, the Company's Disclosure
Schedule and the financial statements referred to in Section 3.08 hereof, taken
as a whole, do not omit any material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which they were
made, not misleading, and there is no fact which has not been disclosed to
Purchaser or Merger Subsidiary of which any officer or director of the Company
is aware which materially affects adversely or could reasonably be anticipated
to materially affect adversely the business, including operating results,
assets, customer relations, employee relations and business prospects, of the
Company.
3.29 S Corporation. The Company is, and at all times since its inception
has been, an S corporation within the meaning of Section 1361 et seq. of the
Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND MERGER SUBSIDIARY
---------------------
Purchaser and Merger Subsidiary, jointly and severally, hereby represent
and warrant to the Company that, except as set forth in the Disclosure Schedule
delivered by the Purchaser and Merger Subsidiary to the Company on the date
hereof (the "Purchaser's Disclosure Schedule") (which Disclosure Schedule sets
forth the exceptions to the representations and warranties contained in this
Article IV under captions referencing the Sections to which such exceptions
apply):
4.01 Incorporation and Corporate Power. Each of Purchaser and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Minnesota, with the requisite corporate
power and authority to enter into this Agreement and the Articles of Merger and
perform its obligations hereunder and thereunder. Each of Purchaser and Merger
Subsidiary has the corporate power and authority and all authorizations,
licenses, permits and certifications necessary to own and operate its properties
and to carry on its business as now conducted. The copies of the Purchaser's
and Merger Subsidiary's Articles of Incorporation and Bylaws which have been
furnished by the Purchaser and Merger Subsidiary to the Company prior to the
date hereof reflect all amendments made thereto and are correct and complete as
of the date hereof. Each of Purchaser and Merger Subsidiary is qualified to do
business as a foreign corporation in every jurisdiction in which the nature of
their business or their ownership of property requires it to be so qualified,
except for those jurisdictions in which the failure to be so qualified would
not, individually or in the aggregate, have a material adverse effect on the
Purchaser's or Merger Subsidiary's business or results of operations.
-19-
4.02 Execution, Delivery; Valid and Binding Agreement. The execution,
delivery and performance of this Agreement, by Purchaser and Merger Subsidiary,
and the Articles of Merger, by Merger Subsidiary, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite corporate action, and no other corporate proceedings
on their part are necessary to authorize the execution, delivery or performance
of this Agreement or the Articles of Merger. This Agreement has been duly
executed and delivered by Purchaser and Merger Subsidiary and constitutes the
valid and binding obligation of Purchaser and Merger Subsidiary, enforceable in
accordance with its terms, and the Articles of Merger, when executed and
delivered by Merger Subsidiary, will constitute the valid and binding obligation
of Merger Subsidiary, enforceable in accordance with its terms.
4.03 No Breach. The execution, delivery and performance of this Agreement
and the Articles of Merger by Purchaser and Merger Subsidiary and the
consummation by Purchaser and Merger Subsidiary of the transactions contemplated
hereby and thereby do not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation of, result in
the creation of a right of termination or acceleration or any lien, security
interest, charge or encumbrance upon any assets of Purchaser or Merger
Subsidiary, or require any authorization, consent, approval, exemption or other
action by or notice to any court or other governmental body, under the
provisions of the Articles of Incorporation or Bylaws of either Purchaser or
Merger Subsidiary or any indenture, mortgage, lease, loan agreement or other
agreement or instrument by which either Purchaser or Merger Subsidiary is bound
or affected, or any law, statute, rule or regulation or order, judgment or
decree to which either Purchaser or Merger Subsidiary is subject.
4.04 Merger Subsidiary. All of the outstanding capital stock of Merger
Subsidiary is owned by Purchaser free and clear of any lien, claim or
encumbrance or any agreement with respect thereto. Since the date of its
incorporation, Merger Subsidiary has not engaged in any activity of any nature
except in connection with or as contemplated by this Agreement and the Articles
of Merger. Merger Subsidiary has no liabilities of any kind or nature.
