AGREEMENT AND PLAN OF MERGER among VENTIV HEALTH, INC. ACORN ACQUISITION CORP. ADHERIS, INC. and THE STOCKHOLDER REPRESENTATIVE
______________________________________________________________________________
AGREEMENT
AND PLAN OF MERGER
among
VENTIV
HEALTH, INC.
ACORN
ACQUISITION CORP.
ADHERIS,
INC.
and
THE
STOCKHOLDER REPRESENTATIVE
_____________________________________________________________________________
{NY001821;1}
EXECUTION
COPY
AGREEMENT
AND PLAN OF MERGER
AGREEMENT
AND PLAN OF MERGER,
dated
as of February 2, 2006 (the “Agreement”),
by
and among (a) Ventiv Health, Inc., a Delaware corporation (“Parent”);
(b)
Acorn Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of
Parent (“Merger
Sub”);
(c)
Adheris, Inc., a Delaware corporation (the “Company”);
and
(d) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇, solely in his capacity as stockholder representative
(the “Stockholder
Representative”).
W
I T N E
S S E T H
WHEREAS,
Parent has offered to acquire the Company for consideration consisting of (i)
a
combination of cash and Parent Common Stock (as defined in Section 1.2 below)
having an aggregate value of $60 million (the "Base
Purchase Price"),
subject to adjustment as provided herein, and (ii) additional consideration
contingent upon the performance of the Company during 2006, 2007 and 2008,
as
more fully set forth herein (together with the Base Purchase Price, the
“Purchase
Price”)
WHEREAS,
the respective boards of directors of Parent, Merger Sub and the Company have
approved this Agreement and have determined that it is advisable that Merger
Sub
be merged with and into the Company (the “Merger”)
on the
terms and conditions set forth herein and in accordance with the provisions
of
the General Corporation Law of the State of Delaware (the “DGCL”);
WHEREAS,
Parent, Merger Sub and the Company desire to make certain representations and
warranties and other agreements in connection with the Merger;
WHEREAS,
the Company’s capital stock consists of common stock, $.01 par value (the
“Common
Stock”),
Series A Convertible Preferred Stock, $.10 par value (the “Series
A Preferred Stock”),
Series C Convertible Preferred Stock, $.10 par value (the “Series
C Preferred Stock”),
Series D Convertible Preferred Stock, $.10 par value (the “Series
D Preferred Stock”),
and
Series E Convertible Preferred Stock, $.10 par value (the “Series
E Preferred Stock”);
and
WHEREAS,
in order to induce Parent and Merger Sub to enter into this Agreement, (i)
the
holders of a majority of the voting power represented by the Company Stock
are
entering into (a) a Consent, Waiver and Voting Agreement with Parent and (b)
a
written consent to the execution and delivery by the Company of this Agreement
and the consummation by the Company of the transactions contemplated hereby,
(ii) certain key employee-stockholders of the Company are entering into Joinder
Agreements (the “Joinder
Agreements”)
with
the Company and (iii) certain key employees of the Company (the “Key
Employees”)
are
entering into Employment Agreements (the “Key
Employee Employment Agreements”)
with
the Company, in each case concurrently with the execution hereof.
NOW,
THEREFORE, Parent, Merger Sub, the Company and the Stockholder Representative
hereby agree as follows:
ARTICLE
1. DEFINITIONS
1.1 Certain
Matters of Construction
A
reference to an Article, Section, Exhibit or Schedule shall mean an Article
of,
a Section in, or Exhibit or Schedule to this Agreement unless otherwise
expressly stated. The titles and headings herein are for reference purposes
only
and shall not in any manner limit the construction of this Agreement which
shall
be considered as a whole. The words “include,” “includes” and “including” when
used herein shall be deemed in each case to be followed by the words “without
limitation.”
1.2 Certain
Definitions
As
used
herein, the following terms shall have the following meanings:
Additional
Merger Consideration:
any
funds or shares of Parent Common Stock that become available for distribution
with respect to the Company Stock pursuant to Section 2.4, 2.5, 8.1 or 8.2
or as
a result of the release of any portion of the Escrow Fund or the Expense Reserve
or otherwise pursuant to this Agreement.
Affiliate
:
with
respect to any Person, any Person which, directly or indirectly, controls,
is
controlled by, or is under common control with, such Person where control
(including with correlative meaning controlled by and under common control
with)
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and
policies of such Person, whether through the ownership of voting securities,
by
contract or otherwise.
Agreement:
the
meaning set forth in Recitals hereto.
Applicable
Conversion Ratio:
with
respect to each series of Preferred Stock, the sum of the Fixed Conversion
Ratio
and the Variable Conversion Ratio applicable to each such series.
Applicable
Series A Accretion Amount:
the
Series A-1 Accretion Amount for shares of Series A Preferred Stock issued on
January 11, 1995 or the Series A-2 Accretion Amount for shares of Series A
Preferred Stock issued on July 11, 1995.
Applicable
Series C Accretion Amount:
the
Series C-1 Accretion Amount for shares of Series C Preferred Stock issued on
May
19, 1997, the Series C-2 Accretion Amount for shares of Series C Preferred
Stock
issued on September 30, 1997, or the Series C-3 Accretion Amount for shares
of
Series C Preferred Stock issued on December 31, 1997.
Assumed
Closing Date:
February 28, 2006.
Balance
Sheet:
the
meaning set forth in Section 3.5 hereof.
Balance
Sheet Date:
the
meaning set forth in Section 3.5 hereof.
Blackstone:
The
Blackstone Group, ▇.▇.
▇▇▇▇▇▇▇▇▇▇
Agreement:
the
engagement letter agreement between Blackstone and the Company dated September
8, 2004, as amended as of the date of this Agreement.
Blackstone
Fee:
the
investment banking fees payable to Blackstone at the Closing in connection
with
the consummation of the Merger pursuant to the Blackstone
Agreement.
Business
Day:
any day
which is neither a Saturday, nor a Sunday nor a public holiday under the laws
of
United States of America or the State of New York applicable to a national
banking association.
Certificate:
the
meaning set forth in Section 2.6 hereof.
Certificate
of Incorporation:
the
Certificate of Incorporation, as amended, of the Company (including the
Certificate of Designation of each series of the Preferred Stock).
Certificate
of Merger:
the
meaning set forth in Section 2.1 hereof.
Claim:
the
meaning set forth in Section 8.3 hereof.
Closing:
the
meaning set forth in Section 2.9 hereof.
Closing
Consideration per Share:
the
quotient obtained by dividing (i) an amount equal to 97.67% of the Net Closing
Date Cash Distribution by (ii) the number of shares of Common Stock outstanding
at the Effective Time (calculated on a Fully Diluted Basis).
Closing
Date:
the
meaning set forth in Section 2.9 hereof.
Closing
Date Balance Sheet:
the
meaning set forth in Section 2.4(c) hereof.
Closing
Date Cash Distribution:
the
meaning set forth in Section 2.3(a) hereof.
Closing
Net Assets:
the
difference, determined in accordance with GAAP, between the total assets
reflected on the Closing Date Balance Sheet and the total Liabilities of the
Company reflected on the Closing Date Balance Sheet (including accrued and
unpaid vacation to the extent required in accordance with GAAP).
Closing
Net Assets Statements:
the
meaning set forth in Section 2.4(c).
Code:
the
United States Federal Internal Revenue Code of 1986, as amended.
Common
Stock:
the
meaning set forth in Recitals hereto.
Company:
the
meaning set forth in Recitals hereto.
Company
Disclosure Schedule:
the
meaning set forth in Article 3 hereof.
Company
Option:
an
option to purchase Common Stock granted under the Company Option
Plans.
Company
Option Plans:
the
Company’s 1994 Incentive and Non-Statutory Stock Option Plan and the Company’s
2004 Stock Incentive Plan.
Company
Stock:
all
Common Stock and Preferred Stock outstanding at the Effective Time.
Company
Stock Percentage:
100
minus the Designated Option Share Percentage.
Contract:
any
contract, agreement, indenture, note, bond, loan, mortgage, license, instrument,
lease, commitment or other arrangement or agreement.
Designated
Option:
an
Outstanding Option held by a person who is not an accredited investor within
the
meaning of Rule 501 under the Securities Act and is set forth on Schedule
6.5.
Designated
Option Share:
a share
of Company Stock issued upon exercise of a Designated Option.
Designated
Option Share Earnout Amount:
the
Designated Option Share Percentage of each Earnout Amount.
Designated
Option Share Percentage:
the
percentage, determined on a Fully Diluted Basis, of the outstanding shares
of
Common Stock issued upon exercise of Designated Options.
Designated
Stockholder:
a
Stockholder who is party to a Joinder Agreement.
DGCL:
the
meaning set forth in Recitals hereto.
Dissenting
Shares:
the
meaning set forth in Section 2.8(a) hereof.
EBIT:
the
meaning set forth in Schedule 1.2(A).
Effective
Date:
the
meaning set forth in Section 2.1 hereof.
Effective
Time:
the
meaning set forth in Section 2.1 hereof.
Encumbrance:
any
mortgage, pledge, lien, claim, charge, security interest, lease or other
encumbrance.
Environmental
Law:
means
any foreign, federal, state or local statute, regulation, ordinance, or rule
of
common law as now or hereafter in effect in any way or any other legally binding
requirement relating to the environment, natural resources or protection of
human health and safety including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601
et seq.),
the
Hazardous Materials Transportation Act (49 U.S.C. App. § 1801 et seq.),
the
Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.),
the
Clean Water Act (33 U.S.C. § 1251 et seq.),
the
Clean Air Act (42 U.S.C. § 7401 et seq.)
the
Toxic Substances Control Act (15 U.S.C. § 2601 et seq.),
the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 136
et seq.),
and
the Occupational Safety and Health Act (29 U.S.C. § 651 et seq.),
and
the regulations promulgated pursuant thereto.
Escrow
Agreement:
the
meaning set forth in Section 2.3 hereof.
Escrow
Fund:
the
meaning set forth in Section 2.3 hereof.
Escrowed
Cash:
the
meaning set forth in Section 2.3 hereof.
Estimated
Closing Net Assets:
the
meaning set forth in Section 2.4(b) hereof.
Estimated
Closing Net Assets Statement:
the
meaning set forth in Section 2.4(b) hereof.
Exchange
Agent:
the
meaning set forth in Section 2.3(a) hereof.
Exchange
Agreement:
the
meaning set forth in Section 2.3(a) hereof.
Execution
Date:
the
date of execution of this Agreement.
Expense
Reserve:
the
meaning set forth in Section 2.3(a) hereof.
Fair
Market Value:
the
average closing bid price of Parent Common Stock quoted on NASDAQ over a period
of 20 consecutive trading days the latest of which shall be the trading day
immediately preceding the date as of which "Fair Market Value" is being
determined.
Financial
Statements:
the
meaning set forth in Section 3.5 hereof.
Fixed
Conversion Ratio:
with
respect to a share of Series A Preferred Stock, 10.870; with respect to a share
of Series C Preferred Stock, 8.889; with respect to a share of Series D
Preferred Stock, 10.235; and with respect to a share of Series E Preferred
Stock, 10.235.
Fully
Diluted Basis:
for the
purpose of any calculation, the performance of such calculation taking into
account (a) all shares of Common Stock actually issued and outstanding at the
time of such determination and (b) all shares of Common Stock that are then
issuable upon the exercise or conversion of all outstanding securities or rights
exercisable for or convertible into Common Stock at the time of determination,
including Dissenting Shares and outstanding shares of Preferred Stock (based
on
the Applicable Conversion Ratios) and outstanding Company Options that are
exercisable at such time of determination, including by virtue of the
acceleration thereof as provided in Section 6.5, but excluding Company Options
that are cancelled pursuant to Section 6.5.
GAAP:
United
States generally accepted accounting principles.
Governmental
Entity:
any
court or other governmental or public body or authority.
Hazardous
Material:
means
any substance, material or waste which is regulated by the United States, the
foreign jurisdictions in which Company conducts business, or any state, local
or
foreign governmental authority including, without limitation, petroleum and
its
by-products, asbestos, and any material or substance which is defined as a
“hazardous waste,” “hazardous substance,” “hazardous material,” “restricted
hazardous waste,” “industrial waste,” “solid waste,” “contaminant,” “pollutant,”
“toxic waste” or “toxic substance” under any provision of Environmental
Law.
HSR
Act:
the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended.
Indemnitee:
the
meaning set forth in Section 8.3 hereof.
Indemnitor:
the
meaning set forth in Section 8.3 hereof.
Initial
Cash Payment:
$45
million, increased dollar-for-dollar (but not in excess of $13,000,000) by
the
amount by which Estimated Closing Net Assets exceeds the Net Tax Benefit
reflected on the Estimated Closing Net Assets Statement or decreased
dollar-for-dollar by the amount by which Estimated Closing Net Assets are less
than the Net Tax Benefit reflected on the Estimated Closing Net Assets
Statement.
Initial
Share Number:
the
number of Initial Shares.
Initial
Shares:
shares
of Parent Common Stock having an aggregate Fair Market Value as of the Closing
Date equal to the difference between $15,000,000 and the amount of the Escrowed
Cash.
Intellectual
Property:
means
(a) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names,
and
corporate names, together with all translations, adaptations, derivations,
and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations and
renewals in connection therewith, (d) all mask works and all applications,
registrations and renewals in connection therewith, (e) all trade secrets and
confidential information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(f) all computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
Investment
Agreements:
the
Amended and Restated Investor Rights Agreement dated July 30, 1998 by and among
the Company and the parties listed therein, as amended and the Amended and
Restated Stockholders Agreement dated May 9, 1997 by and among the Company
and
the parties listed therein.
Joint
Information Statement/Private
Placement Memorandum:
the
joint information statement and private placement memorandum to be prepared
by
the Company and Parent for the purpose of soliciting the consent of the
Stockholders to the transactions contemplated by this Agreement and effecting
a
private placement of the Shares.
Law:
any
federal, state, local or foreign law (including common law), statute, code,
ordinance, rule, regulation or binding administrative
pronouncement.
Knowledge:
with
respect to the Company, the actual subjective knowledge of each individual
party
to a Joinder Agreement or a Key Employee Employment Agreement and matters that
an individual in the position of such individual, in light of the relevant
circumstances, reasonably would be expected to know upon due
inquiry.
Liabilities:
liabilities or obligations, fixed, accrued, contingent or otherwise (whether
known or unknown, asserted or unasserted), including liabilities for Taxes
or
other governmental charges and any penalties, interest or fines thereon or
in
respect thereof.
Losses:
the
meaning set forth in Section 8.1(a) hereof.
Market
Price:
the
“market price of a common share” determined by the Board of Directors of the
Company pursuant to the Certificate of Incorporation for purposes of determining
the conversion ratios applicable to the Preferred Stock.
Material
Adverse Effect:
with
respect to any Person, any materially adverse change in or effect on the
condition (financial or otherwise), business, operations, assets, properties,
prospects, results of operations, capitalization, cash flows or employee, client
or customer relations of such Person except for (a) the direct effects of
compliance with this Agreement on the operating performance of such Person,
including expenses reasonably incurred by such Person in entering into this
Agreement and consummating the transactions contemplated by this Agreement
and
(b) any change proximately caused by the public announcement of this
Agreement or the Merger.
Merger:
the
meaning set forth in Recitals hereto.
Merger
Consideration:
collectively, the Net Closing Date Cash Distribution and any Additional Merger
Consideration.
Merger
Sub:
the
meaning set forth in Recitals hereto.
Net
Tax Benefit:
at any
time, the amount (positive or negative) by which (i) the difference between
"Prepaid Tax" and "Accrued Tax" on the Closing Date Balance Sheet exceeds (ii)
the difference between "Prepaid Tax" and "Accrued Tax" on Company's December
31,
2005 balance sheet.
Neutral
Accountant:
▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP or, if ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP is not independent in the reasonable
determination of Parent or the Stockholder Representative, then an independent
auditing firm of nationally or regionally recognized standing selected by the
mutual agreement of Parent and the Stockholder Representative within 15 days
of
the date on which the Neutral Accountant is proposed to begin serving or, if
Parent and the Stockholder Representative are unable to agree within such
period, an independent auditing firm of nationally or regionally recognized
standing selected jointly by two other such firms, one of which shall be
specified by Parent and one of which shall be specified by the Stockholder
Representative, within 15 days after the expiration of such period.
NOL
Realization:
the
realized value of the net operating losses reported on the Company's 2005
Massachusetts tax return assuming that Parent has adequate profits during 2006
to fully utilize such net operating losses.
Option
Loans:
the
loans made to Company employees prior to the date hereof, and the loans to
be
made to Company employees pursuant to Section 6.5, in connection with the
exercise by such employees of Company Options.
Option
Exercise Prices:
the
exercise prices of any Company Options that are or have been exercised prior
to
the Effective Time that have not been paid in full at the Effective Time, to
the
extent of such non-payment.
Option
Share:
a share
of Company Stock issued upon exercise of an Outstanding Option.
Order:
any
order, injunction, judgment, decree, ruling, writ, assessment or arbitration
award.
Outstanding
Option:
a stock
option outstanding as of the date of this Agreement under either of the Company
Option Plans.
Parent:
the
meaning set forth in Recitals hereto.
Permit:
a
governmental franchise, easement, permit, right, application, filing,
registration, license or other authorization.
Permitted
Encumbrances:
(a)
liens for current taxes not yet due and payable, (b) liens, pledges or deposits
incurred or made in connection with workmen’s compensation, unemployment
insurance and other social security benefits incurred in the ordinary course
of
business that are listed on Schedule 1.2(C) and (c) liens under Article 9 of
the
Uniform Commercial Code that are purchase money security interests that are
listed on Schedule 1.2(C), none of which liens described in (a) through (c)
are
material in the aggregate or individually.
Person:
an
individual, a corporation, an association, a partnership, an estate, a limited
liability company, a trust and any other entity or organization.
Preferred
Stock:
all of
the Company’s Series A Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock.
Pro
Rata Portion:
a
fraction equal to (i) (a) with respect to each series of Preferred Stock, the
Applicable Conversion Ratio, and (b) with respect to a share of Common Stock,
1.000, divided by (ii) the total number of shares of Common Stock outstanding
at
the Effective Time determined on a Fully Diluted Basis.
Proceedings
and Expenses:
the
meaning set forth in Section 8.1(b) hereof.
Purchase
Price:
the
meaning set forth in Recitals hereto.
Release:
means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, migration or leaching into the indoor or outdoor
environment, or into or out of any property.
Remedial
Action:
means
all actions to (x) clean up, remove, treat or in any other way address any
Hazardous Material; (y) prevent the Release of any Hazardous Material so it
does
not endanger or threaten to endanger public health or welfare or the indoor
or
outdoor environment; or (z) perform pre-remedial studies and investigations
or
post-remedial monitoring and care.
Response
Notice:
the
meaning set forth in Section 8.4 hereof.
Securities
Act:
The
Securities Act of 1933, as amended.
Series
A Preferred Stock:
the
meaning set forth in Recitals hereto.
Series
A-1 Accretion Amount:
an
amount with respect to each share of Series A Preferred Stock originally issued
on January 11, 1995 equal to $155.10, plus an additional amount equal to $0.060
per share for each day from and after the Assumed Closing Date to but excluding
the Closing Date.
Series
A-2 Accretion Amount:
an
amount with respect to each share of Series A Preferred Stock originally issued
on July 11, 1995, equal to $144.60, plus an additional amount equal to $0.057
per share for each day from and after the Assumed Closing Date to but excluding
the Closing Date.
Series
C Preferred Stock:
the
meaning set forth in Recitals hereto.
Series
C-1 Accretion Amount:
an
amount with respect to each share of Series C Preferred Stock originally issued
on May 19, 1997, equal to $109.69, plus an additional amount equal to $0.049
per
share for each day from and after the Assumed Closing Date to but excluding
the
Closing Date.
Series
C-2 Accretion Amount:
an
amount with respect to each share of Series C Preferred Stock originally issued
on September 30, 1997, equal to $102.95, plus an additional amount equal to
$0.048 per share for each day from and after the Assumed Closing Date to but
excluding the Closing Date.
Series
C-3 Accretion Amount:
an
amount with respect to each share of Series C Preferred Stock originally issued
on December 31, 1997, equal to $98.73, plus an additional amount equal to $0.047
per share for each day from and after the Assumed Closing Date to but excluding
the Closing Date.
Series
D Accretion Amount:
an
amount with respect to each share of Series D Preferred Stock equal to $89.16,
plus an additional amount equal to $0.044 per share for each day from and after
the Assumed Closing Date to but excluding the Closing Date.
Series
D Certificate of Designation:
Certificate of the Voting Powers, Designation, Preferences and Relative,
Participating, Optional or Other Special Rights, and Qualifications, Limitations
or Restrictions Thereof, of the Series D Convertible Preferred Stock of the
Company.
Series
D Closing Payment:
an
amount equal to the product of the Series D Payment Percentage and the Net
Closing Date Cash Distribution.
Series
D Closing Payment Per Share:
an
amount equal to the Series D Closing Payment divided by the number of shares
of
Series D Preferred Stock issued and outstanding at the Effective
Time.
Series
D Payment Percentage:
2.33%,
representing the aggregate percentage interest of the former holders of Series
D
Preferred Stock in each distribution of Merger Consideration arising under
(x)
Section 6(c) of the Series D Certificate of Designation and (y) Section 5(a)(i)
of the Series D Purchase Agreement.
Series
D per Share Payment Percentage:
the
Series D Payment Percentage divided by the number of shares of Series D
Preferred Stock issued and outstanding at the Effective Time.
Series
D Preferred Stock:
the
meaning set forth in Recitals hereto.
Series
D Purchase Agreement:
the
Purchase Agreement dated July 29, 1998 between the Company and Grey Ventures,
Inc.
Series
E Accretion Amount:
an
amount per share with respect to each share of Series E Preferred Stock equal
to
$77.47, plus an additional amount equal to $0.042 per share for each day after
the Assumed Closing Date to and including the Closing Date.
Series
E Preferred Stock:
the
meaning set forth in Recitals hereto.
Specified
Liabilities:
the
meaning set forth in Section 2.4(b) hereof.
Specified
Liabilities Schedule:
the
meaning set forth in Section 2.4(b) hereof.
Stockholder
Approval:
a
majority of the shares of Company Stock, voting together as a single class
on an
as converted basis in accordance with the Certificate of Incorporation and
the
DGCL.
Stockholders:
all
holders of Company Stock at the Effective Time (including all holders
of Company Stock issued upon exercise of Outstanding Options prior to the
Effective Time).
Stockholder
Representative:
the
meaning set forth in Recitals hereto.
Straddle
Period:
the
meaning set forth in Section 9.2 hereof.
Survival
Period:
the
meaning set forth in Section 8.5 hereof.
