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MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.25
AGREEMENT
AND
PLAN OF MERGER
AMONG
MEDICAL DEVICE ALLIANCE INC.;
PX ACQUISTION CORP.;
AND
PARALLAX MEDICAL, INC.
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EXECUTION ORIGINAL
AGREEMENT AND PLAN OF MERGER
among:
MEDICAL DEVICE ALLIANCE, INC.,
a Nevada corporation;
PX ACQUISITION CORP.,
a Delaware corporation;
and
PARALLAX MEDICAL, INC.,
a Delaware corporation.
---------------------------
Dated as of August 10, 1998
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TABLE OF CONTENTS
PAGE
SECTION 1
CERTAIN DEFINITIONS.................................................................. 1
SECTION 2................................................................................. 7
2.1 Merger of the Company into Merger Sub; Company Action.......................... 7
2.2 Effect of Merger............................................................... 8
2.3 Closing; Effective Date........................................................ 8
2.4 Certificate of Incorporation and Bylaws; Directors and Officers................ 8
2.5 Conversion of Shares; Issuance of Contingent Stock; Treatment of Options....... 8
2.6 Closing of the Company's Transfer Books........................................ 10
2.7 Exchange of Certificates....................................................... 10
(a) Exchange Procedures...................................................... 10
(b) Fractional Shares........................................................ 10
(c) Legends.................................................................. 11
(d) No Liability............................................................. 11
2.8 Tax Consequences............................................................... 11
2.9 Dissenting Shares.............................................................. 11
2.10 Further Action................................................................. 11
2.11 Company Stockholders' Indemnity Shares......................................... 12
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................... 12
3.1 Due Organization; No Subsidiaries, Etc.......................................... 12
3.2 Certificate of Incorporation and Bylaws; Records................................ 12
3.3 Capitalization.................................................................. 13
3.4 Financial Statements............................................................ 13
3.5 Absence of Changes.............................................................. 14
3.6 Title to Assets................................................................. 15
3.7 Accounts Receivable; Loans and Advances......................................... 16
3.8 Equipment; Real Property........................................................ 16
3.9 Proprietary Assets.............................................................. 16
3.10 Contracts...................................................................... 17
3.11 No Undisclosed Liabilities..................................................... 19
3.12 Compliance with Legal Requirements............................................. 19
3.13 Governmental Authorizations.................................................... 19
3.14 Tax Matters.................................................................... 19
3.15 Employee and Labor Matters; Benefit Plans...................................... 22
3.16 Environmental Matters.......................................................... 24
3.17 Insurance...................................................................... 25
3.18 Related Party Transactions..................................................... 25
3.19 Legal Proceedings; Orders...................................................... 26
3.20 Authority; Binding Nature of Agreement......................................... 26
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3.21 Non-Contravention; Consents and Notices........................................ 26
3.22 Full Disclosure................................................................ 27
3.23 Finder's Fee................................................................... 27
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.............................. 27
4.1 Due Organization, Etc........................................................... 27
4.2 Certificate of Incorporation and Bylaws; Records................................ 28
4.3 Capitalization.................................................................. 28
4.4 Financial Statements............................................................ 28
4.5 Absence of Changes.............................................................. 29
4.6 Title to Assets................................................................. 30
4.7 Accounts Receivable; Loans and Advances......................................... 30
4.8 Equipment; Real Property........................................................ 31
4.9 Proprietary Assets.............................................................. 31
4.10 Contracts...................................................................... 32
4.11 No Undisclosed Liabilities..................................................... 33
4.12 Compliance with Legal Requirements............................................. 33
4.13 Governmental Authorizations.................................................... 33
4.14 Tax Matters.................................................................... 34
4.15 Employee and Labor Matters; Benefit Plans...................................... 38
4.16 Environmental Matters.......................................................... 40
4.17 Insurance...................................................................... 40
4.18 Related Party Transactions..................................................... 41
4.19 Legal Proceedings; Orders...................................................... 41
4.20 Authority; Binding Nature of Agreement......................................... 41
4.21 Non-Contravention; Consents and Notices........................................ 42
4.22 Full Disclosure................................................................ 43
4.23 Finder's Fee................................................................... 43
SECTION 5
CERTAIN COVENANTS OF THE COMPANY..................................................... 43
5.1 Access and Investigation........................................................ 43
5.2 Operation of the Company's Business............................................. 43
5.3 Notification; Updates to Company Disclosure Schedule............................ 45
5.4 No Solicitation................................................................. 46
SECTION 6
CERTAIN COVENANTS OF PARENT.......................................................... 46