4.05 Governmental Authorities; Consents. Except for (i) the filing of the
Articles of Merger with the Secretary of State of the State of Minnesota and
SDAT, (ii) the filing of an Additional Listing Application with Nasdaq, (iii)
filings pursuant to the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), (iv) filings pursuant to state
securities or blue sky laws and the rules and regulations thereunder, and (v)
filings pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), no consent, approval or authorization of, or filing with, any
governmental or regulatory authority or any other party or person is required to
be obtained by either Purchaser or Merger Subsidiary in connection with its
execution, delivery and performance of this
-20-
Agreement or the Articles of Merger or the transactions contemplated hereby or
thereby.
4.06 Brokerage. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of Purchaser or
Merger Subsidiary.
4.07 Capital Stock. The authorized capital stock of Purchaser consists of
40,533,333 shares of capital stock, $.01 par value, of which 1,600,000 shares
are designated as Series A Convertible Preferred Stock. As of the date hereof,
9,342,545 shares of Purchaser Common Stock, and no shares of Series A
Convertible Preferred Stock, are issued and outstanding. All of such
outstanding shares of Purchaser Common Stock have been duly authorized and are
validly issued, fully paid and nonassessable.
4.08 Exchange Act Reports. (a) Prior to the execution of this Agreement,
the Purchaser has delivered to the Company and the Shareholders complete and
accurate copies of a (i) Purchaser's Annual Report on Form 10-K for the year
ended December 31, 1995 (the "Purchaser 10-K Report"), as filed under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the
Securities and Exchange Commission (the "SEC"), (ii) all of Purchaser's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30,
1996 and September 30, 1996 (collectively, the "Purchaser 10-Q Reports"), as
filed under the Exchange Act with the SEC and (iii) all of Purchaser's proxy
statements and annual reports to shareholders used in connection with meetings
of Purchaser Shareholders held since January 1, 1996. As of their dates, such
documents (x) did not contain an 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 and (y) complied as to form in all material respects with
applicable laws and rules and regulations of the SEC. Since August 1, 1995,
Purchaser has filed in a timely manner all reports that it was required to file
with the SEC pursuant to the Exchange Act and the rules and regulations
thereunder.
(b) The financial statements (including any footnotes thereto) of Purchaser
contained in the Purchaser 10-K Report and the Purchaser 10-Q Reports were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved and fairly present the
consolidated financial position of Purchaser and its subsidiaries as of the
dates thereof and the consolidated results of operations, changes in
shareholders' equity and cash flows for the periods then ended.
-21-
4.09 Validity of Purchaser Common Stock. The Merger Shares issued
pursuant to Article II hereof will, when issued, be duly authorized, validly
issued, fully paid and nonassessable.
4.10 No Material Adverse Changes. Since September 30, 1996, there has
been no material adverse change in the assets, financial condition, operating
results, customer, employee or supplier relations, business conditions or
prospects of the Purchaser or Merger Subsidiary.
4.11 Litigation. Except as set forth in the Purchaser's Disclosure
Schedule under the caption referencing this Section 4.11, there are no actions,
suits, proceedings, orders or investigations pending or, to the best of
knowledge of the Purchaser, threatened against the Purchaser or Merger
Subsidiary at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
4.12 Disclosure. Neither this Agreement nor any of the Exhibits hereto
nor any of the documents delivered by or on behalf of the Purchaser or the
Merger Subsidiary pursuant to Article VII hereof nor the Purchaser's Disclosure
Schedule nor any of the financial statements referred to in Section 4.08 hereof,
taken as a whole, contains any untrue statement of a material fact regarding the
Purchaser or the Merger Subsidiary or their business or any of the other matters
dealt with in this Article IV relating to the Purchaser or the Merger Subsidiary
or the transactions contemplated by this Agreement. This Agreement, the
Exhibits hereto, the documents delivered to the Company by or on behalf of the
Purchaser or the Merger Subsidiary pursuant to Article VII hereof, the
Purchaser's Disclosure Schedule and the financial statements referred to in
Section 4.08 hereof, taken as a whole, do not omit any material fact necessary
to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading, and there is no fact
which has not been disclosed to the Company of which any officer or director of
the Purchaser or the Merger Subsidiary is aware which materially affects
adversely or could reasonably be anticipated to materially affect adversely the
business, including operating results, assets, customer relations, employee
relations and business prospects, of the Purchaser or the Merger Subsidiary.