Surviving
Corporation:
the
meaning set forth in Section 2.1 hereof.
Tax
Refund Payment:
the
Company's 2005 federal tax refund payment.
Tax
Returns:
the
meaning set forth in Section 3.9(d) hereof.
Taxes:
the
meaning set forth in Section 3.9(d) hereof.
Third-party
Parent Claims:
the
meaning set forth in Section 8.6 hereof.
Transaction
Documents:
with
respect to any Person, this Agreement, together with any other agreements,
instruments, certificates and documents executed by such Person in connection
herewith or therewith.
Variable
Conversion Ratio:
the
quotient obtained by dividing (i) with respect to a share of Series A Preferred
Stock, the Applicable Series A Accretion Amount; with respect to a share of
Series C Preferred Stock, the Applicable Series C Accretion Amount; with respect
to a share of Series D Preferred Stock, the Series D Accretion Amount; and
with
respect to a share of Series E Preferred Stock, the Series E Accretion Amount,
by (ii) the Market Price.
ARTICLE
2. THE
MERGER
2.1 Procedure
for the Merger.
The
Merger Sub shall be merged, in accordance with the applicable provisions of
the
DGCL, with and into the Company, which shall be the surviving corporation and
is
sometimes referred to herein as the “Surviving
Corporation.”
The
Merger shall be effected by filing a certificate of merger substantially in
the
form attached as Exhibit
A
hereto
(the “Certificate
of Merger”)
with
the Secretary of State of the State of Delaware in accordance with the
applicable provisions of the DGCL. The effective date of the Merger (the
“Effective
Date”)
shall
be the date upon which the Certificate of Merger shall have been filed with
the
Secretary of State of the State of Delaware and the effective time of the Merger
(the “Effective
Time”)
shall
be the time of the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware. The Certificate of Merger will be filed within
three (3) Business Days after the satisfaction of the conditions precedent
set
forth in Article 7.
2.2 Surviving
Corporation.
(1) Corporate
Existence.
The
Surviving Corporation shall continue its corporate existence under the laws
of
the State of Delaware. The separate corporate existence of the Merger Sub shall
cease at the Effective Time.
(2) Certificate
of Incorporation and By-Laws.
The
Certificate of Incorporation of the Surviving Corporation shall be amended
and
restated to read the same as the Certificate of Incorporation of Merger Sub
as
in effect immediately prior to the Effective Time (except that such Certificate
of Incorporation shall continue to reflect the name of the Surviving Corporation
as “Adheris, Inc.”) until the same may be further amended thereafter in
accordance with the DGCL and such Certificate of Incorporation.
The
by-laws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be amended and restated to read the same as the by-laws of the Surviving
Corporation, except that all references to the Merger Sub in the by-laws of
the
Surviving Corporation shall be changed to refer to “Adheris, Inc.”, until the
same shall be amended thereafter in accordance with the DGCL, the Certificate
of
Incorporation and such by-laws.
(3) Directors
and Officers.
As of
the Effective Time, (i) the directors of Merger Sub shall be the sole directors
of the Surviving Corporation and (ii) the officers of the Company shall remain
officers of the Surviving Corporation until such time as they are removed in
accordance with the governing documents of the Surviving Corporation, in each
case to hold office in accordance with the Certificate of Incorporation and
the
by-laws of the Surviving Corporation.
(4) Effect
of the Merger.
As of
the Effective Time, the effect of the Merger shall be as provided in this
Agreement and the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest
in
the Surviving Corporation, and all the debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
2.3 Payment
of Merger Consideration; Status and Conversion of
Securities.
(a) Payment
of Merger Consideration.
At the
Closing, (i) the difference between the Initial Cash Payment and the amount
of
the Specified Liabilities set forth on the Specified Liabilities Schedule (the
"Closing
Date Cash Distribution"),
reduced by the Net Tax Benefit reflected on the Estimated Net Assets Statement,
shall be paid by Parent to the non-interest bearing IOLTA account of The
▇▇▇▇▇▇▇▇ Law Group, LLC, as exchange agent (the “Exchange
Agent”),
by
wire transfer of immediately available funds pursuant to an exchange agreement
by and among Parent, the Company, the Stockholder Representative and the
Exchange Agent in the form attached hereto as Exhibit
B
(the
“Exchange
Agreement”)
and
(ii) (A) the Initial Shares and (B) cash in an amount equal to the Designated
Option Percentage of $15 million (the “Escrowed
Cash”
and,
together with the Initial Shares and any additions thereto or substitutions
therefor in accordance with the terms of the Escrow Agreement, the “Escrow
Fund”)
shall
be deposited by Parent with Bank of New York, as escrow agent (the "Escrow
Agent")
pursuant to an escrow agreement among Parent, the Stockholder Representative
and
the Escrow Agent in the form attached hereto as Exhibit
C
(the
“Escrow
Agreement”),
which
shall include, among other things, provisions permitting (x) Parent at the
conclusion of the escrow period contemplated by the Escrow Agreement, to request
that all or a portion of the Escrow Fund be maintained in escrow to secure
indemnity claims in favor of Parent Indemnities and (y) the Stockholder
Representative, at the conclusion of the escrow period contemplated by the
Escrow Agreement, to seek arbitration of the reasonableness of withholding
any
portion of the Escrow Fund in respect of then pending indemnity claims in favor
of Parent Indemnitees, all as more fully set forth in the Escrow Agreement.
The
Initial Shares shall be represented by a single stock certificate in the name
of
the Stockholder Representative, as nominee for the Stockholders at the time
the
Initial Shares are deposited with the Escrow Agent, and any portion of the
Initial Shares that become distributable as Additional Merger Consideration
shall be re-registered in the names of the Stockholders to whom such Initial
Shares are to be released.
A
$200,000 portion of the Closing Date Cash Distribution shall be held in reserve
by the Exchange Agent to fund the fees and expenses of the Stockholder
Representative (together with any amounts retained by the Exchange Agent on
behalf of the Stockholder Representative, following receipt by the Exchange
Agent of written instructions from the Stockholder Representative, (i) from
amounts available for distribution to Stockholders in accordance with the Escrow
Agreement or (ii) pursuant to Section 8.7(b), the “Expense
Reserve”).
The
Closing Date Cash Distribution less the Expense Reserve (the "Net
Closing Date Cash Distribution")
shall
be distributed by the Exchange Agent to the holders of Company Stock (other
than
Dissenting Shares) pursuant to the exchange procedures set forth in Section
2.6
and the Exchange Agreement. The fees and expenses of the Exchange Agent shall
be
borne by the Stockholder Representative. The fees and expenses of the Escrow
Agent shall be paid 50% by the Stockholder Representative from the Expense
Reserve and 50% by Parent.
(b) Effect
on Company Stock.
At the
Effective Time, by virtue of the Merger and without any action on the part
of
Parent, Merger Sub, the Company or the holders of any of the following
securities:
(i) Each
share of Common Stock held by the Company as a treasury share shall be canceled
and retired and no consideration shall be delivered in exchange
thereof.
(ii) Each
share of Series A Preferred Stock issued and outstanding immediately prior
to
the Effective Time (other than any Dissenting Shares) shall be converted into
the right to receive (A) an amount of cash equal to the product of the
Applicable Conversion Ratio and the Closing Consideration Per Share and (B)
a
Pro Rata Portion of 97.67% of any Additional Merger Consideration. As of the
Effective Time, all such shares of Series A Preferred Stock shall cease to
be
outstanding, and each holder of a certificate representing any such share or
shares of Series A Preferred Stock shall cease to have any rights with respect
thereto except the right to receive the foregoing consideration in respect
thereof.
(iii) Each
share of Series C Preferred Stock issued and outstanding immediately prior
to
the Effective Time (other than any Dissenting Shares) shall be converted into
the right to receive (A) an amount of cash equal to the product of the
Applicable Conversion Ratio and the Closing Consideration Per Share and (B)
a
Pro Rata Portion of 97.67% of any Additional Merger Consideration. As of the
Effective Time, all such shares of Series C Preferred Stock shall cease to
be
outstanding, and each holder of a certificate representing any such share or
shares of Series C Preferred Stock shall cease to have any rights with respect
thereto except the right to receive the foregoing consideration in respect
thereof.
(iv) Each
share of Series D Preferred Stock issued and outstanding immediately prior
to
the Effective Time (other than any Dissenting Shares) shall be converted into
the right to receive (A) an amount of cash equal to the product of the
Applicable Conversion Ratio and the Closing Consideration Per Share, (B) the
Series D Closing Payment per Share, (C) a Pro Rata Portion of 97.67% of any
Additional Merger Consideration and (D) the Series D per Share Payment
Percentage of any Additional Merger Consideration. As of the Effective Time,
all
such shares of Series D Preferred Stock shall cease to be outstanding, and
each
holder of a certificate representing any such share or shares of Series D
Preferred Stock shall cease to have any rights with respect thereto except
the
right to receive the foregoing consideration in respect thereof.
(v) Each
share of Series E Preferred Stock issued and outstanding immediately prior
to
the Effective Time (other than any Dissenting Shares) shall be converted into
the right to receive (A) an amount of cash equal to the product of the
Applicable Conversion Ratio and the Closing Consideration Per Share and (B)
a
Pro Rata Portion of 97.67% of any Additional Merger Consideration. As of the
Effective Time, all such shares of Series E Preferred Stock shall cease to
be
outstanding, and each holder of a certificate representing any such share or
shares of Series E Preferred Stock shall cease to have any rights with respect
thereto except the right to receive the foregoing consideration in respect
thereof.
(vi) Each
share of Common Stock issued and outstanding immediately prior to the Effective
Time (other than any Dissenting Shares) shall be converted into the right to
receive (A) an amount of cash equal to the Closing Consideration Per Share
and
(B) a Pro Rata Portion of 97.67% of any Additional Merger Consideration. As
of
the Effective Time, all such shares of Common Stock shall cease to be
outstanding and shall automatically be canceled and retired and shall cease
to
exist, and each holder of a certificate representing any such share or shares
of
Common Stock shall cease to have any rights with respect thereto, except the
right to receive the foregoing consideration in respect thereof.
(c) Capital
Stock of Merger Sub.
At the
Effective Time, by virtue of the Merger and without any action on the part
of
Parent, Merger Sub, the Company or the holders of any of the following
securities, each share of the common stock, $.01 par value of the Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation and each
certificate evidencing ownership of any shares of Merger Sub shall evidence
ownership of the same number of shares of common stock of the Surviving
Corporation.
(d) Form
of Additional Merger Consideration.
Additional Merger Consideration consisting of all or any portion of the Escrowed
Cash shall be paid solely to former holders of Designated Options in respect
of
the Designated Option Shares formerly held by them. The Designated Option Share
Percentage of any Additional Merger Consideration that is an Earnout Amount
shall be paid in cash solely to former holders of Designated Options in respect
of the Designated Option Shares formerly held by them.
(e) Required
Withholding.
Parent,
the Company and the Exchange Agent shall be entitled to deduct and withhold
from
any Merger Consideration payable under this Agreement such amounts as may be
required to be deducted or withheld therefrom under (i) the Code,
(ii) any applicable state, local or foreign Tax Laws or (iii) any
other applicable Laws. To the extent that any amounts are so deducted and
withheld, those amounts shall be treated as having been paid to the Person
in
respect of whom such deduction or withholding was made for all purposes under
this Agreement.
(f) Interests
in Merger Consideration.
Schedule 2.3 sets forth the allocation of cash and Initial Shares among the
Stockholders (including holders of Designated Option Shares) on the Closing
Date
and the Pro Rata Portion of each Stockholder in any Additional Merger
Consideration assuming that (i) the Closing occurs on the Assumed Closing Date,
(ii) all Designated Options are exercised, (iii) the Specified Liabilities
total
$2,019,557, (iv) the "market value of a share common stock" as determined in
accordance with the Certificate of Incorporation is $65.61 per share and (v)
the
other assumptions set forth therein.
2.4 Net
Asset Adjustment
(a) (I)
The
Base Purchase Price shall be (i) increased dollar-for-dollar by the amount
by
which the Final Closing Net Assets exceeds the Net Tax Benefit as determined
taking into account the Final Closing Net Assets Statement (after the completion
of the procedures specified in Sections 2.4(c) and (d)) (the "Final
Net Tax Benefit")
or
(ii) decreased dollar-for-dollar by the amount by which Final Closing Net Assets
are less than the Final Net Tax Benefit. The payment in respect of any such
adjustment described in paragraph (III) of this Section 2.4(a) shall not be
due
until the later of (x) the date the Company receives the Tax Refund Payment
and
(y) August 15, 2006. If (A) the difference between the sum of (x) the Tax Refund
Payment and (y) the value of the net operating losses reflected on the Company's
filed 2005 Massachusetts income tax return varies by more than 5% (positively
or
negatively) from (B) the Final Net Tax Benefit, each of Parent and the
Stockholder Representative shall have the right to require the Final Closing
Net
Assets Statement to be adjusted so that the amounts accrued thereon in respect
of the Final Net Tax Benefit reflect the Company's actual experience, and such
statement as so adjusted shall thereafter be the "Final Closing Net Assets
Statement" of paragraphs (II) and (III) of this Section 2.4(a) and the Final
Net
Tax Benefit set forth in paragraph 1 of Schedule 2.5.
(II)
If
Final Closing Net Assets are less than Estimated Closing Net Assets, Parent
shall have the right to recover an amount equal to the amount of such shortfall
either (i) reduced by two times the amount by which the Final Net Tax Benefit
exceeds the Net Tax Benefit determined on the basis of the Estimated Closing
Net
Assets Statement or (ii) increased by two times the amount by which the Net
Tax
Benefit determined on the basis of the Estimated Closing Net Assets Statement
exceeds the Final Net Tax Benefit. The difference between (x) the amount
determined in accordance with the preceding sentence and (y) the amount, if
any,
by which the Final Net Tax Benefit exceeds the Net Tax Benefit determined on
the
basis of the Estimated Closing Net Assets Statement, may be recovered by Parent
(A) from the Tax Refund Payment, (B) by reflecting a reduction of net operating
losses available to the Company on the Final Closing Net Assets Statement or
(C)
in the same manner in which Parent may seek recourse with respect to an
indemnifiable Loss pursuant Article VIII and the Escrow Agreement (without
application of Section 8.7(a)). Except to the extent of any such recovery,
the
Tax Refund Payment (or, if less, a portion of the Tax Refund Payment equal
to
the Final Net Tax Benefit) shall be distributed to the Exchange Agent within
five business days of the final determination of the Final Closing Net Assets
Statement (whether pursuant to Sections 2.4(c) and (d) or Section
2.4(a)(I)).
(III)
In
the event that Final Closing Net Assets exceed Estimated Closing Net Assets,
Parent shall make a payment to the Exchange Agent within five business days
of
the final determination of the Final Closing Net Assets Statement (whether
pursuant to Sections 2.4(c) and (d) or Section 2.4(a)(I)) equal to such excess
either (i) reduced by two times the amount by which the Final Net Tax Benefit
exceeds the Net Tax Benefit determined in accordance with the Estimated Closing
Net Assets Statement or (ii) increased by two times the amount by which the
Net
Tax Benefit determined in accordance with the Estimated Closing Net Assets
Statement exceeds the Final Net Tax Benefit.
(b) Not
less
than three business days prior to the Closing Date, the Company will prepare
and
deliver to Parent and the Stockholder Representative (i) a good faith estimate
(the "Estimated
Closing Net Assets Statement")
of
Closing Net Assets (the “Estimated
Closing Net Assets”)
and
(ii) a schedule (the "Specified
Liabilities Schedule")
of (A)
the amount of fees owed at Closing by the Company to its or his attorneys and
accountants (which amount will be paid directly by Parent to such attorneys
and
accountants at the Closing) and (B) the amount of the Blackstone Fee (which
amount shall be paid directly by Parent to Blackstone at the Closing)
(collectively, the "Specified
Liabilities").
The
Estimated Net Assets Statement and the Specified Liabilities Schedule shall
be
reasonably acceptable to Parent.
(c) Within
sixty (60) days after the Closing, Parent shall prepare or cause to be prepared
and delivered to the Stockholder Representative (a) a balance sheet of the
Company immediately prior to the Effective Time (the “Closing
Date Balance Sheet”),
(b) a
statement of Closing Net Assets (together with the Closing Date Balance Sheet,
the "Closing
Net Assets Statement").
The
Closing Date Balance Sheet shall not give effect to the transactions
contemplated by this Agreement other than (i) the payment on behalf of the
Company of the Specified Liabilities set forth on the Specified Liabilities
Schedule (with the result that the Specified Liabilities set forth on the
Specified Liabilities Schedule shall not appear on the Closing Date Balance
Sheet) and (ii) the reflection thereon in the changes in the Company's tax
assets and liabilities attributable to compensation deductions related to the
exercise of Company Options (to the extent attributed to pre-Closing periods
in
accordance with Section 6.5). The Closing Date Balance Sheet and the statement
of Closing Net Assets included in the Closing Net Assets Statement will be
prepared and determined in accordance with GAAP and the accounting policies
and
practices of the Company and consistent with the balance sheet attached hereto
as Exhibit
D.
Parent
shall provide the Stockholder Representative and a single accounting firm for
the Stockholder Representative reasonable access to all (i) work papers and
written procedures used to prepare the Closing Net Assets Statement and (ii)
books and records and personnel to the extent reasonably necessary to enable
the
Stockholder Representative and such accounting firm to conduct a sufficient
review of the Closing Net Assets Statement and verify the calculation of Closing
Net Assets. If the Stockholder Representative disputes the Closing Net Assets
as
shown on the Closing Net Assets Statement prepared by Parent, the Stockholder
Representative shall deliver to Parent within sixty (60) days after receipt
of
the Closing Net Assets Statement a statement (the “Dispute
Notice”)
setting forth the Stockholder Representative’s calculation of the Closing Net
Assets and describing in reasonable detail the basis for the dispute. The
parties shall use reasonable efforts to resolve such differences regarding
the
determination of the Closing Net Assets within a period of sixty (60) days
after
the Stockholder Representative has given the Dispute Notice. If the parties
resolve such differences, Closing Net Assets agreed to by Parent and the
Stockholder Representative shall be deemed to be the “Final
Closing Net Assets”
and
the
Closing Net Assets Statement agreed to by Parent and the Stockholder
Representative shall be deemed to be the “Final
Closing Net Assets Statement.”
(d) If
Parent
and the Stockholder Representative do not reach a final resolution on the
Closing Net Assets within sixty (60) days after the Stockholder Representative
has given the Dispute Notice, the Neutral Accountant shall resolve such
differences, pursuant to an engagement agreement among Parent, the Stockholder
Representative and the Neutral Accountant (which Parent and the Stockholder
Representative agree to execute promptly), in the manner provided below. Parent
and the Stockholder Representative shall each be entitled to make a presentation
to the Neutral Accountant, pursuant to procedures to be agreed to among Parent,
the Stockholder Representative and the Neutral Accountant (or, if they cannot
agree on such procedures, pursuant to procedures determined by the Neutral
Accountant) regarding the calculation of Closing Net Assets, as applicable;
and
the Neutral Accountant shall be required to resolve the differences between
Parent and the Stockholder Representative and determine Closing Net Assets
within forty (40) days after the engagement of the Neutral Accountant. Closing
Net Assets Amount determined by the Neutral Accountant shall be deemed to be
the
Final Closing Net Assets and the Closing Net Assets Statement, as adjusted
to
reflect such determination, shall be deemed to be the Final Closing Net Assets
Statement. Such determination by the Neutral Accountant shall be conclusive
and
binding upon the parties absent fraud or manifest error. In the event either
Parent or the Stockholder Representative believes the determination of the
Neutral Accountant reflects a manifest error, Parent or the Stockholder
Representative shall be entitled to specify the error to the Neutral Accountant
in writing, in reasonable detail (with a copy to the other), within ten business
days of the date of delivery to the parties of the Neutral Accountant’s
determination, and any correction made by the Neutral Accountant (which the
Neutral Accountant shall be requested to make within ten business days after
such date of delivery) shall supersede the Neutral Accountant’s initial
determination. Nothing in this Section 2.4(d) shall be construed to authorize
or
permit the Neutral Accountant to:
(i) determine
any questions or matters whatsoever under or in connection with this Agreement
except for the resolution of differences between Parent and the Stockholder
Representative regarding the determination of Closing Net Assets;
or
(ii) resolve
any such differences by making an adjustment to the Closing Net Assets Statement
that is outside of the range(s) defined by amounts as finally proposed by Parent
and the Stockholder Representative.
(e) Parent
and the Stockholder Representative shall each pay one half of the fees and
expenses of the Neutral Accountant.
2.5 Earnout
(a) The
Stockholders will be entitled to additional consideration from Parent as
provided in Schedule 2.5 (any such additional consideration, an "Earnout
Amount").
(b) At
Parent's option, to the extent set forth in Schedule 2.5, each Earnout Amount
may be satisfied by the delivery to the Exchange Agent of unregistered shares
of
Parent Common Stock having a Fair Market Value, determined as of the applicable
Final Earnout Amount Determination Date (the "Value
Date"),
equal
to such portion of such Earnout Amount that Parent determines to satisfy by
delivery of Parent Common Stock. The amount of each Earnout Amount that may
be
so satisfied, expressed as a percentage, is referred to herein as the
"Share
Percentage."
Shares
of Parent Common Stock issued in satisfaction of any portion of an Earnout
Amount are referred to as "Earnout
Shares"
and,
together with the Initial Shares, as the "Shares."
In no
event will any Shares be issued hereunder if the issuance of such Shares would
cause (i) the total number of Shares issued pursuant to this Agreement to exceed
19.9% of the number of shares of Parent Common Stock outstanding immediately
prior to the Closing or (ii) the voting power of the Shares issued pursuant
to
this Agreement to exceed 19.9% of the voting power of the voting securities
of
Parent outstanding immediately prior to the Closing. Any portion of the Purchase
Price that would otherwise be satisfied by the issuance of Shares in excess
of
such amount, and any other portion of an Earnout Amount that is not satisfied
through the issuance of Earnout Shares, will be paid in cash by wire transfer
of
immediately available funds to the Exchange Agent. Furthermore, no portion
of
any Designated Option Share Earnout Amount shall be satisfied by the delivery
of
Earnout Shares. Neither Parent nor any other Person makes any guarantee or
representation to the Stockholder Representative or any other Stockholder that
any Earnout Amount will be realized.