ARTICLE V
COVENANTS OF THE COMPANY
------------------------
5.01 Conduct of the Business. The Company shall observe each term set
forth in this Section 5.01 and agrees that, from the date hereof until the
Effective Time, unless otherwise consented to by Purchaser or Merger Subsidiary
in writing:
(a) The business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of the
Company's
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business, on an arm's-length basis and in accordance in all material respects
with all applicable laws, rules and regulations and the Company's past custom
and practice;
(b) The Company shall not, directly or indirectly, do or permit to occur
any of the following: (i) issue or sell any additional shares of, or any
options, warrants, conversion privileges or rights of any kind to acquire any
shares of, any of its capital stock; (ii) sell, pledge, dispose of or encumber
any of its assets, except in the ordinary course of business; (iii) amend or
propose to amend its Articles of Incorporation or Bylaws; (iv) split, combine or
reclassify any outstanding shares of Common Stock, or declare, set aside or pay
any dividend or other distribution payable in cash, stock, property or otherwise
with respect to shares of Common Stock, except that the Company shall be
permitted to pay a cash distribution to the Shareholders in an amount of the Tax
liability of the Shareholders (estimated in good faith by the Company as of the
Closing Date) relating to the income of the Company earned on or prior to the
Effective Date and not previously included in the personal Tax returns of the
Shareholders; (v) redeem, purchase or acquire or offer to acquire any shares of
Common Stock or other securities of the Company; (vi) acquire (by merger,
exchange, consolidation, acquisition of stock or assets or otherwise) any
corporation, partnership, joint venture or other business organization or
division or material assets thereof; (vii) incur any indebtedness for borrowed
money or issue any debt securities except the borrowing of working capital in
the ordinary course of business and consistent with past practice and the
borrowings set forth in the Company's Disclosure Schedule under the caption
referencing Section 3.11; (viii) permit any accounts payable owed to trade
creditors to remain outstanding more than 60 days; (ix) accelerate, beyond the
normal collection cycle, collection of accounts receivable; or (x) enter into or
propose to enter into, or modify or propose to modify, any agreement,
arrangement or understanding with respect to any of the matters set forth in
this Section 5.01(b);
(c) The Company shall not, directly or indirectly, (i) enter into or
modify any employment, severance or similar agreements or arrangements with, or
grant any bonuses, salary increases, severance or termination pay to, any
officers or directors or consultants; or (ii) in the case of employees, officers
or consultants who earn in excess of $50,000 per year, take any action with
respect to the grant of any bonuses, salary increases, severance or termination
pay or with respect to any increase of benefits payable in effect on the date
hereof, except distributions to the Shareholders and bonuses paid to the
directors of the Company as set forth in the Company's Disclosure Schedule under
the caption referencing Section 3.11;
(d) The Company shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement for
the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director;
-23-
(e) The Company shall not cancel or terminate its current insurance
policies or cause any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies providing
coverage equal to or greater than the coverage under the canceled, terminated or
lapsed policies for substantially similar premiums are in full force and effect;
(f) The Company shall (i) use its commercially reasonable efforts to
preserve intact the Company's business organization and goodwill, keep available
the services of the Company's officers and employees as a group and maintain
satisfactory relationships with suppliers, distributors, customers and others
having business relationships with the Company; (ii) confer on a regular and
frequent basis with representatives of Purchaser or Merger Subsidiary to report
operational matters and the general status of ongoing operations; (iii) not
intentionally take any action which would render, or which reasonably may be
expected to render, any representation or warranty made by it in this Agreement
untrue at the Closing; (iv) notify Purchaser and Merger Subsidiary of any
emergency or other change in the normal course of the Company's business or in
the operation of the Company's properties and of any governmental or third party
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) if such emergency, change, complaint, investigation or
hearing would be material, individually or in the aggregate, to the business,
operations or financial condition of the Company or to the Company's,
Purchaser's or Merger Subsidiary's ability to consummate the transactions
contemplated by this Agreement and the Plan of Merger; and (v) promptly notify
Purchaser and Merger Subsidiary in writing if the Company shall discover that
any representation or warranty made by it in this Agreement was when made, or
has subsequently become, untrue in any material respect;
(g) The Company shall (i) file any Tax returns, elections or information
statements with respect to any liabilities for Taxes of the Company or other
matters relating to Taxes of the Company which pursuant to applicable law must
be filed prior to the Closing Date; (ii) promptly upon filing provide copies of
any such Tax returns, elections or information statements to Purchaser and
Merger Subsidiary; (iii) make any such Tax elections or other discretionary
positions with respect to Taxes taken by or affecting the Company only upon
prior consultation with and consent of Purchaser or Merger Subsidiary; and (iv)
not amend any Return; and
(h) The Company shall not perform any act referenced by (or omit to
perform any act which omission is referenced by) the terms of Section 3.11.