(c) Parent
will at its expense deliver to the Stockholder Representative within 15 days
after the completion of the audit of Parent’s consolidated financial statements
(which may include an audit of the financial statements of the Surviving
Corporation on a non-consolidated basis) with respect to each of calendar year
2006, calendar year 2007 and calendar year 2008 (each, an "Earnout
Period")
its
calculation of EBIT for such period (each, an "Initial
EBIT Amount")
and
the Earnout Amount, if any, payable under this Section 2.5. Parent will
provide the Stockholder Representative and the Stockholder Representative's
independent auditors with reasonable access to all books and records and working
papers to the extent reasonably necessary to enable the Stockholder
Representative and such accounting firm to verify such calculations after the
delivery thereof. Such calculations will be binding on the parties, absent
fraud
or manifest error, unless the Stockholder Representative, within 60 days after
the delivery of the calculations by Parent to the Stockholder Representative,
notifies Parent in writing that it objects to any item or computation in
connection with the calculations of the Initial EBIT Amount or the Earnout
Amount and specify in reasonable detail the basis for such objection. If Parent
and the Stockholder Representative are unable to agree upon the calculations
within forty (40) days after any notice of objection has been given by the
Stockholder Representative to Parent, then at the election of either the
Stockholder Representative or Parent, the dispute will be submitted to the
Neutral Accountant for a final determination. Such determination by the Neutral
Accountant shall be conclusive and binding upon the parties absent fraud or
manifest error. In the event either Parent or the Stockholder Representative
believes the determination of the Neutral Accountant reflects a manifest error,
Parent or the Stockholder Representative shall be entitled to specify the error
to the Neutral Accountant in writing, in reasonable detail (with a copy to
the
other), within ten business days of the date of delivery to the parties of
the
Neutral Accountant’s determination, and any correction made by the Neutral
Accountant (which the Neutral Accountant shall be requested to make within
ten
business days after such date of delivery) shall supersede the Neutral
Accountant’s initial determination. Nothing in this Section 2.5(c) shall be
construed to authorize or permit the Neutral Accountant to:
(i) determine
any questions or matters whatsoever under or in connection with this Agreement
except for the resolution of differences between Parent and the Stockholder
Representative regarding the determination of the Final EBIT Amount and any
applicable Earnout Amount; or
(ii) resolve
any such differences by making an adjustment to the Final EBIT Amount and any
applicable Earnout Amount that is outside of the range(s) defined by amounts
as
finally proposed by Parent and the Stockholder Representative.
(d)
In
the event a Neutral Accountant is engaged pursuant to Section 2.5(c), the
Neutral Accountant shall have the authority to award to the substantially
prevailing party its reasonable expenses (including reasonable fees and
disbursements of counsel) incurred in connection with the proceeding before
the
Neutral Accountant. Absent such an award, each party shall bear its own expenses
and Parent and the Stockholder Representative will each bear one-half of the
fees, costs and expenses of the Neutral Accountant.
(e)
For
purposes of this Agreement, with respect to any Earnout Period, (i) the
"Final
EBIT Amount"
for
such period means the Initial EBIT Amount for such period, or such other amount
as is agreed to by the Stockholder Representative and Parent following a timely
notice of objection as contemplated under this Section 2.5(c), or such
other amount as is determined by the Neutral Accountant, and (ii) the
"Final
Earnout Amount Determination Date"
for
such period means: (x) the date that is sixty-one (61) days after the delivery
of Parent's calculation of the Initial EBIT Amount for such period to the
Stockholder Representative, (y) such earlier date on which the Stockholder
Representative delivers an irrevocable notice to Parent in writing that it
agrees with Parent's calculation of such Initial EBIT Amount, or (z) if the
Stockholder Representative timely objects to such Initial EBIT Amount, such
date
on which the Final EBIT Amount in respect thereof is otherwise determined
pursuant to this Section 2.5.
(f) In
the
event of a merger, consolidation or other transaction (a “Conversion
Transaction”)
as a
result of which substantially all of the outstanding shares of Parent Common
Stock are converted into the right to receive, in whole or in part, equity
securities, if such equity securities are traded on the New York Stock Exchange,
the American Stock Exchange, The Nasdaq Stock Market or another securities
exchange or interdealer quotation system (“Listed
Equity Securities”),
(i)
any issued Shares, including shares held pursuant to the Escrow Agreement,
shall
be eligible to participate in any Conversation Transaction on the same basis
as
other outstanding shares of Parent Common Stock and (ii) any portion of an
Earnout Amount that would otherwise be permitted to be satisfied through the
issuance of Parent Common Stock shall thereafter be permitted to be satisfied
through the issuance of such Listed Equity Securities. For such purpose, such
Listed Equity Securities shall be valued at their aggregate Fair Market Value
as
of the applicable Value Date. In the event that, in any Conversion Transaction,
substantially all of the outstanding shares of Parent Common Stock are converted
into the right to receive equity securities that are not Listed Equity
Securities (or are converted into the right to receive a combination of such
equity securities and cash), then, until such equity securities constitute
Listed Equity Securities, any Earnout Amount that thereafter becomes due shall
be required to be satisfied entirely in cash. In the event of a merger,
consolidation or other transaction as a result of which substantially all of
the
outstanding shares of Parent Common Stock are converted into the right to
receive only cash, any Earnout Amount that thereafter becomes due shall be
required to be satisfied entirely in cash, provided that if the surviving or
transferee entity in such transaction (or an Affiliate thereof) has a class
of
Listed Equity Securities, any portion of an Earnout Amount that would otherwise
be permitted to be satisfied through the issuance of Parent Common Stock shall
thereafter be permitted to be satisfied through the issuance of such Listed
Equity Securities, valued at their aggregate Fair Market Value as of the
applicable Value Date.
2.6 Closing
of the Company's Transfer Books;
Exchange of Certificates for Consideration
(1) At
the Effective Time, the transfer books of the Company shall be closed and no
transfer of shares of Company Stock shall thereafter be made. If, after the
Effective Time, certificates representing shares of Company Stock are presented
to the Exchange Agent they shall be canceled and exchanged for the right to
receive the applicable portion of the Merger Consideration.
(2) Those
persons who are, as of the Effective Time, record holders of a certificate
representing Company Stock (a “Certificate”)
may
tender such Certificates to the Exchange Agent at any time after the Effective
Time. Upon receipt of a Stockholder's Certificate, the Exchange Agent shall
promptly deliver to such Stockholder that portion of the Merger Consideration
payable or distributable in respect of the shares of Company Stock represented
by such certificate as such Merger Consideration becomes available for payment
or distribution in accordance with the terms hereof.
(3) Any
Merger Consideration (other than the Expense Reserve) that remains undistributed
by the Exchange Agent to the Stockholders for one year after the date for
delivery of such Merger Consideration provided for herein or in the Exchange
Agreement (or any earlier time agreed to by Parent and the Exchange Agent)
shall
be delivered to Parent by the Exchange Agent, upon demand, and any such holders
who have not theretofore complied with this Article 2 shall thereafter look
only
to Parent for payment of their claims for Merger Consideration.
(4) Section
2.6(4) of the Company Disclosure Schedule sets forth (i) the amount of each
Option Loan outstanding as of the date hereof, (ii) the amount of each Option
Loan to be made available to Company employees between the date of this
Agreement and the Effective Time and (iii) the aggregate value of the cash
Merger Consideration that will become distributable on the Closing Date
(exclusive of Escrowed Cash) to each obligor or prospective obligor with respect
to an Option Loan. All principal and interest owing on any Option Loans shall
be
repaid by deduction from the first amounts payable on the Closing Date
(exclusive of Escrowed Cash) to the obligors under such Option Loans, including
holders of Designated Option Shares. The aggregate amount credited against
the
Merger Consideration with respect to Option Loans shall be retained by Parent.
Notwithstanding the foregoing, no amounts shall be paid to holders of any
Company Stock or Company Options until such holder has complied with the
exchange procedures set forth in the Exchange Agreement, including the
completion and delivery of the Letter of Transmittal attached thereto, and
the
amounts payable in respect of shares of Company Stock shall be held in reserve
by the Exchange Agent until compliance with such procedures has occurred.
(5) Dissenting
Shares shall be excluded from any such distributions of Merger Consideration
and
treated instead in accordance with Section 2.8 below.
2.8 No
Further Ownership Rights in Company Stock. The
Merger Consideration paid and distributed in respect of Certificates surrendered
pursuant to Section 2.6 shall be deemed to have been paid and distributed in
full satisfaction of all rights pertaining to the shares of Company Stock
theretofore represented by such Certificates. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or Parent for any
reason, they shall be exchanged as provided in this Article 2, except as
otherwise provided by law.
2.8 Dissenting
Shares
(1)
Notwithstanding any provisions of this Agreement to the contrary, any shares
of
Company Stock held by a holder who has demanded and perfected his, her or its
demand for appraisal of such holder’s shares in accordance with Section 262 of
the DGCL (the “Dissenting
Shares”)
shall
not be converted into or represent a right to receive the applicable portion
of
the Merger Consideration, but shall be entitled only to such rights as are
granted by Section 262 of the DGCL. Each such holder shall cease to be a
Stockholder for all purposes of this Agreement upon perfection of such holder’s
demand for appraisal pursuant to the DGCL. Notwithstanding anything to the
contrary in this Agreement or the Exchange Agreement, Parent shall be entitled
(i) withhold (or to direct the Exchange Agent to remit to Parent) any of the
Merger Consideration not paid on account of such Dissenting Shares pending
resolution of the claims of such holders, or (ii) to direct the Exchange Agent
to hold any Merger Consideration attributable to such Dissenting Shares and
apply such Merger Consideration towards resolution of the claims of such
holders, with any deficiency in the amount of Merger Consideration available
to
resolve such closing being funded by Parent and any excess of Merger
Consideration over the amount required to resolve such claims being remitted
to
Parent upon demand therefor. The remaining Stockholders shall not be entitled
to
any portion of the Merger Consideration attributable to Dissenting
Shares.
(2) Notwithstanding
the provisions of subsection (a) of this Section 2.8, if any holder of Company
Stock who demands appraisal of his, her or its Company Stock under the DGCL
shall effectively withdraw or lose (through the failure to perfect or otherwise)
his, her or its right to appraisal, then as of the occurrence of such event
such
holder's shares shall automatically be converted into and represent only the
right to receive the Merger Consideration, without interest thereon, upon
surrender of the certificate or certificates representing such shares to the
Exchange Agent pursuant to the Exchange Agreement.
(3) The
Company shall give prompt notice to Parent of any demand received by the Company
for payment or appraisal of the Common Stock, and Parent shall have the right
to
participate in all negotiations and proceedings with respect to such demands.
The Company shall not, except with the prior written consent of Parent, which
consent shall not be unreasonably withheld, settle or offer to settle any such
demand.
2.9 Closing
.
The
Closing (the “Closing”)
of the
Merger shall take place at the offices of Akerman Senterfitt LLP, ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m. (New York time)
no
later than three (3) business days following the satisfaction or waiver of
the
closing conditions set forth in Article 7 (the “Closing
Date”)
or at
such other place or time and date as the parties hereto agree.
2.10 Registration
Covenants
(a)(i)
If
(but without any obligation to do so) Parent proposes to register under the
Securities Act of 1933, as amended (the "Securities
Act"),
shares of Parent Common Stock (other than a registration on Form S-4 or Form
S-8
or any successor forms, a registration in which the only Parent Common Stock
being registered is Parent Common Stock issuable upon conversion of debt
securities which are also being registered or a registration that does not
contemplate a distribution of the securities being registered on a firmly
underwritten basis; it being understood that the filing of a shelf registration
statement that contemplates a possible future offering that would give rise
to
registration rights hereunder shall not give rise to such rights until the
applicable “take-down” of securities occurs), then Parent will give the
Stockholder Representative written notice at least twenty (20) days in advance
of the anticipated effectiveness of the related registration statement. Upon
the
written request of any Stockholder given within ten (10) days after giving
of
such notice by Parent (specifying the number of Shares proposed to be offered
and sold by such Stockholder and setting forth the agreement of such Stockholder
to comply with the provisions of this Section 2.10), Parent will, subject to
the
provisions of Section 1.8(b), include in such registration statement all of
the Shares that each such Stockholder ("Registrable
Shares")
has
requested to be registered (other than Shares then subject to a contractual
lock-up pursuant to a Joinder Agreement unless otherwise consented to by Parent
in its sole discretion); provided,
however,
that
Parent will have the right to postpone or withdraw any registration statement
pursuant to this Section 2.10 without obligation to any Stockholder, and
Parent will not be required to disclose the reason for any such postponement
or
withdrawal or the anticipated duration of any such postponement (and each
Stockholder will agree in its written request to include Registrable Shares
in
any registration to maintain in confidence the pendency of any registration
statement that has not been filed and any postponement or withdrawal of a
proposed registration). All expenses of such registration, other than
underwriting commissions and discounts and legal and other advisory expenses
of
the Stockholders (with the exception of up to $25,000 in fees and disbursements
of a single counsel retained to represent all selling stockholders (including
any Stockholders requesting the inclusion of Registrable Shares in such
registration), which counsel will be selected by the holders of a majority
of
the shares of Parent Common Stock sought to be included in such registration),
will be borne by Parent.
(ii)
Parent may, at its option, but without any obligation to do so, include in
any
non-underwritten registration of shares of Parent Common Stock (including any
shelf registration statement filed by Parent, in whole or in part, for such
purpose) any or all shares of Parent Common Stock issued or to be issued for
the
account of the Stockholders hereunder.
(iii)
Parent may, but shall not be required to, include in any registration statement
to which this Section 2.10 is applicable shares of Parent Common Stock subject
to a contractual lock-up pursuant to a Joinder Agreement or other agreement
with
Parent. The inclusion of any shares of Parent Common Stock in such a
registration statement shall not affect the operation of any such contractual
lock-up to which such shares are then subject except as otherwise agreed by
Parent in its sole discretion.
(b) Parent
will not be required under Section 2.10(a)(i) to include Registrable Shares
in an underwriting subject thereto unless the Stockholders proposing to include
such Registrable Shares accept the terms of the underwriting as agreed upon
in
good faith between Parent and the underwriters (and become parties to the
related underwriting agreement and any other customary arrangements relating
to
the offering of securities by selling stockholders, including custody
arrangements), and then only in such quantity as the underwriters determine
in
their sole discretion will not jeopardize the success of the offering by Parent.
If the total number of shares of Parent Common Stock, including Registrable
Shares, to be included in such offering exceeds, in the underwriters' sole
discretion, the number of shares that can be included without adversely
affecting the success of the offering, then Parent will be required to include
in the offering only that number of shares of Parent Common Stock, including
Registrable Shares, which the underwriters determine in their sole discretion
will not adversely affect the success of the offering (the "Maximum
Offering Size").
In
such event, Parent will include in the registration statement relating to the
offering (i) first, all shares of Parent Common Stock to be offered by Parent
and (ii) second, to the extent the Maximum Offering Size exceeds the number
of
shares to be offered by Parent, the shares of Parent Common Stock proposed
to be
included by the selling stockholders, including the Stockholders proposing
to
include Registrable Shares in such registration statement. The shares of Parent
Common Stock to be included in such registration statement pursuant to the
preceding clause (ii) (the "Remaining
Availability")
will
be allocated pro rata among such selling stockholders according to the total
number of shares of Parent Common Stock owned by such selling stockholders
(or
in such other proportions as are mutually agreed to by such selling
stockholders). No Stockholder will be entitled to include in a registration
statement pursuant to this Section 2.10 Registrable Shares that may be sold
pursuant to Rule 144 under the Securities Act during the three months following
the date such registration statement becomes effective (the "144
Exception").
Parent may require each Stockholder to promptly furnish to Parent, as a
condition precedent to including such Stockholder's Registrable Shares in any
registration, such information regarding the distribution of such Stockholder's
Registrable Shares as Parent or the underwriters may from time to time
reasonably request in writing, but in no event will any Stockholder be required
to make representations or warranties, or provide any indemnity, in connection
with any transaction contemplated by this Section 2.10 except as to its
ownership of, and the absence of Liens or other restrictions on, shares it
is
including in an offering and the information referred to in the first clause
of
this sentence that has been furnished by such Stockholder in
writing.
(c) In
the
event Parent effects a registration to which Section 2.10 is applicable, except
to the extent such registration is postponed or withdrawn by Parent, Parent
will, as expeditiously as reasonably possible:
(i)
prepare
and file with the Securities and Exchange Commission (the "SEC")
such
amendments and supplements to the related registration statement and the
prospectus included therein as may be necessary to comply with the provisions
of
the Securities Act with respect to the disposition of the securities covered
by
such registration statement;
(ii)
furnish
to the Stockholders without charge such number of copies of a prospectus and
other documents as they may reasonably request in order to facilitate the
disposition of the Registrable Shares included in such
registration;
(iii)
notify
the Stockholders at any time when a prospectus relating thereto is required
to
be delivered under the Securities Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and
provide the Stockholders with such amendment or supplement to such prospectus
as
may be required to ensure that such prospectus does not include 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 not misleading in
the
light of the circumstances then existing;
(iv)
cooperate with the Stockholders to facilitate the timely preparation and
delivery of certificates representing Registrable Shares to be sold, which
certificates will not bear any restrictive legends; and
(v)
cause
the Registrable Shares included in such registration statement to be listed
on
the same principal securities exchange or interdealer quotation system on which
Parent Common Stock is then listed.
(d) With
a
view to making available to each Stockholder the benefits of Rule 144 under
the
Securities Act to the extent Parent has not made available to such Stockholder
the opportunity to dispose of such securities in a registered offering, Parent
agrees, for so long as Parent Common Stock is registered under the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"),
to:
(i) make
and
keep public information available (as those terms are defined in Rule 144,
including paragraph (c)(2) of such Rule);
(ii) file
with
the SEC in a timely manner reports and other documents, if any, required of
Parent under the Exchange Act and comply with all other public information
reporting requirements of the SEC that are conditions to the availability of
Rule 144;
(iii) furnish
to the Stockholders promptly upon request a written statement by Parent as
to
its compliance with the reporting requirements of Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of Parent filed with the SEC, if any, and such other reports
and documents of Parent as the Stockholders may reasonably request in availing
themselves of any rule or regulation of the SEC allowing the Stockholders to
sell Shares without registration; and
(iv) from
time
to time, upon the request of any Stockholder, cause counsel to Parent promptly
to issue, at the expense of Parent, an opinion to the transfer agent for the
Parent Common Stock and the broker for the applicable Stockholder confirming
that shares of Parent Common Stock issued hereunder may be sold without
registration under the Securities Act pursuant to Rule 144 promulgated under
the
Securities Act.
To
the extent that
shares of Parent Common Stock issued to any Stockholder hereunder and held
by
such Stockholder are included in a registration statement filed pursuant to
this
Section 2.10, such Stockholder shall be prohibited from disposing of such shares
of Parent Common Stock other than pursuant to such registration statement.
During the period from the date on which Parent notifies a Stockholder of its
intent to include any of such Stockholder’s shares of Parent Common Stock in a
registration statement filed pursuant to this Section 2.10 through the earlier
of the date Parent abandons its efforts to effect the related registration
of
shares (provided that Parent uses its reasonable best efforts to do so through
the date of such registration) and the date such registration statement is
formally withdrawn (or otherwise ceases to be effective other than on an interim
basis related to the filing of a post-effective amendment), such Stockholder
shall be prohibited from disposing of any shares of Parent Common Stock that
are
the subject of such notice, provided they are included in such registration
statement upon filing, by any means other than (i) prior to the filing of such
registration statement, pursuant to an exemption from registration other than
the exemption provided by Rule 144 under the Securities Act or (ii) pursuant
to
such registration statement, and shall in no event file a Form 144 with respect
to such shares of Parent Common Stock. Each Stockholder shall take any and
all
actions reasonably requested by Parent to facilitate the inclusion of such
Stockholder’s shares in a registration to which this Section 2.10 is applicable.
(e) (i)Parent
will indemnify and hold harmless, to the fullest extent permitted by law, each
holder of Registrable Shares registered pursuant to this Section 2.10, the
officers, directors and agents, affiliates, advisors, brokers and employees
of
each of them, each person who controls such holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents, affiliates, advisors, brokers and employees of
any
such controlling person, from and against all Losses, as incurred, arising
out
of or based upon any untrue or alleged untrue statement of a material fact
contained in any registration statement, prospectus or form of prospectus or
in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except to the extent the same are based solely upon
information with respect to such holder furnished in writing to Parent by such
holder expressly for use therein; provided,
however,
that
Parent will not be liable to any holder of Registrable Shares to the extent
that
any such Losses arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any preliminary
prospectus if either (A)(i) such holder failed to send or deliver a copy of
the
prospectus with or prior to the delivery of written confirmation of the sale
by
such holder of a Registrable Share to the person asserting the claim from which
such Losses arise and (ii) the prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission
or
(B) such untrue statement or alleged untrue statement or such omission or
alleged omission is corrected in an amendment or supplement to the prospectus
previously furnished by or on behalf of Parent with copies of the prospectus
as
so amended or supplemented delivered by Parent, and such holder thereafter
fails
to deliver such prospectus as so amended or supplemented prior to or
concurrently with the sale of a Registrable Share to the person asserting the
claim from which such Losses arise; provided,
further,
however,
that
the indemnity agreement contained in this Section 2.10(e)(i) will not apply
to
amounts paid in settlement of any such Loss if such settlement is effected
without the consent of Parent (which consent will not be unreasonably withheld).
The rights of any holder of Registrable Shares hereunder will not be exclusive
of the rights of any holder of Registrable Shares under any other agreement
or
instrument of any holder of Registrable Shares to which Parent or one of its
Affiliates is a party.
(ii)
Each
holder of Registrable Securities registered pursuant to this Section 2.10 will
indemnify and hold harmless, to the fullest extent permitted by law, Parent
and
its Affiliates, the officers, directors and agents, affiliates, advisors,
brokers and employees of each of them, each underwriter of securities covered
by
a registration statement subject to this Section 2.10, each person who controls
any such Person (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act), the officers, directors, agents, affiliates,
advisors, brokers and employees of any such underwriter or controlling person
and each other holder of Registrable Securities, from and against all Losses,
as
incurred, arising out of or based upon any untrue or alleged untrue statement
of
a material fact contained in any registration statement, prospectus or form
of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or alleged omission
to
state therein a material fact required to be stated therein or necessary to
make
the statements therein not misleading, but only to the extent the same are
based
upon information with respect to such holder furnished in writing to Parent
by
such holder expressly for use therein and was relied on by Parent in the
preparation thereof; provided,
however,
that
the indemnity agreement contained in this Section 2.10(e)(ii) will not apply
to
amounts paid in settlement of any such Loss if such settlement is effected
without the consent of such holder of Registrable Securities (which consent
will
not be unreasonably withheld). The rights of Parent and its Affiliates hereunder
will not be exclusive of the rights of Parent and its Affiliates under any
other
agreement or instrument Parent or any of its Affiliates to which any holder
of
Registrable Securities is a party. In no event will the liability of any selling
holder of Registrable Securities hereunder be greater in amount than the dollar
amount of proceeds (net of payment of all expenses and underwriters' discounts
and commissions) received by such holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
2.11 Transferability;
Legending of Shares
.
Except
as provided in Section 2.10(d)(iv) above, no Stockholder will be permitted
to
transfer any Shares in the absence of an effective registration statement unless
such Stockholder has furnished Parent with an opinion of counsel, reasonably
satisfactory to Parent, that such disposition does not require registration
of
such Shares under the Securities Act, or Parent determines that such opinion
of
counsel is unnecessary. Parent will not require opinions of counsel for
transfers of Shares made pursuant to Rule 144 if Parent is provided with any
certificates or other evidence of compliance with Rule 144 reasonably required
by it in connection with such transfer (including a copy of the relevant Form
144). The certificates representing the Shares issued hereunder will be issued
with customary legends substantially similar to those on certificates of
unregistered shares issued to officers or directors of Parent.
2.12 Stockholder
Representative.
(1) The
Stockholder Representative is hereby constituted and appointed as agent for
and
on behalf of the Stockholders (other than the holders of Dissenting Shares).
The
Stockholder Representative shall incur no liability to the Stockholders with
respect to any action taken or suffered by a Stockholder Representative in
reliance upon any note, direction, instruction, consent, statement or other
documents believed by the Stockholder Representative to be genuinely and duly
authorized, nor for other action or inaction except his, her or its own willful
misconduct or gross negligence. The Stockholder Representative may, in all
questions arising under this Agreement, rely on the advice of counsel and the
Stockholder Representative shall not be liable to the Stockholders for anything
done, omitted or suffered in good faith by the Stockholder Representative based
on such advice.
(2) In
the
event of the death or permanent disability of the Stockholder Representative,
or
his resignation as Stockholder Representative, a successor Stockholder
Representative shall be elected by a majority vote of the Stockholders (other
than the holders of Dissenting Shares), with each such Stockholder (or his,
her
or its successors or assigns) to be given a vote equal to the number of votes
represented by the shares of Common Stock held by such Stockholder (calculated
on an Fully Diluted Basis) immediately prior to the Effective Time. Each
successor Stockholder Representative shall have all of the power, authority,
rights and privileges conferred by this Agreement upon the original Stockholder
Representative, and the term “Stockholder Representative” as used herein shall
be deemed to include any successor Stockholder Representative.
(3) The
Stockholder Representative shall have full power and authority to represent
the
Stockholders (other than the holders of Dissenting Shares), and their
successors, with respect to all matters arising under Article 2 and Article
8
and all actions taken by any Stockholder Representative hereunder shall be
binding upon the Company Stockholders, and their successors, as if expressly
confirmed and ratified in writing by each of them. Without limiting the
generality of the foregoing, the Stockholder Representative shall have full
power and authority to interpret all of the terms and provisions of this
Agreement, to compromise any claims asserted hereunder and to authorize any
release of the Merger Consideration to be made with respect thereto, on behalf
of the Company Stockholders and their successors.
(4) The
Stockholder Representative shall be reimbursed for all expenses incurred by
him
out of the Expense Reserve pursuant to the terms of the Exchange Agreement,
unless such fees and expenses are to be reimbursed by Parent pursuant to Article
8.
2.13 Closing
Receivables
.
In the
event that any account receivable shown on the Final Closing Net Assets
Statement has not been collected in full by the six-month anniversary of the
Closing (each an “Unpaid
Receivable”),
the
face amount thereof, net of any unused portion of the receivables reserve
reflected on the Final Closing Net Assets Statement (up to the face amount
of
the receivable), shall be established as a credit in favor of Parent. Such
credit may be satisfied in the same manner in which Parent may seek recourse
with respect to an indemnifiable Loss pursuant Article VIII and the Escrow
Agreement (without application of Section 8.7(a)). All Unpaid Receivables shall
continue to be collected by the Company in the ordinary course and consistent
with procedures employed in the Company's recent historical practice, and if
a
payment is received by the Company with respect to an Unpaid Receivable with
respect to which a credit has been satisfied in accordance with the preceding
sentence, the Company shall make a corresponding payment to the Exchange Agent
(or, if such satisfaction was effected by a release from the Escrow Fund and
the
Escrow Fund has not been fully released, to the Escrow Agent) up to the amount
of such credit that was so satisfied. In the event the Company receives funds,
not designated as being in payment of a specific account receivable, from a
customer that is an account debtor with respect to both Unpaid Receivables
and
other accounts receivable, such funds shall be allocated to the oldest balance
(excluding any balance that is in dispute with the account debtor). Subject
to
compliance with the preceding sentence, neither Parent, the Company nor any
of
their respective Affiliates shall have any liability to the Stockholders for
the
collection of any Unpaid Receivable.
2.14 Additional
Actions.
If, at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purposes of this Agreement or to vest, perfect or confirm
in
the Surviving Corporation title to or ownership or possession of any property,
right, privilege, power, franchise or other asset of either the Company or
Merger Sub acquired or to be acquired by reason of, or as a result of, the
Merger, the officers and directors of the Company and Merger Sub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action, so long as such action
is
consistent with this Agreement.
ARTICLE
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
On
or
prior to the date hereof, the Company has delivered to Parent both a schedule
to
this Agreement and a schedule to a separate Confidential Disclosure Agreement
(collectively, the “Company
Disclosure Schedule”)
setting forth, among other matters, items the disclosure of which is necessary
or appropriate either in response to an express disclosure requirement contained
in a provision hereof or as an exception to one or more representations or
warranties contained in this Article 3; provided that (a) the
Company Disclosure Schedule includes only such items as are necessary to result
in providing true and correct representations and warranties and (b) the
inclusion of an item in the Company Disclosure Schedule as an exception to
a
representation or warranty shall not be deemed an admission by the Company
that
such item represents a material exception or fact, event or circumstance or
that
such item is reasonably likely to result in a Material Adverse Effect. The
Company Disclosure Schedule makes explicit reference to the particular
representation or warranty as to which exception is taken, which in each case
shall constitute the sole representation and warranty as to which such exception
shall apply, provided that the disclosures in the Company Disclosure Schedule
that are set forth expressly therein with particularity will apply to all
representations and warranties. The disclosure of the existence of a contract
on
the Company Disclosure Schedule shall not, without more, constitute the
disclosure of any particular provisions of such contract or the actual or
potential consequences thereof.
The
Company hereby represents and warrants to Parent and Merger Sub that, except
as
set forth in the Company Disclosure Schedule:
3.1 Organization
and Good Standing of the Company.
The
Company is an corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business. The Company is duly qualified or authorized to do business as a
foreign corporation and is in good standing under the laws of each jurisdiction
in which it owns or leases real property and each other jurisdiction in which
the conduct of its business or the ownership of its properties requires such
qualification or authorization, except where the failure to be so qualified
or
authorized would not have a Material Adverse Effect. Section 3.1 of the Company
Disclosure Schedule sets forth a true, correct and complete list of each
jurisdiction in which the Company is qualified or authorized to do business
as a
foreign corporation.
3.2 Capitalization;
Stockholders
(1) The
authorized capital stock of the Company consists of 5,000,000 shares of Common
Stock, of which 664,440 are validly issued and outstanding, fully paid and
nonassessable and 15,810 are registered in the name of the Company as treasury
shares; 30,000 shares of Series A Preferred Stock, of which 14,450 shares are
validly issued and outstanding, fully paid and nonassessable and are convertible
at the Applicable Conversion Ratio into 190,432 shares of Common Stock; 10,000
shares of Series B Preferred Stock, of which no shares are validly issued and
outstanding; 20,000 shares of Series C Preferred Stock, of which 15,420 shares
are validly issued and outstanding, fully paid and nonassessable and are
convertible at the Applicable Conversion Ratio into 161,789 shares of Common
Stock; 13,678 shares of Series D Preferred Stock, of which 13,678 shares are
validly issued and outstanding, fully paid and nonassessable and are convertible
at the Applicable Conversion Ratio into 158,582 shares of Common Stock; and
36,051 shares of Series E Preferred Stock, of which 10,000 shares are validly
issued and outstanding, fully paid and nonassessable and are convertible at
the
Applicable Conversion Ratio into 114,158 shares of Common Stock. There are
no
other shares of capital stock of the Company issued or outstanding. The Series
D
Payment Percentage, as determined in accordance with the Certificate of
Incorporation and the Series D Purchase Agreement, is 2.33%. All of the
outstanding shares of the Company’s capital stock (i) have been issued in
compliance with any preemptive rights, rights of first refusal or similar rights
of shareholders and the terms of any agreement or other understanding binding
upon the Company or the Stockholders and (ii) have been offered and sold
pursuant to a valid exemption from registration under the Securities Act and
are
otherwise in compliance with such securities laws, the rules and regulations
thereunder and state securities or “blue-sky” laws and regulation.
(2) The
Company has reserved 475,000 shares of Common Stock for issuance under its
1994
Incentive and Non-Statutory Stock Option Plan, of which options to purchase
140,250 shares are outstanding as of the date of this Agreement and the Company
has reserved 30,000 shares of Common Stock for issuance under its 2004 Stock
Option Plan, of which options to purchase 24,500 shares are outstanding on
the
date of this Agreement. Section 3.2(2) of the Company Disclosure Schedule
accurately sets forth, with respect to each Company Option that is outstanding
as of the date hereof: (i) the name of the holder of such Company Option, (ii)
the total number of shares of Common Stock that are subject to such Company
Option and the number of shares of Common Stock with respect to which such
Company Option is immediately exercisable; (iii) the date on which such Company
Option was granted and the term of such Company Option; (iv) the vesting
schedule of such Company Option; and (v) the exercise price per share of Common
Stock purchasable under such Company Option. No consent is required from the
holders of the Company Options in connection with the acceleration and
cancellation of such Company Options as contemplated by Section 6.5. Section
6.5
of the Company disclosure Schedule includes a list of the Designated Options
(including the exercise prices thereof and the number of shares of Common Stock
subject thereto) and the holders thereof.
(3) Except
for the Investment Agreements, there are no voting agreements, voting trusts
or
other agreements (including, but not limited to, contractual or statutory
preemptive rights or cumulative voting rights), commitments or understandings
with respect to the voting or transfer of the capital stock or other equity
interests of the Company.
(4) Except
as
described in paragraphs (1) through (3) above, the Company does not have
outstanding (i) any stock or other securities convertible into or
exchangeable for shares of its capital stock or other equity interests or
containing profit participation features, (ii) any options, warrants,
equity securities, calls, rights, commitments or agreements of any character
to
which the Company is a party or by which it is bound obligating the Company
to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement or (iii) any other
agreement, commitment or understanding (other than the agreements set forth
in
Section 6(c) of the Series D Certificate of Designation and Section 5(a)(i)
of
the Series D Purchase Agreement) of any character, including, but not limited
to, participation rights, relating to the issued or unissued capital stock
or
other securities of the Company. The Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or other equity interests or any warrants, options
or other rights to acquire its capital stock or other equity interests.
(5) The
Company has no subsidiaries nor does the Company own any equity or debt interest
in any other entity.
(6) The
outstanding shares of Company Stock of each class or series are owned in the
amounts and by the Persons listed in Section 3.2 of the Company Disclosure
Schedule.
(7) The
parties acknowledge that the representations and warranties contained in
paragraph (1) above assume that the Closing Date occurs on the Assumed Closing
Date.
3.3 Authorization;
No Conflict.
The
Company has the requisite corporate power and authority to enter into this
Agreement and the other Transaction Documents and to consummate the transactions
contemplated by this Agreement and the other Transaction Documents. The
execution and delivery of this Agreement and the other Transaction Documents
by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Company. This Agreement has been duly executed and delivered
by the Company and the Stockholder Representative and, assuming the due
authorization, execution and delivery by Parent and Merger Sub, constitutes
the
valid and binding obligation of the Company and the Stockholder Representative,
enforceable against the Company and the Stockholder Representative in accordance
with its terms. The execution and delivery of the Transaction Documents by
the
Company and the Stockholder Representative do not, and the consummation of
the
transactions contemplated by the Transaction Documents and compliance with
the
provisions of the Transaction Documents by the Company and the Stockholder
Representative will not, (i) conflict with the Certificate of Incorporation
or by-laws (or comparable organizational documents) of the Company,
(ii) result in any breach, violation or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or creation or acceleration of any obligation or right of a third
party or loss of a benefit under, or result in the creation of any Lien upon
any
of the properties or assets of the Company or the Stockholder Representative
under, any loan or credit agreement, note, bond, mortgage, indenture, lease
or
other agreement, instrument, permit, concession, franchise, license or other
authorization applicable to the Company or Stockholder Representative or their
respective properties or assets, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, conflict with
or violate any Law applicable to the Company or the Stockholder Representative
or their respective properties or assets or any judgment, order or decree to
which the Company or the Stockholder Representative or their respective
properties or assets are subject. No authorization, consent or approval of,
or
filing with or notice to, any Governmental Entity is necessary for the execution
and delivery of the Transaction Documents by the Company or the consummation
by
the Company of the transactions contemplated hereby, except for (i) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware and (ii) the filing of a pre-merger notification report under the
HSR
Act and any other documents or information requested by the United States
Department of Justice or the United States Federal Trade Commission in
connection therewith.
3.4 Corporate
Records.
(a) The
Company has delivered to Parent true, correct and complete copies of the
Certificate of Incorporation (certified by the Secretary of State of the State
of Delaware) and by-laws of the Company.
(b) The
minute books of the Company previously made available to Parent contain all
existing records of meetings and other corporate action of the stockholders
and
board of directors (including committees thereof) of the Company, and such
records do not omit the disclosure of any corporate actions required to be
referenced in the Company Disclosure Schedule. The stock certificate books
and
stock transfer ledgers of the Company previously made available to Parent are
true, correct and complete.
(c) The
books, records and accounts of the Company accurately and fairly present in
all
material respects the financial condition, results of operations, members’
equity and cash flows of the Company. The Company has not engaged in any
transaction with respect to its business, maintained any bank account for its
business or used any of its funds, except for transactions, bank accounts and
funds which have been and are reflected in the normally maintained books,
records and accounts of the Company. The Company is not aware that any fraud,
whether or not material, has occurred that involves or involved management
or
other employees who have a significant role in the Company’s system of internal
accounting control.
3.5 Financial
Statements. Included
in Section 3.5 of the Company Disclosure Schedule are the audited balance
sheets of the Company as at December 31, 2003 and 2004, the unaudited balance
sheet of the Company as at December 31, 2005 and the related statements of
income, cash flow and stockholders’ equity of the Company for the periods then
ended (such statements, including the related notes and schedules thereto,
are
referred to herein as the “Financial
Statements”).
The
Financial Statements have been prepared from the books and records of the
Company and fairly present in all material respects the financial position
and
results of operations, cash flows and shareholders’ equity of the Company as at
the dates and for the periods reflected thereon in accordance with GAAP applied
on a consistent basis throughout the periods indicated, subject in the case
of
the December 31, 2005 balance sheet, and the related statements of income,
cash
flow and stockholders’ equity for the period then ended, to normal year-end
audit adjustments, which are not expected to be material individually or in
the
aggregate, and to the reconciliation of management statements to audited
financial statements in accordance with past practice as set forth in Section
3.5 of the Company Disclosure Schedule. The reserves reflected in the Financial
Statements are adequate, appropriate and reasonable and have been calculated
in
a consistent manner. The Company does not have any Liabilities, including,
without limitation, Liabilities on account of Taxes or governmental charges
or
penalties, interest or fines thereon or in respect thereof, except (i) to the
extent specifically reflected and accrued for or specifically reserved against
in the Financial Statements and (ii) for liabilities and obligations incurred
in
the ordinary and usual course of business consistent with past custom and
practices since the Balance Sheet Date or incurred in connection with the
transactions contemplated hereby, which, individually and in the aggregate,
are
not material. The financial forecast (the "2006
Financial Projection")
for
the Company for the fiscal year 2006 included in Section 3.5 of the Company
Disclosure Schedule was prepared by management in good faith based upon
assumptions that management believes are reasonable. Parent acknowledges and
agrees that (i) the Company makes no guarantee or representation that the
results estimated in the 2006 Financial Projection will be realized, (ii) the
factors upon which the assumptions and estimate were based may change after
the
date hereof and (iii) the results estimated in the 2006 Financial Projection
may
differ from actual results. For purposes hereof, the balance sheet of the
Company as at December 31, 2005 included in the Financial Statements shall
be
the “Balance
Sheet”
and
December 31, 2005 shall be the “Balance
Sheet Date.”
3.6 Compliance
with Laws; Certain Regulatory Disclosures
.
(a) The
Company is, and has at all times been, (i) to its Knowledge, in compliance
with
all state privacy, anti-kickback and similar Laws and (ii) in compliance in
all
material respects with all other Laws applicable to it or the operation, use,
occupancy or ownership of its assets or properties or the conduct of its
business, and the Company has not received notice (written or oral) from any
Governmental Entity (including any state pharmacy board or comparable body)
of,
and has no Knowledge of, any failure to so comply. The Company holds all
material Permits necessary under Law for the conduct of the Company’s business
as currently conducted or proposed to be conducted, and the operations of the
Company are not being conducted in violation of any Permit held by it. There
is
no investigation by a Governmental Entity pending against or, to the Knowledge
of the Company, threatened against the Company.
(b)
The
Company began conducting refill reminder programs in 1995 and currently conducts
refill reminder programs in all ▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇. Included in
Section 3.6 of the Company Disclosure Schedule are (i) a copy of every written
communication (A) received by the Company or, to the extent a copy thereof
was
provided to the Company, by any other Person (including any pharmacy, pharmacy
chain or pharmaceutical manufacturing client of the Company) since the Company's
inception from any federal, state or local regulatory authority (including
any
board of pharmacy) having jurisdiction over the Company and relating directly
to
a regulatory inquiry or claimed violation of Law or (B) sent by the Company
or,
to the extent a copy thereof was provided to the Company, by any other Person
(including any pharmacy, pharmacy chain or pharmaceutical manufacturing client
of the Company) since the Company's inception to any federal, state or local
regulatory authority (including any board of pharmacy) having jurisdiction
over
the Company and relating directly to a regulatory inquiry or claimed violation
of Law and (ii) a copy of each material written communication from any
consultant or advisor, including counsel, engaged in connection with any federal
or state legal or regulatory matter involving privacy, anti-kickback or other
health care-related regulation that includes substantive advice regarding
compliance, enforcement risk or potential liability (whether to a Governmental
Entity or a private party) that either (x) is inconsistent with the draft
memorandum dated January 14, 2005 titled The Legal and Regulatory Environment
for Adheris's Prescription Drug Patient Adherence and Educational Programs
(the
“White
Paper”)
and
was prepared later than January 14, 2005 or (y) addresses state law regulatory
risks to any extent, regardless of the date of preparation. The Company has
not
received any advice from any such consultant or advisor, including counsel,
that
varies materially from or is in conflict or inconsistent with the statements,
substantive assessments or conclusions set forth in the White Paper. The White
Paper reflects the Company’s good faith assessment of the matters set forth
therein and does not misstate any material fact or omit to state any material
fact required to be stated therein in order to make the statements made therein,
under the circumstances under which they were made, not misleading.
3.7 Real
Property.
(a) The
Company does not own in fee any real property or interest in real property.
Section 3.7 of the Company Disclosure Schedule sets forth a complete list of
all
real property and interests in real property leased by the Company
(individually, a “Real
Property Lease”
and
the
real properties specified in such leases being referred to herein individually
as a “Company
Property”
and
collectively as the “Company
Properties”)
as
lessee. The Company Property constitutes all interests in real property
currently used or currently held for use in connection with, or which are
necessary for the continued operation of, the business of the Company as
currently conducted or proposed to be conducted. The Company has a valid and
enforceable leasehold interest under each of the Real Property Leases, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors’ rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). The Company has
not
received any notice of, and has no Knowledge of, any default or event that
with
notice or lapse of time, or both, would constitute a default under any of the
Real Property Leases and the Company and each other party thereto is in
compliance with the obligations of such party thereunder. All of the Company
Property, buildings, fixtures and improvements thereon owned or leased by the
Company are in good operating condition and repair (subject to normal wear
and
tear). The Company has delivered or otherwise made available to Parent true,
correct and complete copies of the Real Property Leases, together with all
amendments, modifications or supplements, if any, thereto.
(b) The
Company has all certificates of occupancy and Permits of any Governmental Entity
necessary or useful for the current use and operation of each Company Property,
and the Company has fully complied with all conditions of the Permits applicable
to it. No default or violation, or event that with the lapse of time or giving
of notice or both would become a default or violation, has occurred in the
due
observance of any Permit.
(c) There
does not exist any actual or, to the Knowledge of the Company, threatened or
contemplated condemnation or eminent domain proceeding that affects Company
Property or any part thereof, and the Company has not received any notice,
oral
or written, of the intention of any Governmental Entity or other Person to
take
or use all or any part thereof.
3.8 Tangible
Assets.
(a)
Company
Disclosure Schedule lists all leases of personal property (“Personal
Property Leases”)
relating to personal property used in the business of the Company as currently
conducted or proposed to be conducted or to which the Company is a party or
by
which the properties of the Company are bound. The Company has delivered or
otherwise made available to Parent true, correct and complete copies of the
Personal Property Leases, together with all amendments, modifications or
supplements thereto.
(b) The
Company has a valid leasehold interest under each of the Personal Property
Leases under which it is a lessee, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally and subject, as to enforceability, to general principles
of
equity (regardless of whether enforcement is sought in a proceeding at law
or in
equity), and there is no default under any Personal Property Lease by the
Company or by any other party thereto, and no event has occurred that with
the
lapse of time or the giving of notice or both would constitute a default
thereunder, and the Company and each other party thereto is in compliance with
all obligations of the Company or such other party, as the case may be,
thereunder.
(c) The
Company has good and marketable title to its property and assets as of the
date
hereof (which include, without limitation, all of the items of tangible personal
property reflected in the Balance Sheet), free and clear of any and all Liens
other than the Permitted Encumbrances. All tangible personal property of the
Company, and all of the items of tangible personal property used by the Company
under the Personal Property Leases, are in good condition and in a state of
good
maintenance and repair (ordinary wear and tear excepted) and are suitable for
the purposes used. The Company's assets include all assets, rights and interests
reasonably required for the continued conduct of the business of the Company
as
currently conducted or proposed to be conducted.
3.9 Absence
of Liabilities.
The
Company has no Liabilities except (a) to the extent specifically reflected
and accrued for or specifically reserved against in the Balance Sheet, (b)
for
Liabilities incurred subsequent to the Balance Sheet Date in the ordinary course
of business consistent with past custom and practice and (c) for
liabilities specifically identified in Section 3.9 of the Company Disclosure
Schedule. Without limitation of the foregoing, except as set forth on the
Balance Sheet, the Company is not a party to any Contract for which the Company
is liable for borrowed money either directly or indirectly, whether as
principal, guarantor, indemnitor or otherwise, except for accounts payable
incurred in the ordinary course of business.