5.02 Access to Books and Records. Between the date hereof and the Closing
Date, the Company shall afford to Purchaser and Merger Subsidiary and authorized
representatives thereof (the "Purchaser's Representatives") full access at all
reasonable times and upon reasonable notice to the offices, properties, books,
records, officers, employees and other items of the Company, and the work papers
of Kagen, ▇▇▇▇▇▇▇ & ▇▇▇▇▇, the Company's independent accountants, relating to
work
-24-
done with respect to the Company for each of the fiscal years ended December 31,
1993, 1994, and 1995, and otherwise provide such assistance as is reasonably
requested by Purchaser and Merger Subsidiary in order that Purchaser and Merger
Subsidiary may have a full opportunity to make such investigation and evaluation
as it shall reasonably desire to make of the business and affairs of the
Company. In addition, the Company and its officers and directors shall
cooperate fully (including providing introductions, where necessary) with
Purchaser to enable Purchaser to contact such third parties, including
customers, prospective customers, specifying agencies, vendors, or suppliers of
the Company as Purchaser deems reasonably necessary to complete its due
diligence; provided that, Purchaser agrees not to initiate such contacts without
the prior approval of the Company, which approval will not be unreasonably
withheld.
5.03 Regulatory Filings. The Company shall, as promptly as practicable
after the execution of this Agreement, make or cause to be made all filings and
submissions under any laws or regulations applicable to the Company for the
consummation of the transactions contemplated herein. The Company will
coordinate and cooperate with Purchaser and Merger Subsidiary in exchanging such
information, will not make any such filing without providing to Purchaser and
Merger Subsidiary a final copy thereof for their review and consent at least two
full business days in advance of the proposed filing and will provide such
reasonable assistance as Purchaser and Merger Subsidiary may request in
connection with all of the foregoing.
5.04 Conditions. The Company shall take all commercially reasonable
actions necessary or desirable to cause the conditions set forth in Section 7.01
to be satisfied and to consummate the transactions contemplated herein as soon
as reasonably possible after the satisfaction thereof (but in any event within
three business days of such date).
5.05 No Negotiations. The Company shall not enter into any negotiations
or agreement, or make any undertaking or commitment, (i) to merge or consolidate
with, or acquire substantially all of the property and assets of, any other
corporation or person, (ii) to sell, lease or exchange all or substantially all
of its properties and assets to any other corporation or person or (iii)
otherwise to cause the ownership or control of the Company to be transferred to
any party other than Purchaser.
ARTICLE VI
COVENANTS OF PURCHASER AND MERGER SUBSIDIARY
--------------------------------------------
Purchaser and Merger Subsidiary covenant and agree with the Company as
follows:
6.01 Regulatory Filings. Purchaser or Merger Subsidiary shall, as
promptly as practicable after the execution of this Agreement, make or cause to
be made all
-25-
filings and submissions under any laws or regulations applicable to Purchaser
and Merger Subsidiary for the consummation of the transactions contemplated
herein. Purchaser and Merger Subsidiary will coordinate and cooperate with the
Company in exchanging such information, will not make any such filing without
providing to the Company a final copy thereof for its review and consent at
least two full business days in advance of the proposed filing and will provide
such reasonable assistance as the Company may request in connection with all of
the foregoing.
6.02 Conditions. Purchaser or Merger Subsidiary shall take all
commercially reasonable actions necessary or desirable to cause the conditions
set forth in Section 7.02 to be satisfied and to consummate the transactions
contemplated herein as soon as reasonably possible after the satisfaction
thereof (but in any event within three business days of such date).