3.10 Litigation.
Except
as set forth in Section 3.10 of the Company Disclosure Schedule, there is no
suit, action, proceeding, investigation, complaint or claim pending or, to
the
knowledge of the Company, threatened against the Company (or pending or
threatened against any of the managers, officers, directors or key employees
of
the Company in relation to the Company or its business) before any court or
other Governmental Entity or any arbitral tribunal, nor is there any basis
for
any such suit, action, proceeding, investigation, complaint or claim. Except
as
set forth in Section 3.10 of the Company Disclosure Schedule, the Company has
not received any written opinion or memorandum or legal advice from legal
counsel retained by the Company to the effect that it is exposed, from a legal
standpoint, to any material Liability. The Company is not engaged in any legal
action to recover monies due it or for damages sustained by it. Section 3.10
of
the Company Disclosure Schedule sets forth a list of all closed litigation
matters to which the Company was a party during the five (5) years
preceding the date hereof, the date such litigation was commenced or concluded,
and the nature of the resolution thereof (including amounts paid in settlement
or judgment). The Company is not subject to any Order of any Governmental
Entity.
3.11 Taxes.
(1) The
Company has timely filed all Tax Returns (as defined below) that it was required
to file. All such Tax Returns were correct and complete in all respects. All
Taxes (as defined below) owed by the Company (whether or not shown on any Tax
Return) have been paid or adequate reserves for the payment thereof have been
established therefor. The Company is not the beneficiary of any extension of
time within which to file any Tax Return. No written notice has been received
from a taxing authority in a jurisdiction where the Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There
are
no Encumbrances on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(2) The
Company has withheld and paid to the appropriate taxing authority or other
Governmental Entity all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(3) The
Company has not waived any statute of limitations in respect of Taxes or agreed
to any extension of time with respect to a Tax assessment or
deficiency.
(4) To
the
extent that the Company incurs Taxes after the date hereof with respect to
periods ending on or prior to the Closing date, the Company shall pay all such
Taxes on or prior to the Closing Date in compliance with all applicable laws
and
regulations, or if such Taxes are not yet due and payable on such date, the
amount of such Taxes shall be accrued on the Closing Date Balance
Sheet.
(5) With
respect to each taxable period of the Company, either such taxable period has
been audited by the relevant taxing authority or other relevant Governmental
Entity or the time for assessing or collecting Taxes with respect to each such
taxable period has closed and such taxable period is not subject to review
by
any relevant taxing authority or other relevant Governmental
Entity.
(6) No
deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Taxes has been asserted or assessed by any taxing
authority or other Governmental Entity against the Company.
(7) There
is
no action, suit, Governmental Entity proceeding, or audit or claim for refund
in
progress, pending or threatened against or with respect to the Company regarding
Taxes.
(8) The
Company will not be required (A) as a result of a change in method of accounting
for a taxable period ending on or prior to the Closing Date, to include any
adjustment under Section 481(c) of the Code in taxable income for any taxable
period (or portion thereof) beginning after the Closing or (B) as a result
of
any “closing agreement,” as described in Section 7121 of the Code, to include
any item of income or exclude any item of deduction from any taxable period
(or
portion thereof) beginning after the Closing.
(9) The
Company has not been a member of an affiliated group (as defined in Section
1504
of the Code), filed or been included in a combined, consolidated or unitary
income Tax Return, and is not a partner, member, owner or beneficiary of any
entity treated as a partnership or a trust for Tax purposes. The Company has
no
liability for Taxes of any person under regulation 1.1502-6 of the Code or
similar state or local laws or any successor or transferee liability for
Taxes.
(10) The
Company is not a party to or bound by any Tax allocation or Tax sharing
agreement and has no contractual obligation to indemnify any other Person with
respect to Taxes.
(11) As
a
result of the Merger neither the Company nor Parent nor any Affiliate of either
will be obligated to make a payment to a person that will be a “parachute
payment” to a “disqualified individual” as those terms are defined in section
280G of the Code.
(12) The
Company is not and has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(13) True,
correct and complete copies of all income and sales Tax Returns filed by or
with
respect to the Company for taxable periods ending on or after December 31,
2002
have been furnished or made available to Parent.
(14) The
Company has not participated in any reportable transaction as contemplated
in
Treasury Regulations Section 1.6011-4.
(15) The
Company has not taken any action that is not in accordance with past practice
that could defer a liability for Taxes of the Company from any taxable period
ending on or before the Closing Date to any taxable period ending after such
date.
(16) The
Company is not subject to Tax, nor does it have a permanent establishment in,
any foreign jurisdiction.
(17) There
is
currently no limitation on the utilization of net operating losses, capital
losses, built-in losses, tax credits or similar items of the Company under
Sections 269, 382, 383, 384 or 1502 of the Code and the Treasury
Regulations thereunder (and comparable provisions of state, local or foreign
law).
(18) The
Company has not been a party to any transaction governed by Section 355 of
the
Code.
As
used
herein, “Tax
Returns”
shall
mean all returns and reports of or with respect to any Tax which are required
to
be filed by or with respect to the Company; “Taxes”
shall
mean all taxes, charges, imposts, tariffs, governmental fees, levies or other
similar assessments or liabilities, including income taxes, ad valorem taxes,
excise taxes, withholding taxes, stamp taxes or other taxes of or with respect
to gross receipts, premiums, real property, personal property, windfall profits,
sales, use transfers, licensing, employment, payroll and franchises imposed
by a
taxing authority under any statute, law, rule or regulation, and such terms
shall include any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any such tax
or
any contest or dispute thereof “Taxes”
also
includes any transferee or secondary liability for Taxes and any liability
pursuant to an agreement or otherwise, including liability arising as a result
of being or ceasing to be a member of any affiliated group, or being included
or
required to be included in any Tax Return relating thereto.
3.12 Employee
Benefits.
(a) Section
3.12 of the Company Disclosure Schedule sets forth a complete and correct list
of (i) all “employee benefit plans,” as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”),
and
any other pension plans or employee benefit arrangements, programs or payroll
practices (including without limitation severance pay, vacation pay, company
awards, salary continuation for disability, sick leave, retirement, deferred
compensation, bonus or other incentive compensation, stock purchase arrangements
or policies, hospitalization, medical insurance, life insurance and scholarship
programs) that is currently in effect or was maintained, sponsored or
contributed to by the Company within the last six years to which the Company
contributes or is obligated to contribute thereunder with respect to employees
of the Company, or that has been approved before the date hereof but is not
yet
effective (“Employee
Benefit Plans”)
and
(ii) all “employee pension plans,” as defined in Section 3(2) of ERISA,
maintained by the Company or any trade or business (whether or not incorporated)
which are under control of, or which are treated as a single employer with,
the
Company under Section 414(b), (c), (m) or (o) of the (“ERISA
Affiliate”)
or to
which the Company or any ERISA Affiliate contributed or is obligated to
contribute thereunder (“Pension
Plans”)
within
the last six years. Section 3.12 of the Company Disclosure Schedule identifies,
in separate categories, Employee Benefit Plans or Pension Plans that are
(i) subject to Section 4063 and 4064 of ERISA (“Multiple
Employer Plans”),
(ii)
multiemployer plans (as defined in Section 4001(a)(3) of ERISA) (“Multiemployer
Plans”)
or
(iii) “benefit plans”, within the meaning of Section 5000(b)(1) of the Code
providing continuing benefits after the termination of employment (other than
as
required by Section 4980B of the Code or Part 6 of Title I of ERISA and at
the
former employee’s or his beneficiary’s sole expense).
(b) Neither
the Company nor any ERISA Affiliate maintains, sponsors, or contributes, or
has,
within the past six years, maintained, sponsored or had any obligation to
contribute to, for the benefit of current or former employees a defined benefit
plan subject to Title IV of ERISA, (ii) any Multiemployer Plan or (iii) any
Multiple Employer Plan.
(c) Each
of
the Employee Benefit Plans and Pension Plans intended to qualify under Section
401 of the Code (“Qualified
Plans”)
so
qualifies and has received a determination letter from the IRS to such effect
and the trusts maintained thereto are exempt from federal income taxation under
Section 501 of the Code and nothing has occurred or is expected to occur with
respect to the operation of any such plan which caused or would cause the loss
of such qualification or exemption or the imposition of any liability, penalty
or tax under ERISA or the Code.
(d) All
contributions and premiums required by Law or by the terms of any Employee
Benefit Plan or Pension Plan or any agreement relating thereto have been timely
made (without regard to any waivers granted with respect thereto) to any funds
or trusts established thereunder or in connection therewith, and no accumulated
funding deficiencies exist in any of such plans.
(e) There
has
been no violation of or failure to comply with ERISA or the Code with respect
to
the filing of applicable returns, reports, documents and notices regarding
any
of the Employee Benefit Plans or Pension Plans with the DOL, the IRS, the PBGC
or any other Governmental Entity or the furnishing of such notices or documents
to the participants or beneficiaries of the Employee Benefit Plans or Pension
Plans.
(f) True,
correct and complete copies of the following documents, with respect to
each of the Employee Benefit Plans and Pension Plans, have been delivered to
Parent: (A) any plans and related trust documents (all amendments thereto),
investment management agreements, administrative service contracts, group
annuity contracts, insurance contracts, collective bargaining agreements and
employee handbooks, (B) the most recent Forms 5500 for the past three years
and
schedules thereto, (C) the most recent financial statements and actuarial
valuations for the past three years, (D) the most recent IRS determination
letter, (E) the most recent summary plan descriptions (including letters or
other documents updating such descriptions) and (F) written descriptions of
all
non-written agreements relating to the Employee Benefit Plans and Pension
Plans.
(g) There
are
no pending Legal Proceedings which have been asserted or instituted or, to
the
Knowledge of the Company, threatened against any of the Employee Benefit Plans
or Pension Plans, the assets of any such plans or of any related trust or the
Company, the plan administrator or any fiduciary of the Employee Benefit Plans
or Pension Plans with respect to the operation of such plans (other than
routine, uncontested benefit claims), and there are no facts or circumstances
which could form the basis for any such Legal Proceeding. No Employee Benefit
Plan or Pension Plan is under audit or investigation by the IRS, DOL, or any
other Government Body and no such completed audit, if any, has resulted in
the
imposition of Tax, interest, or penalty.
(h) Each
of
the Employee Benefit Plans and Pension Plans complies with and has been
maintained in accordance with its terms and all provisions of applicable Law,
including ERISA and the Code, and all reporting and disclosure requirements
have
been satisfied on a timely basis.
(i) The
Company and any ERISA Affiliate which maintains a “group health plan” within the
meaning of Section 5000(b)(1) of the Code and each plan sponsor or administrator
has complied with the COBRA reporting, disclosure, notice, election, and other
benefit continuation and coverage requirements of Section 4980B of the Code
or
Part 6 of Title I of ERISA and the applicable regulations thereunder and any
comparable state laws, and has not incurred any direct or indirect liability,
and is not subject to any loss, assessment or excise tax, penalty, loss of
federal income tax deduction or other sanction arising on account of or in
respect of any direct or indirect failure at any time to comply with any such
federal or state benefit continuation coverage requirements.
(j) Neither
the Company nor a “party in interest” or “disqualified person” with respect to
the Employee Benefit Plans or Pension Plans has engaged in a “prohibited
transaction” within the meaning of Section 4975 of the Code or Section 406 of
ERISA which has subjected or could subject the Company, any ERISA Affiliates,
Parent, Parent or any trustee, administrator or other fiduciary to a tax penalty
on prohibited transaction or any other liabilities with respect
thereto.
(k) Neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment becoming due
to
any employee; (ii) increase any benefits otherwise payable under any Employee
Benefit Plan or Pension Plan; or (iii) result in the acceleration of the time
of
payment or vesting of any such benefits.
(l) No
membership interest or other security issued by the Company forms or has formed
a material part of the assets of any Employee Benefit Plan or Pension
Plan.
(m) The
consummation of the transactions contemplated by this Agreement will not give
rise to any liability for termination of any agreements related to any Employee
Benefit Plan or Pension Plan.
(n) No
amounts payable under any Employee Benefit Plan and Pension Plan will fail
to be
deductible for federal income tax purposes by virtue of Section 280G of the
Code.
(o) Each
Employee Benefit Plan or Pension Plan that purports to provide benefits which
qualify for tax-favored treatment under Sections 79, 105, 106, 117, 120, 125,
127, 129, and 132 of the Code satisfies the requirements of said
Section(s).
(p) Each
Employee Benefit Plan that purports to defer income complies with Section 409A
of the Code, and the Company is not expected to have any future withholding
tax
obligations with respect to Code section 409A under any benefit
plan.
(q) Each
Employee Benefit Plan, or Pension Plan, its related trust and insurance
agreement may be unilaterally amended or terminated on no more than 90 days
notice.
3.13 Labor.
(a) The
Company is not a party to any labor or collective bargaining agreement and
there
are no labor or collective bargaining agreements which pertain to employees
of
the Company.
(b) No
employees of the Company are represented by any labor organization. No labor
organization or group of employees of the Company has made a pending demand
for
recognition, and there are no representation proceedings or petitions seeking
a
representation proceeding presently pending or, to the Knowledge of the Company,
threatened to be brought or filed, with the National Labor Relations Board
or
other labor relations tribunal. There is no organizing activity involving the
Company pending or, to the Knowledge of the Company, threatened by any labor
organization or group of employees of the Company.
(c) There
are
no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii)
grievances or other labor disputes pending or, to the Knowledge of the Company,
threatened against or involving the Company. There are no unfair labor practice
charges, grievances or complaints pending or, to the Knowledge of the Company,
threatened by or on behalf of any employee or group of employees of the
Company.
(d) There
are
no complaints, charges or claims against the Company pending or, to the
Knowledge of the Company, threatened which could be brought or filed, with
any
public or Governmental Entity based on, arising out of, in connection with,
or
otherwise relating to the employment or termination of employment by the
Company, of any individual.
(e) The
Company is in compliance with all Laws and Orders relating to the employment
of
labor, including all such Laws and orders relating to wages, hours, the Worker
Adjustment and Retraining Notification Act and any similar state, local or
foreign “plant closing” Law (“WARN”),
collective bargaining, discrimination, civil rights, safety and health, worker’s
compensation, payment of overtime wages and the collection and payment of
withholding and/or social security taxes and any similar tax.
(f) There
has
been no “mass layoff” or “plant closing” as defined by WARN with respect to the
Company within the six (6) months prior to making this
representation.
(g) To
the
Knowledge of the Company, no executive, key employee, or group of employees
currently has any plans to terminate employment with the Company independently
of or as a result of this Agreement.
3.14 Contracts.
(a)
Section 3.14 of the Company Disclosure Schedule sets forth all of the following
Contracts to which the Company is a party or by which it is bound (collectively,
the “Material
Contracts”)
and
categorizes such Contracts by the types described below: (i) Contracts relating
to the employment of any Person, or any bonus, deferred compensation, pension,
profit sharing, stock option, employee stock purchase, retirement, retention,
severance, change of control or other employee benefit plan or arrangement,
(ii)
Contracts other than those described in clause (i) with any current or former
officer, director or employee of the Company, or any Affiliate of the Company
or
any such Person; (iii) Contracts with any employee or labor union or association
representing any employee; (iv) Contracts relating to future capital
expenditures other than Contracts not exceeding $25,000 individually or $75,000
in the aggregate, (v) Contracts for the sale of any assets other than in the
ordinary course of business; (vi) joint venture or partnership agreements;
(vii)
Contracts limiting the ability of the Company or any Subsidiary to engage in
any
line of business or to compete with any Person or to conduct business in any
geographical area or to solicit any Person for employment, (viii) Contracts
relating to the confidentiality or limitation on use of any information (other
than confidentiality agreements executed in connection with the Company's
exploration of strategic alternatives, including a possible sale or merger
of
the Company, with respect to which the Company has no material obligations
other
than standard confidentiality undertakings with respect to suitor-provided
information); (ix) Contracts entered into within the last five years relating
to
the acquisition of any equity interests or assets of any other Person or the
disposition of any assets other than in the ordinary course of business
consistent with past practices; (x) Contracts relating to any indebtedness
of
the Company, including credit facilities, promissory notes, security agreements,
and other credit support arrangements, (xi) Contracts relating to any loan
(other than accounts receivable from trade debtors in the ordinary and usual
course of business consistent with past custom and practice) or advance to
(other than ordinary course travel allowances to the employees of the Company),
or investments in, any Person; (xii) Contracts relating to any guarantee or
other contingent Liability in respect of any indebtedness or obligation of
any
Person (other than the endorsement of negotiable instruments for collection
in
the ordinary and usual course of business consistent with past custom and
practice), (xiii) (A) all customer Contracts currently in effect (listing all
statements of work, task orders or similar documents currently in effect with
respect to each such Contract) and (B) all currently outstanding written
proposals to customers, (xiv) any license agreement relating in whole or in
part
to Intellectual Property (other than standard "off-the-shelf" or "shrink-wrap"
license agreements), (xv) any Contract which involves aggregate payments of
$25,000 or more or which is not cancelable without penalty within 120 days,
(xvi) any Contracts not described above outside the ordinary and usual course
of
business consistent with past custom and practice and (xvii) any other
Contracts, other than Real Property Leases and customer contracts, with respect
to which the amount to be paid or received thereunder in the future could
reasonably be expected to exceed $25,000 in any calendar year or $100,000 in
the
aggregate.
Correct
and complete copies of the written Contracts required to be set forth in Section
3.14 of the Company Disclosure Schedule have previously been furnished to
Parent. For purposes of the preceding sentence, an agreement, proposal or
statement of work being performed by the Company that has been reduced to
writing but has not been signed by the counterparty shall be considered a
written Contract. Except as set forth in Section 3.14 of the Company Disclosure
Schedule, all of the Material Contracts and Real Property Leases shall,
following the Closing, remain enforceable by the Company and binding on the
other parties thereto, without the consent, approval, novation or waiver of
any
third party, except that enforceability may be limited by any applicable statute
of frauds, conduct of the Company from and after the Effective Time and any
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar law relating to or affecting the rights of creditors generally, which
law may be in effect from time to time. The Company is not in default, nor
has
any event occurred which, with the giving of notice or the passage of time
or
both, would constitute a default, under any Material Contract or Real Property
Lease or any other obligation owed by the Company, and, to the Knowledge of
the
Company, no event has occurred which, with the giving of notice or the passage
of time or both, would constitute a default by any other party to any such
Material Contract, Lease or obligation. Each of the Material Contracts and
Real
Property Leases is in full force and effect, is valid and enforceable in
accordance with its terms, except that enforceability may be limited by any
applicable statute of frauds, conduct of the Company from and after the
Effective Time and any bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or similar law relating to or affecting the rights of
creditors generally, which law may be in effect from time to time, and is not
subject to any claims, charges, setoffs or defenses.
3.15 Intellectual
Property.
(a) The
Company owns, free and clear from all Liens (other than Permitted Encumbrances)
or otherwise possesses legally enforceable rights to use all of the Intellectual
Property reasonably necessary to the conduct of business of the Company as
currently conducted or proposed to be conducted. The Intellectual Property
owned
by the Company (“Owned
Intellectual Property”)
and
the Intellectual Property licensed to the Company comprise all of the
Intellectual Property that is or has at any time been used in or is reasonably
necessary to conduct the business of the Company as currently conducted or
proposed to be conducted.
(b) Section
3.15(b)(i) of the Company Disclosure Schedule sets forth a true, complete and
correct list of all Owned Intellectual Property for which a registration or
application has been filed with a Governmental Entity, including patents,
trademarks, service marks and copyrights, issued by or registered with, or
for
which any application for issuance or registration thereof has been filed with,
any Governmental Entity. Section 3.15(b)(ii) of the Company Disclosure Schedule
sets forth a complete and correct list of all trademarks, service marks and
other trade designations that are Owned Intellectual Property and not otherwise
identified in Section 3.15(b)(i) of the Company Disclosure Schedule. Section
3.15(b)(iii) of the Company Disclosure Schedule also sets forth a complete
and
correct list of all written or oral licenses and arrangements (other than
ordinary course licenses of commercially available software), (i) pursuant
to which the use by any Person of Intellectual Property is permitted by the
Company, and (ii) pursuant to which the use by the Company of Intellectual
Property is permitted by any Person (collectively, the “Intellectual
Property Licenses”).
The
Intellectual Property Licenses are in full force and effect.
(c) Nothing
will interfere with, infringe upon, misappropriate, or otherwise come into
conflict with, any Intellectual Property rights of third parties as a result
of
the continued operation of the business of the Company as currently conducted
or
proposed to be conducted.
(d) To
the
Knowledge of the Company, no Intellectual Property that is Owned Intellectual
Property or subject to any Intellectual Property License is being infringed
by
third parties. There is no claim or demand of any Person pertaining to, or
any
proceeding which is pending or, to the Knowledge of the Company, threatened,
that challenges the rights of the Company in respect of any Owned Intellectual
Property, or claims that any default exists under any Intellectual Property
License.
(e) The
Company has no Liability relating to (i) the creation by the Company or an
employee or independent contractor of the Company of Intellectual Property
in
connection with the performance of services for a customer of the Company or
(ii) any failure of the Company or any such employee or independent contractor
to assign rights therein to such customer
(f) All
computer programs and software, including source code, object code and
databases, which are owned, used or licensed by the Company, and all computer
programs and software, including source code, object code and databases,
transferred by the Company to its respective customers or any other transferees,
(i) conform with all specifications, representations, warranties, and other
descriptions established by the Company or conveyed thereby to its customers
or
other transferees, (ii) are free of any defects, deficiencies, bugs, errors,
viruses or other contaminants or corruptants which materially and adversely
affect the principal functionalities as a whole, (iii) have been upgraded as
necessary so that all thereof is functional on currently available platforms,
and (iv) have been fully maintained by the Company on behalf of its customers
and other transferees to their reasonable satisfaction; provided, however,
this
Section 3.15(f) does not apply to intellectual property that has been or is
commercially available to the general public by third parties other than Company
for ownership, license or use.
(g) All
source and object codes relating to all of the products of the Company, and
all
modules, module works in process for new modules or derivative works or
improvements on existing modules (collectively, the “Program
Codes”)
substantially conform to the principal functionalities intended for the end
users of such Program Codes. No Person other than the Company possesses a copy,
in any form (print, electronic or otherwise), of any of the Program
Codes.
3.16 Absence
of Changes or Events.
Except
as specifically identified in Section 3.16 of the Disclosure Schedule as an
event which is reasonably likely to give rise to a Material Adverse Effect,
since December 31, 2004, there has been no Material Adverse Effect nor has
there
occurred any event which is reasonably likely to result in a Material Adverse
Effect. Except as set forth in Section 3.16 of the Company Disclosure Schedule,
since September 30, 2005, the Company has conducted its business and operations
only in the ordinary and usual course of business consistent with past custom
and practice and has incurred no Liabilities other than in the ordinary and
usual course of business consistent with past custom and practice. Except as
set
forth in Section 3.16 of the Company Disclosure Schedule, since September 30,
2005 (and, with respect to clauses (c), (e), (l), (m) and (o), December 31,
2004), the Company has not:
(a) sold,
assigned or transferred any asset or property right (other than sales of assets
in the ordinary and usual course of business consistent with past practice),
or
mortgaged, pledged or subjected them to any Lien, charge or other restriction,
except for Permitted Encumbrances;
(b) sold,
assigned, transferred, abandoned or permitted to lapse any Permit or any of
the
Intellectual Property or other intangible assets of the Company, disclosed
any
material confidential information or trade secret to any person or granted
any
license or sublicense of any rights under or with respect to any Intellectual
Property or other intangible assets;
(c) made
or
granted any increase in, or amended or terminated, any existing plan, program,
policy or arrangement, including, without limitation, any Employee Benefit
Plan
or arrangement or adopted any new Employee Benefit Plan or arrangement or
entered into any new collective bargaining agreement or multi-employer
plan;
(d) conducted
the cash management customs and practices (including the timing of collection
of
receivables and payment of payables and other current liabilities) and
maintained the books and records of the Company other than in the usual and
ordinary and usual course of business consistent with past custom and
practice;
(e) made
any
material loans or advances to, or guarantees for the benefit of, or entered
into
any transaction with any employee, officer or director of the
Company;
(f) suffered
any extraordinary loss, damage, destruction or casualty loss or waived any
rights of material value, whether or not covered by insurance and whether or
not
in the ordinary and usual course of business consistent with past
practice;
(g) received
notification, and the Company has no Knowledge, that any client, customer or
supplier will, except as reflected in the 2006 Projection, (i) stop or decrease
in any respect the rate of business done with the Company, (ii) make any or
seek
to make any other alteration to its relationship with the Company or (iii)
seek
to have any agreement, arrangement, contract or commitment amended or otherwise
modified in a manner that has the effect of reducing the margins of the Company
or otherwise adversely affects the Company;
(h) declared,
set aside or paid any dividend or distribution of cash or other property to
any
stockholder or member or purchased, redeemed or otherwise acquired any Company
Stock or made any other payments to any stockholder;
(i) amended
or authorized the amendment of the organizational documents of the
Company;
(j) waived
any right or canceled or compromised any debt or claim, other than in the
ordinary and usual course of business consistent with past
practice;
(k) made
(or
incurred obligations to make) capital expenditures in an amount which
exceeds $25,000 for any item or $100,000 in the aggregate;
(l) increased
the compensation payable to any salaried employee except in the ordinary and
usual course of business consistent with past practices;
(m) hired
or
terminated any senior management employee (whether or not in the ordinary and
usual course of business consistent with past practice) who has an annual
salary in excess of $100,000;
(n) borrowed
any money (other than trade payables or other current expenses, all in the
ordinary and usual course of business consistent with past practice) or issued
any bonds, debentures, notes or other corporate securities evidencing money
borrowed;
(o) adopted
or made any change in any financial or Tax accounting methods, principles or
practices or made or changed any Tax elections;
(p) engaged
in any merger or consolidation with any other entity (or any transaction having
a similar effect) or any acquisition of any business unit or operation (however
effected) of any other Person;
(q) purchased
any asset outside the ordinary course of business (other than as set forth
in
Section 3.16(k));
(r) engaged
in any sale, lease or other conveyance of all or any portion of (or any interest
in) any property owned by the Company outside the ordinary course of business
consistent with past custom and practice; or
(s) committed,
whether in writing or otherwise, to any of the foregoing.
3.17 Environmental
Matters.
(a) The
operations of the Company are in compliance with all applicable Environmental
Laws and all Permits issued pursuant to Environmental Laws or otherwise
(“Environmental
Permits”);
(b) The
Company has obtained and currently maintains all Environmental Permits required
under all applicable Environmental Laws necessary to operate its
business;
(c) The
Company is not the subject of any outstanding written Order or Contract with
any
Governmental Entity or other Person respecting (i) Environmental Laws,
(ii) Remedial Action or (iii) any Release or threatened Release of a
Hazardous Material;
(d) The
Company has not received any written communication alleging either that the
Company may be in violation of any Environmental Law or Environmental Permit
or
that the Company may have any liability under any Environmental
Law;
(e) The
Company has not incurred, assumed or undertaken any current contingent liability
in connection with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site) and there are no facts,
circumstances or conditions relating to, arising out of or attributable to
the
Company that could give rise to liability under Environmental Laws;
(f) There
are
no judicial or administrative proceedings pending or, to the Knowledge of the
Company, threatened against the Company that allege a violation of, or seek
to
impose liability pursuant to, Environmental Laws or Environmental Permits and
there are no investigations of the business, operations, or currently or
previously owned, operated or leased property of the Company pending or, to
the
Company’s Knowledge, threatened which could result in the Company incurring any
liability pursuant to any Environmental Law;
(g) There
is
not located at any of the properties of the Company any (i) underground storage
tanks, (ii) asbestos-containing material or (iii) equipment containing
polychlorinated biphenyls; and
(h) The
Company has provided to Parent all environmentally related audits, studies,
reports, analyses, and results of investigations that have been performed with
respect to the currently or previously owned, leased or operated properties
of
the Company.
3.18 Receivables;
Payables.
(a) The
accounts receivable of the Company reflected in the Financial Statements and/or
Final Closing Net Assets Statement have arisen in bona fide arm’s-length
transactions in the ordinary and usual course of business consistent with past
custom and practice, and, subject to the allowance for doubtful accounts set
forth in the Financial Statements or, if applicable, Final Closing Net Assets
Statement, all such receivables are valid and binding obligations of the account
debtors without any counterclaims, setoffs or other defenses thereto. All
work-in-process or accrued billing reflected in the Financial Statements and/or
Final Closing Net Assets Statement has been performed pursuant to a written
or
oral customer order or contract therefor and shall become accounts receivable
in
due course, except to the extent that any such order or contract fails to become
an account receivable, in whole or in part, due to any action or inaction of
the
Company after the Effective Time.
(b) All
accounts payable of the Company reflected on the Financial Statements and/or
Final Closing Net Assets Statement are the result of bona fide transactions
in
the ordinary course of business and have been paid or are not yet due and
payable, except for accounts payable that are being disputed in good faith
in an
appropriate manner.
3.19 Related
Party Transactions. Except
as
described in Section 3.19 of the Company Disclosure Schedule, the Company has
not loaned or borrowed any amounts from and does not have outstanding any
indebtedness or other similar obligations to or owing from any Affiliate of
the
Company. Neither the Company nor any Affiliate of the Company nor any officer
or
employee of any of them (i) owns any direct or indirect interest of any kind
in,
or controls or is a director, officer, employee or partner of, or consultant
to,
or lender to or borrower from or has the right to participate in the profits
of,
any Person which is (A) a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Company, (B) engaged in a business related to the
business of the Company, or (C) a participant in any transaction to which the
Company is a party or (ii) is a party to any Contract with the Company other
than any Contract related to the employment by the Company of such officer
or
employee of the Company. The Company does not have any Contract or understanding
with any officer, director, employee or shareholder of the Company, or any
Affiliate of any such Person, that is not disclosed in Section 3.14 of the
Company Disclosure Schedule and that relates, directly or indirectly, to the
subject matter of any Transaction Document or the consideration payable
thereunder or that contains any terms, provisions or conditions relating to
the
Company’s entry into or performance of any Transaction Document (including any
terms, provisions or conditions the consequences of which are dependent upon
any
of the matters addressed by Section 2.5).
3.20 Clients;
Projects.
A
true
and accurate matrix listing, by product, each program operated by the Company
for each pharmaceutical manufacturer, pharmacy or pharmacy chain with which
the
Company does business (whether or not pursuant to a written Contract) is listed
in Section 3.20 of the Company Disclosure Schedule. Except as set forth on
Section 3.20 of the Company Disclosure Schedule, no client or customer has
cancelled or otherwise terminated reduced, or threatened to cancel or terminate
or reduce, its relationship with the Company except as a consequence of the
expiration of statements of work, tasks orders and the like that were not
contemplated by the 2006 Financial Projection to be renewed. All current
programs are proceeding according to plan and budget in all material respects
and are expected to be completed in a materially timely manner.
3.21 Insurance.
Section
3.21 of the Company Disclosure Schedule includes a correct and complete list
and
description, including policy number, coverage and deductible, of all insurance
policies owned by the Company, correct and complete copies of which policies
have previously been delivered to Parent. Such policies are in full force and
effect, all premiums due thereon have been paid and the Company is not in
default thereunder. The Company has not received any notice of cancellation
or
intent to cancel or increase or intent to increase premiums with respect to
such
insurance policies nor is there any basis for any such action. All such
insurance policies contain coverage that is reasonably adequate and prudent
in
light of the risks inherent in the Company’s and the Subsidiaries’ business.
Section 3.21 of the Company Disclosure Schedule also contains a list of all
pending claims and any claims in the past three (3) years with any
insurance company by the Company and any instances within the previous
three (3) years of a denial of coverage of the Company by any insurance
company.
3.22 Certain
Agreements.
(a) The
only broker or finder that has acted for the Company in connection with this
Agreement or the transaction contemplated hereby or that may be entitled to
any
brokerage fee, finder’s fee or commission in respect thereof is Blackstone. The
Company is fully responsible for the payment of any and all amounts due to
Blackstone, including by way of indemnification, pursuant to the Blackstone
Agreement and Blackstone’s fees and expenses thereunder through the Closing Date
have been paid by the Company (to the extent such fees have been due and payable
prior to the date hereof) or shall be paid as provided in Section
2.4(b).
(b)
The
Company is fully responsible for the payment of any and all amounts due to
the
Exchange Agent, including by way of indemnification, pursuant to the Exchange
Agreement and the Exchange Agent's fees and expenses thereunder through the
Closing Date have been paid by the Company (to the extent such fees have been
due and payable prior to the date hereof).
3.23 No
Misrepresentation.
No
representation or warranty of the Company contained in this Transaction
Documents or in any exhibits or schedule thereto or in any certificate or other
instrument furnished by the Company to Parent pursuant to the terms thereof,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading.
3.24 Joint
Information Statement/Private Placement Memorandum.
The
information to be
supplied by or on behalf of the Company for inclusion in the Joint Information
Statement/Private
Placement Memorandum shall not at the time the Joint Information
Statement/Private
Placement Memorandum is distributed to Stockholders contain any untrue statement
of a material fact or omit to state any material fact required to be stated
in
the Joint Information Statement/Private
Placement Memorandum or necessary in order to make the statements in the Joint
Information Statement/Private
Placement Memorandum, in light of the circumstances under which they were made,
not misleading. The information supplied by or on behalf of the Company for
inclusion in the Joint Information Statement/Private
Placement Memorandum shall not, on the date the Joint Information
Statement/Private
Placement Memorandum is first mailed to Stockholders and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the
statements made in the Joint Information Statement/Private
Placement Memorandum not false or misleading; or omit to state any material
fact
necessary to correct any statement in any earlier communication with respect
to
the Merger which has become false or misleading. If at any time prior to the
Effective Time any event relating to the Company or any of its Affiliates,
officers or directors should be discovered by the Company which should be set
forth in an amendment to the Joint Information Statement/Private
Placement Memorandum or a supplement to the Joint Information
Statement/Private
Placement Memorandum, the Company shall promptly inform Parent.
ARTICLE
4 REPRESENTATIONS
AND WARRANTIES OF ARENT
AND MERGER SUB
Parent
and Merger Sub jointly and severally represent and warrant to the Company and
the Stockholders as follows:
4.1 Corporate
Status of Parent and Merger Sub.
Parent
and Merger Sub are each duly incorporated, validly existing and in good standing
under the laws of the State of Delaware, with the requisite corporate power
to
own, operate and lease its properties and to carry on its business as now being
conducted.
4.2 Authority
for Agreement.
Parent
and Merger Sub have the requisite corporate power and authority to enter into
this Agreement and the other Transaction Documents and to consummate the
transactions contemplated by this Agreement and the other Transaction Documents.
The execution and delivery of this Agreement and the other Transaction Documents
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent and Merger Sub. This Agreement
has been duly executed and delivered by Parent and Merger Sub and, assuming
the
due authorization, execution and delivery by the Company and the Stockholder
Representative, constitutes the valid and binding obligation of Parent and
Merger Sub, enforceable against Parent and Merger Sub and the Stockholder
Representative in accordance with its terms.
4.3 No
Conflict.
The
execution and delivery of the Transaction Documents by Parent and Merger Sub
do
not, and the consummation of the transactions contemplated by the Transaction
Documents and compliance with the provisions of the Transaction Documents by
Parent and Merger Sub will not, (i) conflict with the Certificate of
Incorporation or by-laws (or comparable organizational documents) of Parent
or
Merger Sub, (ii) result in any breach, violation or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or creation or acceleration of any obligation or
right
of a third party or loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of Parent or Merger Sub under, any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license or other
authorization applicable to Parent or Merger Sub or their respective properties
or assets, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, conflict with or violate any law
applicable to Parent or Merger Sub or their respective properties or assets
or
any judgment, order or decree to which Parent or Merger Sub or their respective
properties or assets are subject. No authorization, consent or approval of,
or
filing with or notice to, any Governmental Entity is necessary for the execution
and delivery of the Transaction Documents by Parent or Merger Sub or the
consummation by Parent or Merger Sub of the transactions contemplated hereby,
except for (i) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and (ii) the filing of a pre-merger notification
report under the HSR Act and any other documents or information requested by
the
United States Department of Justice or the United States Federal Trade
Commission in connection therewith.
4.4 SEC
Reports.
Since
January 1, 2005 Parent has filed all required reports, schedules, forms,
statements and other documents with the SEC (such documents filed since January
1, 2005, together with all exhibits and schedules thereto and documents
incorporated by reference therein, collectively referred to herein as the
"Parent
SEC Documents").
As of
their respective dates, Parent SEC Documents complied (or will comply, in the
case of Parent SEC Documents filed prior to the Closing) in all material
respects with the requirements of the Securities Act, or the Securities Exchange
Act of 1934, as amended (the "Exchange
Act"),
as
the case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to Parent SEC Documents, and none of Parent SEC Documents contained
(or will contain, in the case of Parent SEC Documents filed prior to the
Closing) any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Parent included in Parent SEC Documents,
as of their respective dates, complied (or will comply, in the case of Parent
SEC Documents filed prior to the Closing) in all material respects with
applicable accounting requirements and the published rules and regulations
of
the SEC with respect thereto, were prepared (or will be prepared, in the case
of
Parent SEC Documents filed during the Closing Period) in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the
SEC) applied on a consistent basis during the periods involved (except as may
be
indicated in the notes thereto) and fairly present (or will fairly present,
in
the case of Parent SEC Documents filed prior to the Closing) the financial
position of Parent and its consolidated subsidiaries as of the dates thereof
and
the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments and other adjustments described therein that are not expected by
Parent to be material individually or in the aggregate). No
Material Adverse Effect has occurred with respect to Parent since September
30,
2005.
4.5 Availability
of Funds.
Parent
has financial resources available to fund the payment of the Purchase Price
hereunder.
4.6No
Undisclosed Liabilities.
Except
as disclosed in the Parent SEC Documents filed prior to the date hereof, and
except for liabilities incurred since September 30, 2005 in the ordinary course
of business consistent with past practices, Parent and its subsidiaries do
not
have any liabilities, either accrued, contingent or otherwise (whether or not
required to be reflected in financial statements in accordance with GAAP),
and
whether due or to become due, which individually or in the aggregate, are
reasonably likely to have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole.
4.7
Litigation.
Except
as described in the Parent SEC Documents filed prior to the date hereof, there
is no action, suit or proceeding, claim, arbitration or investigation against
Parent or any of its subsidiaries pending or as to which Parent or any such
subsidiary has received any written notice of assertion, which, individually
or
in the aggregate, is reasonably likely to have a Material Adverse Effect on
Parent and its subsidiaries, taken as a whole, or a material adverse effect
on
the ability of Parent to consummate the transactions contemplated by this
Agreement.
4.8Compliance
With Laws.
Parent
and each of its subsidiaries has complied with, is not in violation of, and
has
not received any notices of violation with respect to, any federal, state,
local
or foreign statute, law or regulation with respect to the conduct of its
business, or the ownership or operation of its business, except for failures
to
comply or violations which, individually or in the aggregate, have not had
and
are not reasonably likely to have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole.
4.9
Joint
Information Statement/Private Placement Memorandum.
The
information to be
supplied by Parent for inclusion in the Joint Information Statement/Private
Placement Memorandum shall not at the time the Joint Information
Statement/Private
Placement Memorandum is distributed to Stockholders contain any untrue statement
of a material fact or omit to state any material fact required to be stated
in
the Joint Information Statement/Private
Placement Memorandum or necessary in order to make the statements in the Joint
Information Statement/Private
Placement Memorandum, in light of the circumstances under which they were made,
not misleading. The information supplied by Parent for inclusion in the Joint
Information Statement/Private
Placement Memorandum shall not, on the date the Joint Information
Statement/Private
Placement Memorandum is first mailed to Stockholders and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the
statements made in the Joint Information Statement/Private
Placement Memorandum not false or misleading; or omit to state any material
fact
necessary to correct any statement in any earlier communication with respect
to
the Merger which has become false or misleading. If at any time prior to the
Effective Time any event relating to Parent or any of its Affiliates, officers
or directors should be discovered by Parent which should be set forth in an
amendment to the Joint Information Statement/Private
Placement Memorandum or a supplement to the Joint Information
Statement/Private
Placement Memorandum, Parent shall promptly inform the Company.
4.10Status
of the Shares of Parent Common Stock.
The
shares of Parent Common Stock to be issued hereunder have been duly authorized
and, when issued in accordance with this Agreement, will be validly issued,
fully paid and nonassessable shares of Parent Common Stock and will be free
and
clear of all Encumbrances created by or through Parent other than transfer
restrictions arising as a matter of law. The issuance and delivery of the shares
of Parent Common Stock issued hereunder are not subject to any preemptive right
or right of first refusal arising under Parent’s charter documents.
4.11
No
Brokers.
Parent
has no Liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this Agreement
for which the Company or its Stockholders shall have any Liability.
4.12Exempt
Issuance.
Assuming the accuracy, as of the date of each issuance of shares of Parent
Common Stock hereunder, of the information provided to Parent and the Exchange
Agent by the Stockholders in the Accredited Status Questionnaires completed
by
the Stockholders in connection with the Merger, the issuance of shares of Parent
Common Stock in the manner contemplated by this Agreement will be exempt from
the registration requirements of the Securities Act, as in effect on the date
hereof.
ARTICLE
5. CONDUCT
PRIOR TO THE EFFECTIVE TIME
5.1 Conduct
of Business of the Company.
Between
the date hereof and the Effective Time or the date, if any, on which this
Agreement is earlier terminated pursuant to its terms, the Company shall (a)
conduct its business and operations only in the ordinary and usual course of
business consistent with past custom and practice and incur no Liabilities
other
than in the ordinary and usual course of business consistent with past custom
and practice, (b) pay its debts and taxes when due, subject to good faith
disputes over such debts or taxes that are contested by appropriate proceedings
that do not result in the forfeiture of, or the imposition of any Lien on,
any
property or rights of the Company, (c) use all reasonable efforts consistent
with past practices and policies to preserve intact the Company’s present
business organization, to keep available the services of its present officers
and employees and to preserve its relationships with customers, suppliers and
others having business relationships with it, to the end that the Company’s
goodwill and ongoing business be unimpaired at the Effective Time, (d) promptly
notify Parent of any event or occurrence (i) that is not in the ordinary course
of business of the Company which will result or could reasonably be expected
to
result in costs to the Company, individually or in the aggregate, in excess
of
$25,000 or (ii) that could reasonably be expected to prevent or materially
delay
the consummation of the transactions contemplated hereunder, (e) not issue
(i)
any Company Stock other than shares of Common Stock issued upon exercise of
Outstanding Options that are not cancelled pursuant to Section 6.5 or (ii)
any
options, warrants, equity securities, calls, rights, commitments or agreements
obligating the Company to issue any Company Stock and (f) not take or omit
to
take any action the taking or omission of which would prevent cause any
representation or warranty contained in Section 3.16 to be untrue.
5.2 Acquisition
Proposals. The
Company will not (and the Company will cause its Affiliates and any other Person
acting on its behalf not to):
(i) directly
or indirectly, solicit, initiate or knowingly facilitate or encourage the making
by any Person (other than Parent) of any inquiry, proposal or offer that
constitutes or would reasonably be expected to lead to, a proposal for any
merger, consolidation, recapitalization, reorganization, share exchange,
business combination, liquidation, dissolution or similar transaction involving
the Company and a third party, or any acquisition by a third party of any the
Shares or any business or assets of the Company, or any combination of the
foregoing, in a single transaction or a series of related transactions (in
each
case, an “Acquisition
Proposal”);
(ii) directly
or indirectly, participate or engage in discussions or negotiations concerning
an Acquisition Proposal (and the Company shall immediately cease and cause
to be
terminated any existing discussions or negotiations with any third parties
conducted heretofore with respect to any Acquisition Proposal), or furnish
or
disclose to any Person any information with respect to or in furtherance of
any
Acquisition Proposal, or provide access to its properties, books and records
or
other information or data to any Person with respect to or in furtherance of
any
Acquisition Proposal; or
(iii) execute
or enter into any agreement, understanding or arrangement with respect to any
Acquisition Proposal, or approve or recommend or propose to approve or recommend
any Acquisition Proposal or any agreement, understanding or arrangement relating
to any Acquisition Proposal (or resolve or authorize or propose to agree to
do
any of the foregoing actions).
ARTICLE
6. ADDITIONAL
AGREEMENTS
6.1 Expenses.
Each
party hereto shall be responsible for its own costs and expenses in connection
with the Merger, including fees and disbursements of consultants, investment
bankers and other financial advisors, brokers and finders, counsel and
accountants. If the Merger is consummated, all such costs and expenses will
either be paid from the Initial Cash Amount as provided in Section 2.4 or
reflected on the Final Closing Net Assets Statement.
6.2 Access
and Information.
(a) The
Company and Parent shall afford to the other and to the other’s officers,
employees, accountants, counsel and other authorized representatives full and
complete access, upon 24 hours advance telephone notice, during regular business
hours, throughout the period prior to the earlier of the Effective Time or
the
termination of this Agreement, to its offices, properties, books and records,
and shall use reasonable efforts to cause its representatives and independent
public accountants to furnish to the other party such additional financial
and
operating data and other information as to its business, customers, vendors
and
properties as the other party may from time to time reasonably request. The
Company and Parent shall exercise such rights in a manner so as not to interfere
unreasonably with the normal business operations of the other.