6.03 Tax-Free Reorganization Treatment. The Purchaser and Merger
Subsidiary will not knowingly take any action that would prevent the Merger from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
ARTICLE VII
CONDITIONS TO CLOSING
---------------------
7.01 Conditions to Purchaser's and Merger Subsidiary's Obligations. The
obligation of Purchaser and Merger Subsidiary to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of the following
conditions at or before the Effective Time:
(a) The representations and warranties set forth in Article III hereof
shall be true and correct in all material respects at and as of the Effective
Time as though then made and as though the Effective Time had been substituted
for the date of this Agreement throughout such representations and warranties
(without taking into account any disclosures by the Company of discoveries,
events or occurrences arising on or after the date hereof), except that any such
representation or warranty made as of a specified date (other than the date
hereof) shall only need to have been true on and as of such date;
(b) The Company shall have performed in all material respects all of the
covenants and agreements required to be performed and complied with by it under
this Agreement prior to the Effective Time;
(c) The Company shall have obtained, or caused to be obtained, each
consent and approval necessary in order that the transactions contemplated
herein not constitute a breach or violation of, or result in a right of
termination or acceleration of, or creation of any encumbrance on any of the
Company's assets pursuant to the provisions of, any agreement, arrangement or
undertaking of or affecting the Company or any license, franchise or permit of
or affecting the Company, except for
-26-
any consent required under the Company's existing line of credit and term note
with Signet Bank/Maryland;
(d) This Agreement, the Articles of Merger and the Plan of Merger shall
have been duly and validly approved by the shareholders of the Company, and the
Company shall have delivered to Purchaser evidence, in form satisfactory to
Purchaser's counsel, of such authorization and approval, and the Articles of
Merger shall have been duly executed by the Company;
(e) All material governmental filings, authorizations and approvals that
are required for the consummation of the transactions contemplated by this
Agreement or the Articles of Merger will have been duly made and obtained;
(f) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, domestic or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated hereby or seeking to obtain material damages in
connection with such transactions, (ii) seeking to prohibit direct or indirect
ownership or operation by Purchaser or Merger Subsidiary of all or a material
portion of the business or assets of the Company and its subsidiaries, or to
Purchaser or Merger Subsidiary or any of their subsidiaries or the Company to
dispose of or to hold separately all or a material portion of the business or
assets of Purchaser or Merger Subsidiary and their subsidiaries or of the
Company, as a result of the transactions contemplated hereby, (iii) seeking to
require direct or indirect transfer or sale by Purchaser or Merger Subsidiary of
any of the shares of Company Common Stock, (iv) seeking to invalidate or render
unenforceable any material provision of this Agreement or the Articles of Merger
or any of the other agreements attached as exhibits hereto (collectively, the
"Related Agreements"), or (v) otherwise relating to and materially adversely
affecting the transactions contemplated hereby;
(g) There shall not be any action taken, or any statute, rule, regulation,
judgment, order or injunction enacted, entered, enforced, promulgated, issued or
deemed applicable to the transactions contemplated hereby by any federal, state
or foreign court, government or governmental authority or agency, which would
reasonably be expected to result, directly or indirectly, in any of the
consequences referred to in Section 7.01(f) hereof;
(h) Purchaser or Merger Subsidiary shall not have discovered any fact or
circumstance existing as of the date of this Agreement which has not been
disclosed to Purchaser and Merger Subsidiary as of the date of this Agreement
regarding the business, assets, properties, condition (financial or otherwise),
results of operations or prospects of the Company which is, individually or in
the aggregate with other such facts and circumstances, materially adverse to the
Company or to the value of the shares of Company Common Stock;
-27-
(i) There shall have been no damage, destruction or loss of or to any
property or properties owned or used by the Company, whether or not covered by
insurance, which, in the aggregate, has, or would be reasonably likely to have,
a material adverse effect on the Company;
(j) None of the outstanding shares of Company Common Stock shall be
qualified to be dissenting shares as of the Effective Time;
(k) Purchaser shall have received from counsel for the Company a written
opinion, dated the Effective Time, addressed to Purchaser and satisfactory to
Purchaser's counsel, in the form and substance substantially as set forth as
Exhibit 7.01;
(l) Purchaser shall have received from its accountants, Ernst & Young, a
written opinion dated the Closing Date to the effect that pooling-of-interest
accounting is appropriate for the Merger if it is closed and consummated in
accordance with the terms of this Agreement; and
(m) Prior to the Effective Time, the Company shall have delivered to
Purchaser all of the following:
(i) certificates of the President substantially in the form set
forth in Exhibit 7.01(m) attached hereto, dated as of the date of the
Effective Time, stating that the conditions precedent set forth in
subsections (a) and (b) above have been satisfied;