(b)
During the period from the date of this Agreement through the Closing Date,
the
Company shall provide Parent, as soon as reasonably practicable, with (i) any
communications, advice or other material information relevant to regulatory
developments or legal compliance matters and (ii) information regarding any
developments, positive or negative, that bear materially on the Company's
projected financial results for 2006, in each case to the extent received by
the
Company, any member of senior management or the Stockholder Representative.
6.3 Employment
and Benefit Plans.
If the
Closing occurs, from the Closing Date until the earlier of January 1, 2009
and
the first Final Earnout Amount Determination Date on which it is determined
that
no Earnout Amount is payable, Parent will cause the Company to provide to
Persons employed by the Company immediately prior to the Effective Time who
continue such employment following the Effective Time (collectively, the
"Employees"),
except as otherwise consented to by the Stockholder Representative, (i)
compensation at the general compensation levels prevailing as of the Effective
Time and (ii) benefits that are substantially comparable in the aggregate to
the
benefits by the benefit plans listed in Section 6.3 of the Company Disclosure
Schedule). If the Closing occurs, for all purposes under the employee benefit
plans of Parent and its Affiliates providing benefits to any Employee after
the
Effective Time (the "New
Plans"),
each
Employee will receive credit for his or her service with the Company and its
Affiliates before the Effective Time (including predecessor or acquired entities
or any other entities for which the Company and its Affiliates have given credit
for prior service), for purposes of eligibility, vesting and benefit accrual
(but not (i) for purposes of eligibility for subsidized early retirement
benefits, (ii) for purposes of benefit accrual under defined benefit
pension plans, and (iii) for any new program for which credit for benefit
accrual for service prior to the effective date of such program is not given
to
similarly situated employees of Parent other than the Employees) to the same
extent as such Employee was entitled, before the Effective Time, to credit
for
such service under any similar or comparable Company benefit plan (except to
the
extent such credit would result in a duplication of accrual of benefits).
Notwithstanding the foregoing, if requested by Parent at least 5 days prior
to
the Closing Date, the Company agrees to adopt board resolutions terminating
its
401(k) plan immediately prior to Closing Date. Parent agrees not to make
such a request unless materials delivered by Company after the signing of this
Agreement evidence previously undisclosed liabilities.
6.4 Reasonable
Efforts.
(a)
Subject to terms and conditions herein provided, each of the parties agrees
to
use all reasonable efforts to take, or cause to be taken, all action and to
do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the Merger and the other
transactions contemplated by this Agreement. Without limiting the generality
of
the foregoing, the Company and Parent each will use all reasonable efforts
to
obtain all approvals, authorizations, consents and waivers from, and give all
notices to, any public or private third parties that are necessary on its part
in order to effect the transactions contemplated hereby.
(b)
Parent and the Company will (i) not later than five (5) business days after
the Agreement Date, make the filings required of such party under the HSR Act
with respect to the Transaction and the other transactions contemplated by
this
Agreement, (ii) comply at the earliest practicable date with any request
under the HSR Act for additional information, documents or other materials
received by such party from the Federal Trade Commission or the Department
of
Justice or any other Governmental Entity in respect of such filings or the
Transaction and the other transactions contemplated by this Agreement, and
(iii) cooperate with the other party in connection with making any filing
under the HSR Act and in connection with any filings, conferences or other
submissions related to resolving any investigation or other inquiry by any
such
Governmental Entity under the HSR Act or other law with respect to the
Transaction and the other transactions contemplated by this Agreement. Each
of
Parent and the Company will cause each of their respective Affiliates to use
its
reasonable best efforts to obtain (and will cooperate with each other in
obtaining) the termination of all waiting periods under the HSR Act and not
to
extend any waiting period under the HSR Act. Prior to the termination of this
Agreement, each party will prosecute, cooperate in and defend against any
litigation instituted by the Federal Trade Commission or the Department of
Justice or any other Governmental Entity that seeks to restrain or prohibit
the
consummation of the Transaction or that seeks to impose material limitations
on
the ability of Parent, the Company or any of their respective Affiliates to
acquire, operate or hold, or to require Parent, the Company or any of their
respective Affiliates to dispose of or hold separate, any material portion
of
their assets or business or the Company's assets or business after the Effective
Time.
6.5 Stock
Options.
Prior
to the Closing, the Company shall issue a notice to each holder of Company
Options of the acceleration, contingent upon the Closing, of the time for
exercise of all unexercised and unexpired Company Options (including unvested
Company Options) to the date that is ten (10) business days prior to the Closing
and advising each holder of Company Options that the Company shall deem such
Company Options exercised immediately prior to the Effective Time and the
holders thereof to have accepted from the Company an Option Loan equal to the
Option Exercise Prices of such Company Options. The Company shall provide the
holders of all Company Options with any other notices required to be given
to
such holders in connection with the consummation of the Merger pursuant to
the
terms of the Company Options, except to the extent that such notice requirements
have been waived by such holders. All Option Loans shall be paid out of the
proceeds payable to the exercising holders of such Company Options as provided
in Section 2.6(4) above, and any related security or pledge agreements covering
the shares of Common Stock pledged in connection with such Option Loans shall
be
terminated upon payment of such loans as aforesaid. For
Tax
reporting purposes, compensation deductions arising from the initial exercise
of
the Company Options shall be reported as pre-Closing deductions and compensation
deductions arising from the payment of Additional Merger Consideration shall
be
reported as post-Closing deductions.
6.6 Conduct
of the Business During the Earnout Period.
(a)
The
Surviving Corporation shall be controlled by a Board of Directors, elected
or
appointed, directly or indirectly, by Parent (the "Board")
and
the operation of the Surviving Corporation shall be subject to the plenary
control of the Board. Ultimate authority for all decisions affecting the
Business shall rest with the Board or its designees.
(b)
Until
January 1, 2009, except as expressly contemplated by this Agreement or consented
to by the Stockholder Representative, (i) Parent will cause the business of
the
Surviving Corporation to be operated as a standalone business, (ii) Parent
will
act in good faith with respect to the operation of the Surviving Corporation’s
business and the calculation of the Earnout Amounts and (iii) Parent will not,
and will not cause the Surviving Corporation to, take any action or enter into
any agreement or commitment with respect to the Surviving Corporation that
artificially increases or decreases the amount of any Earnout Amount.
(c)
Without in any way limiting the provisions of Section 6.6(b) above, until
January 1, 2009, except as expressly contemplated by this Agreement or consented
to in writing by the Stockholder Representative:
(i) neither
Parent nor the Stockholder Representative shall,
or
shall cause the Surviving Corporation to, enter into any agreements on terms
inconsistent with past practices that has the effect of artificially shifting
revenues or expenses into or out of the Surviving Corporation during any period
with respect to which an Earnout Amount is calculated;
(ii) neither
Parent nor the Stockholder Representative shall
cause the Surviving Corporation to (A) sell, lease, spin off, or otherwise
dispose of all or any material amount of the Surviving Corporation’s assets
other than (1)
in the
ordinary course of business consistent with past practice or (2)
non-performing assets or assets relating to operations discontinued or to be
discontinued or (B) become a party to any merger or, consolidation, or commence
voluntary liquidation proceedings with respect to the Surviving Corporation,
except, in the case of Parent, for the purpose of reincorporating the Surviving
Corporation in another jurisdiction;
(iii) neither
Parent nor the Stockholder Representative shall cause the Surviving Corporation
to make any investment outside of the ordinary course of business of the
Surviving Corporation (consistent with past practices) involving an aggregate
amount of $100,000 or more (which amount includes the amount of assumed
Liabilities), including without limitation any creation or acquisition of a
new
line of business, whether by merger, joint venture, purchase of assets or
securities or otherwise;
(iv) neither
Parent nor any other controlled Affiliate of Parent (other than a wholly owned
subsidiary of the Surviving Corporation) shall create any entity which competes
with the pharmacy chain patient refill reminder business of the Surviving
Corporation, as currently conducted by the Company, and neither Parent nor
any
other controlled Affiliate of Parent (other than a wholly owned subsidiary
of
the Surviving Corporation) shall assist any entity which Parent does not control
to create any entity that competes with such business (it being understood
that
the conduct of a so-called “opt-in” program, including such a program involving
patient persistence or compliance, will not be deemed to be competitive with
such business if, and only if, such program does not access or otherwise use
the
Company’s pharmacy chain based data or data obtained directly from pharmacy
chains;
(v) neither
Parent nor any other controlled Affiliate of Parent (other than a wholly owned
subsidiary of the Surviving Corporation) shall cause or permit the Surviving
Corporation to transfer all or any portion of the Surviving Corporation’
business with any client or customer to Parent or any of its other controlled
Affiliates;
(vi) in
the
event Parent or nor any other controlled Affiliate of Parent (other than a
wholly owned subsidiary of the Surviving Corporation) provides the Surviving
Corporation with any business services, such services shall be charged to the
Surviving Corporation at rates no higher than the Surviving Corporation would
incur on a stand-alone basis in accordance with existing practice, provided
that
nothing herein shall prevent Parent from providing to the Surviving Corporation
the services contemplated by paragraphs (b) through (e) of Schedule 1.2(A)
or
allocating the costs of such services to the Surviving Corporation in the manner
contemplated by said paragraphs (b) through (e);
(vii) except
as
contemplated by the preceding clause (vi) or Schedule 1.2(A), all agreements
and
transactions between Parent or any controlled Affiliate of Parent (other than
a
wholly owned subsidiary of the Surviving Corporation) and the Surviving
Corporation shall be entered into solely on arm’s length and commercially
reasonable terms;
(viii) Parent
shall not permit the Surviving Corporation to have insufficient capital for
budgeted marketing, development, ordinary course capital expenditures and
general operations or carrying out any business plans, provided that the
applicable budget or business plan has been approved by the Board of Directors
of Parent;
and
(ix) Parent
shall not cause the Surviving Corporation to bundle sales of the Surviving
Corporation’ products and services with any products or services of Parent or
any controlled Affiliate of Parent (other than a wholly owned subsidiary of
the
Surviving Corporation);
(x) Parent
shall not permit the Surviving Corporation to make any changes to its
Certificate of Incorporation or by-laws that affect the liability or
indemnification rights of any officers or directors of the Surviving
Corporation;
and
(xi) Parent
shall cause the Company to maintain insurance, including insurance covering
regulatory liabilities, that is generally consistent with the Company's recent
historical practice to the extent commercially available at a reasonable
cost.
(d)
Notwithstanding the foregoing, in no event shall Parent or any Affiliate of
Parent be prohibited from (A) engaging in transactions with the Surviving
Corporation in the ordinary course of business of Parent or such Affiliate,
including treasury operations, that do not affect the calculation of any Earnout
Amount, or any other transactions on arms'-length terms or (B) requiring the
Key
Employees to devote a reasonable amount of time to Parent-level management
coordination and review, including participation in inter-division meetings
and
preparation therefor.
(e)
During the Earnout Period, the executive bonus performance level and payment
terms shall generally be in accordance with past practice, and the consent
of Parent will be required for the payment of any executive bonus compensation
other than up to $150,000 in bonuses to be paid with respect to the Company's
2005 fiscal year, provided that Parent's consent to the payment of bonuses
consistent with the 2006 bonus levels approved by the Company prior to the
date
hereof shall not be unreasonably withheld. The consent of Stockholder
Representative will be required for any increases in aggregate bonus awards
to
executive officers outside the ordinary course of business prior to January
1,
2009. During the Earnout Period, the consent of Parent will be required for
any
capital expenditures materially in excess of (i) for 2006, the amount set forth
in the Company's 2006 plan submitted to Parent prior to the date hereof and
(ii)
for 2007 and 2008, amounts consistent with past practice and the growth of
the
Business.
(f)
The
restrictions contained in clauses (ix) and (xi) of Section 6.6(b) may be waived
by the Senior Officer. The restrictions contained in clauses (xi) shall cease
to
have any force or effect if there is no Senior Officer. The restrictions
contained in clauses (ix) shall not apply if (I) there is no Senior Officer
and
(II) the effect of the bundling does not reduce the price of the Surviving
Corporation’s products or services to below 90% of what would otherwise have
been charged for such products or services. Except as provided in the three
preceding sentences, any restriction on Parent or any of its Affiliates set
forth in Section 6.6(b) may be waived or modified by the Stockholder
Representative (including, with respect to clause (ix), where the conditions
in
the preceding sentence are not satisfied). As used herein, “Senior Officer”
means ▇▇▇▇ ▇▇▇▇▇▇▇▇ or, if ▇▇▇▇ ▇▇▇▇▇▇▇▇ is no longer serving as an executive
officer of the Company, ▇▇▇ ▇▇▇▇▇ or, if neither ▇▇▇▇ ▇▇▇▇▇▇▇▇ nor ▇▇▇ ▇▇▇▇▇
is
serving as an executive officer of the Company, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ for so long
as
he is serving as an executive officer of the Company.
6.7
Public Announcements.
Upon
execution of this Agreement, Parent may issue a press release and/or other
public announcement with respect thereto, provided that the Stockholder
Representative is first provided with a reasonable opportunity to review and
comment on such press release. Prior to the Closing, Parent may make any other
public disclosure it believes in good faith is required by law or any listing
or
trading agreement or rules concerning its publicly traded securities, in each
case after providing the Stockholder Representative with a reasonable
opportunity to review and comment on such public disclosure and may make other
external communications consistent with disclosure that has previously been
so
reviewed by the Stockholder Representative. From and after the execution of
this
Agreement (until such time as this Agreement is terminated), the Company will
not, and will cause its Affiliates not to, issue any press release or otherwise
make any similar public announcement with respect to the transactions
contemplated by this Agreement without the prior written consent of Parent
(not
to be unreasonably withheld or delayed).
6.8No
Code Section 338 Election. Neither
Parent, Merger Sub or any of their Affiliates shall make any election under
Code
Section 338 with respect to the transactions contemplated by this
Agreement.
ARTICLE
7. CONDITIONS
TO CLOSING
7.1 Closing
Conditions of Merger Sub and Parent.
The Closing and the obligations of Merger Sub and Parent hereto to effect
the Merger shall be subject to the fulfillment of the following
conditions:
(a) Stockholder
Approval shall have been obtained for the Merger;
(b) no
judgment or order shall have been entered by any Governmental Entity of
competent jurisdiction and shall be in effect that prevents the consummation
of
the Merger, provided that the Company shall have used its reasonable best
efforts to prevent the entry of any such a judgment or order and to appeal
as
promptly as possible any such judgment or order that may be
entered;
(c) 30
days
(or such lesser number of days as shall be permissible under the Certificate
of
Incorporation of the Company, including the Certificates of Designation of
each
series of Preferred Stock) shall have elapsed since the giving to the holders
of
each series of Preferred Stock of the written notice of the Merger required
with
respect to such series in accordance with the terms of the Certificate of
Incorporation;
(d) the
Board
of Directors of the Company shall have adopted a resolution (which may be
contingent upon the closing of the Merger) accelerating the time for exercise
of
all unexercised and unexpired Company Options (including unvested Company
Options) and the notice to holders of Company Options required by Section 6.5
shall have been timely given;
(e) the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects, except for representations and
warranties of the Company that are qualified by materiality, Knowledge or
Material Adverse Effect, which shall be true and correct, in each case when
made
and on and as of the Closing Date, as though made on and as of the Closing
Date
(provided that (i) the accuracy as of the Closing Date of the representations
and warranties contained in fifth sentence of Section 3.5 and in the first
sentence of Section 3.20 shall not be a condition to Closing and (ii) the
accuracy as of the Closing Date of the representations and warranties contained
in Section 3.16(g) and the second sentence of Section 3.20 shall not be a
condition to Closing except to the extent any inaccuracy results, or could
reasonably be expected to result, in a Material Adverse Effect); the Company
shall have performed and complied in all material respects with the covenants
and agreements required by this Agreement to be performed or complied with
by
the Company prior to or at the Closing; and Parent shall have been furnished
with a certificate dated the Closing Date signed on behalf of the Company by
an
executive officer and on behalf of the Stockholders by the Stockholder
Representative to the foregoing effect;
(f) the
Company, the Stockholder Representative and the Exchange Agent shall have
executed the Exchange Agreement;
(g) the
Company, the Stockholder Representative and the Escrow Agent shall have executed
the Escrow Agreement;
(h) the
▇▇▇▇▇▇▇▇ Law Group, LLC,
counsel
to the Company, shall have delivered its opinion in the form attached as
Exhibit
E
hereto;
(i) the
total
number of Dissenting Shares, exclusive of shares held by Grey Ventures, Inc.
or
any of its Affiliates (or any other person or entity acting in concert with
Grey
Ventures, Inc. or any such Affiliates) shall not be greater than or equal to
2.5% of the total number of shares of Company Stock outstanding immediately
prior to the Effective Time, calculated on an as converted basis;
(j) the
waiting period applicable to the consummation of the Merger under the HSR Act,
if any, shall have expired or terminated,
(k) the
Investment Agreements shall have been terminated pursuant to instruments or
actions reasonably satisfactory to Parent and its counsel;
(l) the
Company shall have provided to Parent a statement, meeting the requirements
of
Treasury Regulation Section 1.1445-2(c)(3), certifying that none of the stock
of
the Company constitutes a United States real property interest within the
meaning of Section 897;
(o) Parent
shall have received a letter from Blackstone confirming (A) that it shall not
seek to recover any amounts under or with respect to the engagement letter
agreement between Blackstone and the Company dated September 8, 2004 from Parent
or Merger Sub or, following the Closing, the Company or any of their respective
Affiliates (other than the Shareholders) in excess of the Closing Date payment
identified on the Specified Liabilities Schedule and (B) the waiver and release
of any other post-closing obligation of the Company under such engagement
letter;
(p) there
shall be no more than 35 non-accredited investors included in the Persons who
may be entitled to receive any portion of the non-cash Merger Consideration;
(q) Parent
shall have received from the Company a financial forecast for the Company’s 2006
fiscal year prepared as of a date no earlier than five business days prior
to
the Closing Date and such financial forecast shall not reflect any Material
Adverse Effect as compared to the 2006 Financial Projection; and
(r) Parent
shall have received from the Company a true and accurate matrix listing, by
product, each program operated by the Company for each pharmaceutical
manufacturer, pharmacy or pharmacy chain with which the Company does business
(whether or not pursuant to a written Contract) prepared as of a date no earlier
than five business days prior to the Closing Date and such financial forecast
shall not reflect any Material Adverse Effect as compared to the matrix included
in Section 3.20 of the Company Disclosure Schedule.
7.2 Closing
Conditions of the Company. The
Closing and the obligations of the Company hereto to effect the Merger shall
be
subject to the fulfillment of the following conditions:
(a) no
judgment or order shall have been entered by any Governmental Entity of
competent jurisdiction and shall be in effect that prevents the consummation
of
the Merger, provided that the Company shall have used its reasonable best
efforts to prevent the entry of any such a judgment or order and to appeal
as
promptly as possible any such judgment or order that may be
entered;
(b) the
representations and warranties of Parent and Merger Sub contained in this
Agreement shall be true and correct in all material respects, except for
representations and warranties of Parent and Merger Sub that are qualified
by
materiality, Knowledge or Material Adverse Effect, which shall be true and
correct, in each case when made and on and as of the Closing Date, as though
made on and as of the Closing Date; Parent and Merger Sub shall have performed
and complied in all material respects with the covenants and agreements required
by this Agreement to be performed or complied with by them prior to or at the
Closing; and the Company shall have been furnished with a certificate dated
the
Closing Date signed on behalf of Merger Sub by an executive officer of Parent
and on behalf of Parent by an executive officer of Merger Sub;
(c) Parent
and the Exchange Agent shall have executed the Exchange Agreement;
(d) the
Company and the Escrow Agent shall have executed the Escrow Agreement;
(e) Akerman
Senterfitt LLP,
counsel
to Parent and Merger Sub, shall have delivered its opinion in the form attached
as Exhibit
F
hereto;
and
(f) the
waiting period applicable to the consummation of the Merger under the HSR Act,
if any, shall have expired or terminated.
ARTICLE
8. INDEMNIFICATION
From
and
after the Effective Time, the parties shall be indemnified as set forth
below:
8.1 Indemnification
of Parent and the Surviving Corporation.
Parent,
the Surviving Corporation and their respective Affiliates, the directors,
officers, employees, affiliates, agents and representatives of the foregoing
and
the successors and assigns thereof (collectively, the "Parent
Indemnitees")
shall
be entitled to reimbursement and indemnification by the Stockholders from and
against any and all claims, liabilities, obligations, losses, fines, costs,
proceedings or damages (whether absolute, accrued, conditional or otherwise
and
whether or not resulting from third party claims), including all reasonable
fees
and disbursements of counsel but excluding any allocation of internal
compensation costs, incurred in the investigation or defense of any of the
same
or in asserting any of their respective rights hereunder (collectively,
“Losses”),
resulting from or arising out of the following matters, regardless of any
investigation made at any time by or on behalf of any Parent Indemnitee, or
any
information any Parent Indemnitee may have (including, with respect to
paragraphs (3) and (4) below, any information disclosed in the Company
Disclosure Schedule regarding regulatory matters or litigation or the risks
and
uncertainties relating thereto):
(1) any
misrepresentation or breach of any warranty (other than breaches of Section
3.11, which shall be governed by Article 9) of the Company or any Stockholder
(whether or not in such Stockholder’s capacity as such) contained in the
Transaction Documents; provided that in determining whether any such
misrepresentation or breach occurred, any dollar amount thresholds, materiality
qualifiers and Material Adverse Effect qualifier contained in any representation
or warranty therein shall be disregarded;
(2) any
breach by the Company or the Stockholder Representative of any covenant or
agreement made or contained in the Transaction Documents;
(3) except
(A) as specifically set forth on the Final Net Assets Statement and (B)
obligations of the Company to be paid or performed after the Closing Date under
the existing Real Property Lease and the Material Contracts (except to the
extent such obligations, but for a breach or default by the Company, would
have
been paid, performed or otherwise discharged on or prior to the Closing Date
or
to the extent the same arise out of any such breach or default), any Liabilities
of the Company or any of its Affiliates of any kind or nature whatsoever,
including (i) any Liabilities arising out of, relating to, resulting from,
any
failure of the Company or any of its Affiliates to comply in all respects with
applicable Law (including the Health Insurance Portability & Accountability
Act of 1996, the Federal Health Care Programs Antikickback Law and corresponding
state Laws) at all times from the formation of the Company through the Effective
Time or (ii) caused by any other transaction, status, event, condition,
occurrence or situation existing, arising or occurring on or prior to the
Closing Date;
(4) the
matters disclosed or required to be disclosed in Section 3.10 of the Company
Disclosure Schedule;
(5) any
and
all amounts payable to Blackstone with respect to the Blackstone Agreement
or to
the Exchange Agent pursuant to the Exchange Agreement; and
(6) any
and
all Losses arising under Section 262 of the DGCL or required to be paid by
any
Parent Indemnitee as a consequence of or in connection with any proceeding
brought pursuant thereto with respect to any Dissenting Shares.