(ii) copies of the third party and governmental consents and
approvals and of the authorizations referred to in subsections (c), (d) and
(e) above;
(iii) the Company's minute books, stock transfer records, corporate
seal and other materials related to the Company's corporate administration;
(iv) a copy of the Articles of Incorporation of the Company,
certified by SDAT, and Certificate of Good Standing from SDAT evidencing
the good standing of the Company in Maryland;
(v) a copy of each of (X) the text of the resolutions adopted by
the board of directors of the Company authorizing the execution, delivery
and performance of this Agreement and the Articles of Merger and the
consummation of all of the transactions contemplated by this Agreement and
the Articles of Merger, (Y) the action of the Shareholders approving the
Plan of Merger and (Z) the bylaws of the Company; along with certificates
executed on behalf of the Company by its corporate secretary certifying to
Purchaser that such copies are true, correct and complete copies of such
resolutions, action and bylaws, respectively, and that such resolutions,
action and bylaws were duly adopted or taken and have not been amended or
rescinded;
-28-
(vi) resignations (effective as of the Effective Time) from such of
the Company's officers as Purchaser shall have requested prior to the
Effective Time;
(vii) incumbency certificates executed on behalf of the Company by
its corporate secretary certifying the signature and office of each officer
executing this Agreement and the Articles of Merger and the Related
Agreements executed by the Company;
(viii) an executed copy of each of the Related Agreements; and
(ix) such other certificates, documents and instruments as
Purchaser reasonably requests related to the transactions contemplated
hereby.
7.02 Conditions to the Company's Obligations. The obligation of the
Company to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions at or before the
Effective Time:
(a) The representations and warranties set forth in Article IV hereof will
be true and correct in all material respects at and as of the Effective Time as
though then made and as though the Effective Time had been substituted for the
date of this Agreement throughout such representations and warranties, except
that any such representation or warranty made as of a specified date (other than
the date hereof) shall only need to have been true on and as of such date;
(b) Purchaser and Merger Subsidiary shall have performed in all material
respects all the covenants and agreements required to be performed by them under
this Agreement and the Articles of Merger prior to the Effective Time, and
Merger Subsidiary shall have executed the Articles of Merger;
(c) All material governmental filings, authorizations and approvals that
are required for the consummation of the transactions contemplated hereby will
have been duly made and obtained;
(d) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, domestic or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated by this Agreement or the Articles of Merger or seeking
to obtain material damages in connection with such transactions, (ii) seeking to
invalidate or render unenforceable any material provision of this Agreement, the
Articles of Merger or any of the Related Agreements, or (iii) otherwise relating
to and materially adversely affecting the transactions contemplated hereby or
thereby;
(e) There shall not be any action taken, or any statute, rule, regulation,
judgment, order or injunction, enacted, entered, enforced, promulgated, issued
or
-29-
deemed applicable to the transactions contemplated by this Agreement or the
Articles of Merger by any federal, state or foreign court, government or
governmental authority or agency, which would reasonably be expected to result,
directly or indirectly, in any of the consequences referred to in Section
7.02(d) hereof;
(f) The Company shall have received from counsel for Purchaser a written
opinion, dated the Effective Time, addressed to the Company and satisfactory to
the Company's counsel, in the form and substance substantially as set forth as
Exhibit 7.02; and
(g) At or prior to the Effective Time, Purchaser will have delivered to
the Company all of the following:
(i) a certificate of Purchaser's President and Chief Executive
Officer substantially in the form set forth as Exhibit 7.02(g) attached
hereto, dated as of the date of the Effective Time, stating that the
conditions precedent set forth in subsections (a) and (b) above have been
satisfied;
(ii) a copy of each of (X) the text of the resolutions adopted by
the board of directors of Purchaser and Merger Subsidiary authorizing the
execution, delivery and performance of this Agreement and the Articles of
Merger and the consummation of all of the transactions contemplated by this
Agreement and the Articles of Merger and (Y) the bylaws and Articles of
Incorporation of Purchaser and Merger Subsidiary, along with certificates
executed on behalf of each of Purchaser and Merger Subsidiary by its
corporate secretary certifying to the Company that such copies are true,
correct and complete copies of such resolutions, Articles of Incorporation
and bylaws, respectively, and that such resolutions, Articles of
Incorporation and bylaws were duly adopted and have not been amended or
rescinded;
(iii) incumbency certificates executed on behalf of each of
Purchaser and Merger Subsidiary by its corporate secretary certifying the
signature and office of each officer executing this Agreement, the Articles
of Merger and of the Related Agreements as to which such corporation is a
party;
(iv) an executed copy of each of the Related Agreements; and
(v) such other certificates, documents, and instruments as the
Company reasonably requests related to the transactions contemplated
hereby.