For
purposes of the preceding clause (4) only, “Losses” shall exclude any portion of
a judgment or award attributable to the post-Closing conduct of the Company
or
any of its Affiliates and shall not include any claim for consequential damages
arising from a change in the business operations of the Company in response
to
any such judgment or award (whether attributable to the pre-Closing or
post-Closing conduct of the Company). For purposes of the preceding clause
(5),
“Losses” shall consist of (x) any amount by which the aggregate awards to
claimants in all proceedings under Section 262 of the DGCL exceeds the Merger
Consideration allocable to the Company Stock held by such claimants and (y)
all
other expenses (reasonable attorneys’ fees and disbursements, court costs, etc.)
incurred by any Parent Indemnitee in connection with such proceedings. In the
event the aggregate awards to claimants in all proceedings under Section 262
of
the DGCL is less than the Merger Consideration allocable to the Company Stock
held by such claimants, the difference will be offset against any Losses
described in clause (y) of the preceding sentence and any excess over such
Losses will be paid by Parent to the Stockholder Representative for the account
of the Stockholders.
8.2 Indemnification
of the Stockholders.
Parent
and Merger Sub, jointly and severally, covenant and agree with the Company
that
they shall reimburse and indemnify and hold the Stockholders and their
respective directors, officers, employees, affiliates, agents, representatives,
successors and assigns (the “Stockholder
Indemnitees”)
harmless from, against and in respect of Losses resulting from or arising out
of
the following matters, regardless of any investigation made at any time by
or on
behalf of any Stockholder Indemnitee, or any information any Stockholder
Indemnitee may have:
(2) any
misrepresentation or breach of any warranty of Parent or Merger Sub contained
in
the Transaction Documents; provided that in determining whether any such
misrepresentation or breach occurred, any dollar amount thresholds, materiality
qualifiers and Material Adverse Effect qualifier contained in any representation
or warranty therein shall be disregarded;
(3) any
failure of Parent or Merger Sub to perform any covenant or agreement made or
contained in the Transaction Documents or fulfill any obligation in respect
thereof; and
(4) except
as
provided in Section 8.1(3), any and all Losses arising solely from the
post-closing conduct of the Company’s business.
8.3 Method
of Asserting Claims.
Other
than with respect to Taxes, which shall be governed by Article 9, the following
procedures shall apply to any claim for indemnification hereunder:
(a)
Third
Party Claims.
In the
case of any claim asserted by a third party against a party entitled to
indemnification under this Agreement (the “Indemnified
Party”),
notice shall be given by the Indemnified Party to the party required to provide
indemnification (the “Indemnifying
Party”)
as
soon as practicable after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and the Indemnified Party shall,
so
long as the Indemnifying Party has acknowledged in writing it liability for
indemnification hereunder, permit the Indemnifying Party (at the expense of
such
Indemnifying Party) to assume control over the defense of any third party claim
or any litigation with a third party resulting therefrom; provided,
however,
that
(a) the counsel for the Indemnifying Party who shall conduct the defense of
such claim or litigation shall be subject to the approval of the Indemnified
Party (which approval shall not be unreasonably withheld or delayed),
(b) the Indemnified Party may participate in such defense at such
Indemnified Party’s expense (which shall not be subject to reimbursement
hereunder except as provided below), and (c) the failure by any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying
Party
of its indemnification obligation under this Agreement except and only to the
extent that such Indemnifying Party is actually and materially damaged as a
result of such failure to give notice. Except with the prior written consent
of
the Indemnified Party, no Indemnifying Party, in the defense of any such claim
or litigation, shall consent to entry of any judgment or enter into any
settlement that provides for injunctive or other nonmonetary relief affecting
the Indemnified Party or that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to such Indemnified Party of a general
release from any and all liability with respect to such claim or litigation.
Notwithstanding the foregoing, if both the Indemnifying Party and the
Indemnified Party are parties to an action (or to separate actions covering
substantially the same claims and subject matter where a determination in one
action would have a res judicata effect in the other action or to an action
and
a related claim for indemnification) and the Indemnified Party shall in good
faith determine that the Indemnified Party may have available to it one or
more
defenses or counterclaims that are inconsistent with one or more of those that
may be available to the Indemnifying Party in respect of such claim or any
litigation relating thereto, the Indemnified Party shall have the right at
all
times to take over and assume control over the defense, settlement, negotiations
or litigation relating to any such claim at the sole cost of the Indemnifying
Party; provided,
however,
that
(i) if the Indemnified Party does so take over and assume control, the
Indemnified Party shall not settle such claim or litigation without the prior
written consent of the Indemnifying Party, such consent not to be unreasonably
withheld or delayed, (ii) the Indemnifying Party shall at all times have the
right to participate in the defense of such claim or action and (iii) if the
nature of the claim or any litigation related thereto is of a type as to which
liability has been allocated hereunder between the Indemnifying Party and the
Indemnified Party based on whether such claim is based on pre-Closing or
post-Closing conduct or in any other specified manner, then the Indemnified
Party’s right to take over and assume control of the defense of such claim or
litigation shall relate only to the portion of the liability therefore that
has
been so allocated to the Indemnified Party. If the Indemnifying Party does
not
accept the defense of any matter as above provided within thirty (30) days
after
receipt of the notice from the Indemnified Party described above, the
Indemnified Party shall have the full right to defend against any such claim
or
demand at the sole cost of the Indemnifying Party and shall be entitled to
settle or agree to pay in full such claim or demand. In any event, the
Indemnifying Party and the Indemnified Party shall reasonably cooperate in
the
defense of any claim or litigation subject to this Article 8 and the records
of
each shall be reasonably available to the other with respect to such
defense.
(b)
Non-Third
Party Claims.
With
respect to any claim for indemnification hereunder which does not involve a
third party claim, the Indemnified Party will give the Indemnifying Party
written notice of such claim. The Indemnifying Party may acknowledge and agree
by notice to the Indemnified Party in writing to satisfy such claim within
twenty (20) days of receipt of notice of such claim from the Indemnified Party.
If the Indemnifying Party shall dispute such claim, the Indemnifying Party
shall
provide written notice of such dispute to the Indemnified Party within such
twenty (20) day period, setting forth in reasonable detail the basis of such
dispute. Upon receipt of notice of any such dispute, the Indemnified Party
and
the Indemnifying Party shall use reasonable efforts to resolve such dispute
within thirty (30) days of the date such notice of dispute is received. If
the
Indemnifying Party shall fail to provide written notice to the Indemnified
Party
within twenty (20) days of receipt of notice from the Indemnified Party that
the
Indemnifying Party either acknowledges and agrees to pay such claim or disputes
such claim, the Indemnifying Party shall be deemed to have acknowledged and
agreed to pay such claim in full and to have waived any right to dispute such
claim. Once (a) the Indemnifying Party has acknowledged and agreed to pay any
claim pursuant to this Section 8.3, (b) any dispute under this Section 8.3
has
been resolved in favor of indemnification by mutual agreement of the
Indemnifying Party and the Indemnified Party, or (c) any dispute under this
Section 8.3 has been finally resolved in favor of indemnification by order
of a
court of competent jurisdiction or other tribunal (including an arbitrator
contemplated by this agreement) having jurisdiction over such dispute, then
the
Indemnifying Party shall pay the amount of such claim to the Indemnified Party
within twenty (20) days of the date of acknowledgement by the Indemnifying
Party
or final resolution in favor of indemnification, as the case may be, to such
account and in such manner as is designated in writing by the Indemnified
Party.
18.4
Nature and Survival of Representations and Agreements.
The
representations and warranties made by the parties pursuant to Article 3 (other
than pursuant to Section 3.11, which shall be governed by Article 9, and other
than pursuant to Sections 3.2, 3.3, 3.6, 3.8(c) (first sentence only), 3.12
and
3.17, which shall survive until 30 days after the applicable statute of
limitations) and Article 4 (other than pursuant to Sections 4.2 and 4.3, which
shall survive until thirty (30) days after the applicable statute of
limitations) of this Agreement shall survive the Closing until fifteen (15)
days
after the completion of the audit of Parent’s consolidated financial statements
(which may include an audit of the financial statements of the Surviving
Corporation on a non-consolidated basis) with respect to 2006.
8.5 Exclusive
Remedy.
The
indemnifications provided for in this Article 8 and in Article 9 shall be
the sole and exclusive post-Closing remedies available to any party against
the
Company, Parent or Merger Sub for any claims for monetary damages under or
based
upon the Transaction Documents. The preceding sentence shall not limit the
right
of any party to seek injunctive or other equitable relief.
8.7 Limitations.
(a) (i)
Parent Indemnitees shall have no right to reimbursement and indemnification
pursuant to this Article 8 with respect to any claim resulting from or arising
out of matters described in clause (1) of Section 8.1 or, except for claims
based on an inaccuracy of the Closing Date Balance Sheet or any failure of
the
Company or any of its Affiliates to comply in all respects with applicable
Law
(including the Health Insurance Portability & Accountability Act of 1996,
the Federal Health Care Programs Antikickback Law and corresponding state Laws),
with respect to any claim resulting from or arising out of matters described
in
clause (3) of Section 8.1 (and not resulting from or arising out of matters
described in the remaining clauses of Section 8.1) unless and until the
aggregate amount of all such claims exceeds $200,000 (the “Threshold
Amount”),
in
which Parent Indemnitees may seek indemnification for the amount of all claims
in excess of the Threshold Amount.
(ii)
In
no event shall the aggregate liability of Parent and Merger Sub under Section
8.2 for all claims thereunder exceed the maximum amount for which the
Stockholders may be answerable in accordance with Section 8.7(b).
(b)
Parent Indemnitees may satisfy claims for indemnification pursuant to either
this Article 8 or Article 9 solely (i) by set-off against any Additional Merger
Consideration (exclusive of the Escrow Fund) and (ii) by asserting claims
against the Escrow Fund in accordance with the terms of the Escrow Agreement.
Parent Indemnitees shall be required to exhaust their rights of set-off pursuant
to the preceding sentence prior to seeking collection of any claim from the
Escrow Fund, provided that (x) no Parent Indemnitee shall be prevented from
asserting a claim against the Escrow Fund prior to its release for the purpose
of preserving its rights in the event the magnitude of any offset against
currently available amounts is or may be insufficient to satisfy an
indemnification claim of a Parent Indemnitee and (y) no Parent Indemnitee shall
be required to defer either the assertion of a claim against the Escrow Fund
or
the collection of such claim from the Escrow Fund as a consequence of the
potential subsequent accrual of an amount against which such right of set-off
may be exercised. Parent Indemnitees shall be entitled to assert rights of
set-off against the cash portion of any Additional Merger Consideration only
if
the Escrow Fund has been released or exhausted (including by reason of the
magnitude of claims pending against the Escrow Fund equaling or exceeding its
value (valuing Disputed Amounts (as defined in the Escrow Agreement) at their
face amounts)) and rights of set-off have been asserted against all non-cash
Additional Merger Consideration. To the extent set-off rights have not been
asserted against any Additional Merger Consideration, the Stockholder
Representative shall have the right to retain a reasonable portion thereof
in
the Expense Reserve prior to the distribution of such Additional Merger
Consideration to the Stockholders.
(c)
For
purposes of satisfying any indemnity claim by a Parent Indemnitee, shares of
Parent Common Stock (whether Initial Shares or Earnout Shares) will be valued
based on their Fair Market Value on the date liability for such claim is the
subject of a final determination.
8.8 Treatment
as Purchase Price Adjustment. Parent,
the Stockholders and the Company each agree to report each indemnification
payment under this Article 8 as an adjustment to the Purchase Price for federal
income tax purposes to the extent permitted by applicable Law.
ARTICLE
9. TAX
INDEMNIFICATION AND PROCEDURES
19.1 Indemnification
of Parent and the Surviving Corporation for Taxes. Parent
Indemnitees shall be entitled to reimbursement and indemnification by the
Stockholders from and against following, regardless of any investigation made
at
any time by or on behalf of Parent or Merger Sub, or any information Parent
and
Merger Sub may have:
(1) any
and
all Losses incurred by Parent or the Surviving Corporation resulting from,
or
which exists or arises due to, any inaccuracy or breach of the representations
and warranties made in Section 3.11 of this Agreement;
(2) Taxes
payable by or with respect to the Company for any Tax year or Tax period ending
on or before the Closing Date, and, in the case of a Straddle Period, to the
extent apportioned to the period that ends at the close of the Closing Date
under Section 9.2, in each case other than Taxes reflected as liabilities on
the
Closing Date Balance Sheet and taken into account in determining any adjustment
to the Purchase Price under Section 2.4(a); and
(3) Taxes
imposed on the Company pursuant to any obligation to contribute to the payment
of a Tax determined on a consolidated, combined or unitary or other group basis
with respect to a group of corporations that includes or included the Company
at
any time on or before the Closing Date, including, without limitation, any
such
obligation arising under Treasury Regulations Section 1.1502-6 or similar
provision of state, local or foreign law.
9.2 Straddle
Periods. For
the
sole purpose of appropriately apportioning any Taxes relating to a Tax year
or
Tax period that begins before and ends after the Closing Date (a “Straddle
Period”),
such
apportionment shall be made assuming that the Company had a taxable year that
ended at the close of business on the Closing Date. In the case of property
Taxes and similar Taxes which apply ratably to a taxable period, the amount
of
Taxes allocable to the portion of the Straddle Period ending on the Closing
Date
shall equal the Tax for the period multiplied by a fraction, the numerator
of
which shall be the number of days in the period up to and including the Closing
Date, and the denominator of which shall be the total number of days in the
period.
9.3 Tax
Return Preparation.
Parent
shall prepare and file, or cause to be prepared and filed, at its own expense,
all Tax Returns for the Company or the Surviving Entity required to be filed
after the Closing Date (including with respect to Straddle Periods), it being
understood that all Taxes shown as due and payable on such Tax Returns shall
be
the responsibility of Parent, except for such Taxes required to be indemnified
under Section 9.1.
Parent
shall permit the Stockholder Representative to review and comment on each such
Tax Return that includes Taxes required to be indemnified under Section 9.1
prior to filing and shall make such revisions to such Tax Returns as are
reasonably requested by the Stockholder Representative.
9.4 Cooperation.
After
the
Closing, Parent and the Stockholder Representative shall promptly make available
or cause to be made available to the other, as reasonably requested, and to
any
taxing authority, all information, records or documents relating to Tax
liabilities and potential Tax liabilities relating to the Company for all
periods prior to or including the Closing Date and shall preserve all such
information, records and documents until the expiration of any applicable
statute of limitations or extensions thereof.
9.5 Treatment
as Purchase Price Adjustment.
Parent,
the Stockholders and the Company each agree to report each indemnification
payment under this Article 9 as an adjustment to the Purchase Price for federal
income tax purposes to the extent permitted by applicable Law.
9.6 Survival
and Applicability.
The
indemnification obligations contained in this Article 9 shall be the sole remedy
available to Parent and the Surviving Corporation in connection with Taxes,
and
nothing in Article 8 shall apply to Losses or claims with respect to Taxes.
The
obligations described in this Article 9 shall survive the Closing and shall
continue in full force and effect until 30 days after the applicable statute
of
limitations, giving effect to extensions thereto, has expired with respect
to
each such Tax.
ARTICLE
10. TERMINATION
10.1 Termination
Events.
This
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(1) by
mutual
written consent of Parent, Merger Sub and the Company;
(2) by
Parent
if (i) there has been a material breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of the Company,
such breach has not been cured within ten business days after written notice
to
the Company or (ii) Stockholder Approval has not been obtained within thirty
(30) days of the date of this Agreement;
(3) by
the
Company if there has been a material breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Parent or
Merger Sub and such breach has not been cured within ten business days after
written notice to Parent;
(4) by
any
party hereto if (i) there shall be a final, non-appealable order of any federal
or state court in effect preventing consummation of the Merger, or (ii) there
shall be any final action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity which would make consummation of the Merger illegal or
which
would prohibit Parent’s or the Surviving Corporation’s ownership or operation of
all or any portion of the business or assets of the Company, or compel Parent
or
the Surviving Corporation to dispose of or hold separate all or a material
portion of the business or assets of the Company or Parent or Merger Sub as
a
result of the Merger; or
(5) by
any
party hereto if the Merger shall not have been consummated by May 1, 2006,
provided that the right to terminate this Agreement under this Section shall
not
be available to any party whose failure to fulfill any material obligation
under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date.
10.2 Effect
of Termination.
In the
event of termination of this Agreement as provided in Section 10.1 hereof,
this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Merger Sub, the Company or their respective
officers, directors, stockholders or Affiliates, or the Stockholder
Representative, except to the extent that a party hereto is in breach of any
of
its covenants or agreements set forth in this Agreement; provided,
however,
that
the provisions of Section 10.3 of this Agreement and the Confidentiality
Agreement dated as of October 11, 2005 between Parent and the Company shall
remain in full force and effect and survive any termination of this
Agreement.
ARTICLE
11. MISCELLANEOUS
11.1 Amendments
and Supplements.
This
Agreement may not be amended, modified or supplemented by the parties hereto
in
any manner, except (a) prior to the Effective Time, by an instrument in writing
signed by Parent, Merger Sub, the Company and the Stockholder Representative
and
(b) after the Effective Time, by an instrument in writing signed by Parent,
the
Surviving Corporation and the Stockholder Representative.
11.2 Waiver.
The
terms and conditions of this Agreement may be waived only by a written
instrument signed by the party waiving compliance. The failure of any party
hereto to enforce at any time any of the provisions of this Agreement shall
in
no way be construed to be a waiver of any such provision, nor in any way to
affect the validity of this Agreement or any part hereof or the right of such
party thereafter to enforce each and every such provision. No waiver of any
breach of or non-compliance with this Agreement shall be held to be a waiver
of
any other or subsequent breach or non-compliance. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that
any
party may otherwise have at law or in equity.
11.3 Governing
Law.
This
Agreement shall be governed by, and construed and enforced in accordance with,
the substantive laws of the State of New York, without regard to its principles
of conflicts of laws.
11.4 Notice.
All
notices and other communications hereunder shall be in writing and shall be
deemed given if delivered by hand, sent by electronic or facsimile transmission
with confirmation of receipt, sent via a reputable overnight courier service
with confirmation of receipt requested, or mailed by registered or certified
mail (postage prepaid and return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice), and shall be deemed given on the date on which delivered by
hand or otherwise on the date of receipt as confirmed:
To
Parent or Merger Sub:
Ventiv
Health, Inc.
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Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief
Executive Officer
With
a
copy to:
Akerman
Senterfitt LLP
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Facsimile:
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Attention:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
To
the Company:
Adheris,
Inc.
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Fax:
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Attn:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chairman of the Board
With
a
copy to:
The
▇▇▇▇▇▇▇▇ Law Group, LLC
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Facsimile:
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Attn:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
To
the Stockholder Representative:
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In
care
of Cambridge Healthtech Advisors, Inc.
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Fax:
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With
copies to:
The
▇▇▇▇▇▇▇▇ Law Group, LLC
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Facsimile:
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Attn:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
and,
to
the extent such notice or other communication does not contain any information
deemed by the sender, in its sole discretion, to constitute confidential or
proprietary information,
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WPP
Group
USA, Inc.
Senior
Vice President, Corporate Development
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Fax:
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11.5 Entire
Agreement.
This
Agreement, and the documents and instruments and other agreements among the
parties hereto executed pursuant to this Agreement, constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof, but excluding
written nondisclosure agreements between Parent and the Company, which shall
remain in effect in accordance with their terms. Each party hereto acknowledges
that, in entering into this Agreement and completing the transactions
contemplated hereby, such party is not relying on any representation, warranty,
covenant or agreement not expressly stated in this Agreement, the Company
Disclosure Schedule or the other agreements, certificates and other documents
among or between the parties executed pursuant to this Agreement.
11.6 Binding
Effect; Assignability.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns. Except as provided in
Articles II and VIII, nothing in this Agreement shall create or be deemed to
create any third party beneficiary rights in any person or entity not a party
to
this Agreement. No assignment of this Agreement or of any rights or obligations
hereunder may be made by any party hereto (by operation of law or otherwise)
without the prior written consent of Parent, the Company and the Stockholder
Representative and any attempted assignment without the required consents shall
be void, provided that no such consent shall be required for any such assignment
(i) of Parent’s rights and obligations hereunder (a) in connection with a sale
or other transfer (whether directly or indirectly, including by merger or
consolidation) of substantially all of the assets of Parent and its consolidated
subsidiaries, so long as the surviving or transferee entity in such transaction
undertakes to comply with Parent’s obligations under this Agreement or (b) to an
Affiliate of Parent, provided that Parent remains liable therefor, (ii) of
the
Surviving Corporation’s rights and obligations hereunder in connection with a
sale or other transfer (whether directly or indirectly, including by merger
or
consolidation) of the Company’s business or (iii) of Parent’s rights hereunder
as security for the obligations of Parent or any Affiliate of Parent under
a
credit agreement entered into with a bank or other financial institution. .
11.7 Legending
of Shares.
All
certificates evidencing Shares issued hereunder shall bear a legend
substantially to the following effect:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT THERETO OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTES OF SUCH ACT.
The
certificates evidencing the Shares may also bear any legends required by
applicable blue sky laws. No holder of any Shares shall be permitted to transfer
such Shares in the absence of an effective registration statement unless such
holder has furnished Parent with an opinion of counsel, reasonably satisfactory
to Parent, that such disposition does not require registration of such Shares
under the Securities Act. Parent shall be entitled to issue stop transfer
instructions to the foregoing effect to the transfer agent for the Parent Common
Stock.
11.8 Validity.
The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provisions of this Agreement,
each of which shall remain in full force and effect.
11.9 Counterparts.
This
Agreement may be executed by facsimile, and in one or more counterparts, all
of
which together shall constitute one and the same agreement.
*
* *
IN
WITNESS WHEREOF, the parties have caused this Agreement and Plan of Merger
to be
executed as an agreement under seal as of the date first above
written.
ADHERIS,
INC.
By:
/s/
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Name:
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Title:
Chairman
VENTIV
HEALTH, INC.
By:
/s/
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Name:
▇▇▇▇ ▇▇▇▇▇
Title:
Chief Financial Officer
and
Secretary
ACORN
ACQUISITION CORP.
By:
/s/
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Name:
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Title:
Vice President
STOCKHOLDER
REPRESENTATIVE:
/s/
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇ Name:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