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ARTICLE VIII
TERMINATION
-----------
8.01 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) by the mutual consent of Purchaser, Merger Subsidiary and the
Company;
(b) by either Purchaser or Merger Subsidiary, on the one hand, or the
Company, on the other, if there has been a material misrepresentation,
breach of warranty or breach of covenant on the part of the other in the
representations, warranties and covenants set forth in this Agreement;
(c) by either Purchaser or Merger Subsidiary, on the one hand, or the
Company, on the other, if the transactions contemplated by this Agreement
or the Articles of Merger have not been consummated by December 20, 1996;
provided that, neither will be entitled to terminate this Agreement
pursuant to this Section 8.01(c) if such party's willful breach of this
Agreement has prevented the consummation of the transactions contemplated
by this Agreement or the Articles of Merger;
(d) by Purchaser or Merger Subsidiary if, after the date hereof,
there shall have been a material adverse change in the financial condition
or business of the Company or if an event shall have occurred which, so far
as reasonably can be foreseen, would result in any such change, except to
the extent such change is directly caused by Purchaser or Merger
Subsidiary;
8.02 Effect of Termination. In the event of termination of this Agreement
by either Purchaser or Merger Subsidiary, on the one hand, or the Company, on
the other, as provided in Section 8.01, all provisions of this Agreement shall
terminate and there shall be no liability on the part of any of Purchaser,
Merger Subsidiary or the Company or their respective shareholders, officers, or
directors, except that parties shall remain liable for willful breaches of this
Agreement prior to the time of such termination. Notwithstanding the foregoing,
the confidentiality provision of the Letter of Intent, dated October 23, 1996,
will survive, and remain in effect following, termination.
-31-
ARTICLE IX
ADDITIONAL AGREEMENTS
---------------------
9.01 Pooling Accounting. Neither Purchaser nor the Company will take any
action that would prevent the Merger from being accounted for as a pooling-of-
interests.
9.02 Employee Benefit Plans. After the Effective Date, Purchaser shall
take such actions as may be necessary to cause eligible employees of the Company
to become qualified to participate in Purchaser's employee benefit plans;
provided, however, that nothing contained herein shall be construed as requiring
Purchaser or the Surviving Corporation to continue any specific employee benefit
plans or to continue the employment of any specific person.
9.03 Incentive Stock Program. At or prior to the Closing, Purchaser shall
(a) grant employee stock options under Purchaser's 1993 Employee Stock Option
Plan (the "Option Plan") to the individuals and in the amounts listed in Exhibit
9.03, and (b) reserve 80,000 shares of Purchaser Common Stock solely for
issuance to employees and consultants of the Company pursuant to employee stock
options under the Option Plan. Purchaser shall not use such reserved shares for
any other purpose or grant options to acquire such reserved shares to any person
other than employees or consultants of the Company, without the prior written
consent of the Shareholders. The options granted in accordance with this Section
9.03 shall vest annually as to 20 percent of the aggregate number of shares
covered by the options, shall have an exercise price equal to the fair market
value of the Purchaser Common Stock on the date of grant and such other terms as
required by the Option Plan. Purchaser agrees that employees and consultants of
the Company shall be eligible for additional grants of employee stock options,
at the sole discretion of its Board, to the same extent as other employees of
Purchaser and consistent with Purchaser's past practices.
9.04 Product Development. Purchaser and the Company agree to hire a
product manager (the "Product Manager") and to use their best efforts to hire a
mutually agreed upon number of software developers and managers (the "Software
Managers") within sixty (60) days of the Effective Time. Purchaser and the
Company agree to cause the Product Manager and Software Managers to devote
substantially all of their time, attention and efforts to develop clinical
database software, and manage clinical databases, on behalf of the Company.
Purchaser further agrees to provide such software, hardware and additional
personnel as the Company shall commercially reasonably request to support the
Product Manager and Software Managers in the performance of their duties.
Purchaser shall reasonably cooperate, and shall cause its personnel to
reasonably cooperate, with the Company, the Product Manager and the Software
Managers to develop the software and databases necessary to enable the Company
to perform in accordance with the schedules and milestones contained in the
business plan of the Company, which has been prepared jointly by the Company and
Purchaser.
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9.05 Profit Sharing Plan. The Purchaser shall make a payment of up to
$75,000 for liabilities and contributions under the ▇. ▇. ▇▇▇▇▇▇▇▇ & Associates,
Inc. Profit Sharing Plan as properly accrued and reflected on the financial
statements of the Company.
9.06 Outstanding Line of Credit and Term Note. The Purchaser shall make a
payment of the total amount owed on the Company's line of credit and term note
with Signet Bank/Maryland within five business days after the Closing Date and
secure the release of the personal guarantees of each of the Shareholders.
ARTICLE X
MISCELLANEOUS
-------------
10.01 Press Releases and Announcements. Prior to the Effective Time, no
party hereto shall issue any press release (or make any other public
announcement) related to this Agreement or the transactions contemplated hereby
or make any announcement to the employees, customers or suppliers of the Company
without prior written approval of the other party hereto, except as may be
necessary, in the opinion of counsel to the party seeking to make disclosure, to
comply with the requirements of this Agreement, the Articles of Merger or
applicable law. If any such press release or public announcement is so required,
the party making such disclosure shall consult with the other party prior to
making such disclosure, and the parties shall use all reasonable efforts, acting
in good faith, to agree upon a text for such disclosure which is satisfactory to
both parties.
10.02 Expenses. Except as otherwise expressly provided for herein, the
Company, Purchaser and Merger Subsidiary will each pay all of their own expenses
(including attorneys' and accountants' fees) in connection with the negotiation
of this Agreement, the performance of their respective obligations under this
Agreement and the Articles of Merger and the consummation of the transactions
contemplated hereby and thereby (whether consummated or not).
10.03 Amendment and Waiver. This Agreement may not be amended or waived
except in a writing executed by the party against which such amendment or waiver
is sought to be enforced. No course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify or
amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
10.04 Notices. All notices, demands and other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered or three
days after being mailed, if mailed by first class mail, return receipt
requested, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to
Purchaser, Merger
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Subsidiary, the Company and the Shareholders will, unless another address is
specified in writing, be sent to the address indicated below:
Notices to Purchaser or Merger Subsidiary: with a copy to:
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Summit Medical Systems, Inc. ▇▇▇▇▇▇ & Whitney LLP
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Notices to the Company and Shareholders: with a copy to:
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▇. ▇. ▇▇▇▇▇▇▇▇ & Associates, Inc. Galland, Kharasch, ▇▇▇▇▇ &
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇.▇.
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Suite 200
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
10.05 Assignment. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by any party
hereto without the prior written consent of the other parties hereto.
10.06 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
10.07 Complete Agreement. This Agreement, the Articles of Merger and the
Related Agreements and other exhibits hereto, the Company's and Purchaser's
Disclosure Schedules and the other documents referred to herein contain the
complete agreement between the parties and supersede any prior understandings,
agreements or representations by or between the parties, written or oral, which
may have related to the subject matter hereof in any way.
10.08 Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
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10.09 Governing Law. The internal law, without regard for conflicts of
laws principles, of the State of Minnesota will govern all questions concerning
the construction, validity and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SUMMIT MEDICAL SYSTEMS, INC.
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
CLM ACQUISITION CORP.
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
▇. ▇. ▇▇ ▇▇▇▇▇▇ & ASSOCIATES, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President
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