6.1 Access and Investigation........................................................ 46
6.2 Operation of the Parent's Business.............................................. 46
6.3 Notification; Updates to Parent Disclosure Schedule............................. 47
6.4 Regulatory Filings; Fairness Hearing............................................ 48
6.5 Stock Option Plan; Employee Benefits ........................................... 48
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6.6 Reorganization.................................................................. 48
6.7 Loan............................................................................ 48
SECTION 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB......................... 48
7.1 Accuracy of Representations..................................................... 48
7.2 Performance of Covenants........................................................ 49
7.3 No Material Adverse Effect...................................................... 49
7.4 Compliance Certificate.......................................................... 49
7.5 Stockholder Approval............................................................ 49
7.6 Consents........................................................................ 49
7.7 Legal Opinion................................................................... 49
7.8 No Restraints................................................................... 49
7.9 No Governmental Litigation...................................................... 49
7.10 No Other Litigation............................................................ 49
7.11 Continuity of Interest Certificates............................................ 50
7.12 Dissenting Shares.............................................................. 50
SECTION 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY................................... 50
8.1 Accuracy of Representations..................................................... 50
8.2 Performance of Covenants........................................................ 50
8.3 No Material Adverse Effect...................................................... 50
8.4 Compliance Certificate.......................................................... 50
8.5 Stockholder Approval............................................................ 50
8.6 Consents........................................................................ 50
8.7 Legal Opinion................................................................... 51
8.8 Registration Rights ............................................................ 51
8.9 Funding Commitment Letter....................................................... 51
8.10 Stock Option Plan.............................................................. 51
8.11 Preissman Employment Agreement................................................. 51
8.12 No Restraints.................................................................. 51
8.13 No Governmental Litigation..................................................... 51
8.14 No Other Litigation............................................................ 51
8.15 Certificate of Designation...................................................... 51
8.16 Dissenting Shares.............................................................. 52
SECTION 9
TERMINATION.......................................................................... 52
9.1 Termination..................................................................... 52
9.2 Effect of Termination........................................................... 52
9.3 Fees and Expenses............................................................... 52
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SECTION 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.......................... 53
10.1 Survival of Company Representations and Warranties............................. 53
10.2 Survival of Parent and Merger Sub Representations and Warranties............... 53
10.3 Indemnification by the Company Stockholders.................................... 54
10.4 Indemnification by Parent and Merger Sub....................................... 54
10.5 Notice; Defense of Claim....................................................... 54
10.6 Further Limitations on Indemnification......................................... 55
10.7 Stockholders' Agent............................................................ 56
10.8 Actions of the Stockholders' Agent............................................. 56
SECTION 11
MISCELLANEOUS PROVISIONS............................................................. 57
11.1 Further Assurances............................................................. 57
11.2 Attorneys' Fees................................................................ 57
11.3 Notices ....................................................................... 57
11.4 Time of the Essence............................................................ 58
11.5 Governing Law.................................................................. 58
11.6 Successors and Assigns......................................................... 58
11.7 Waiver.......................................................................... 58
11.8 Amendments..................................................................... 59
11.9 Severability .................................................................. 59
11.10 Disclosure Schedules.......................................................... 59
11.11 Entire Agreement.............................................................. 59
11.12 Construction.................................................................. 59
11.13 Headings...................................................................... 59
11.14 Counterparts................................................................... 59
11.15 Confidentiality................................................................ 60
EXHIBIT A - Intentionally omitted
EXHIBIT B - Directors and Officers of the Surviving Corporation
EXHIBIT C - Form of Opinion of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
EXHIBIT D - Form of Opinion of Nida & ▇▇▇▇▇▇▇
EXHIBIT E - Form of Registration Rights Agreement
EXHIBIT F - Form of Funding Commitment Letter
EXHIBIT G - Form of Escrow Agreement
EXHIBIT H - Form of Preissman Employment Agreement
EXHIBIT I - 1998 Plan
EXHIBIT J - Form of Continuity of Interest Certificate
EXHIBIT K - Form of Certificate of Designation
PARENT DISCLOSURE SCHEDULE
COMPANY DISCLOSURE SCHEDULE
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AGREEMENT AND PLAN
OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of August 10, 1998, by and among MEDICAL DEVICE ALLIANCE, INC., a Nevada
corporation ("PARENT"), PX ACQUISITION CORP., a Delaware corporation and a
wholly owned Subsidiary of Parent ("Merger Sub"), PARALLAX MEDICAL, INC., a
Delaware corporation (the "Company"). Certain capitalized terms used in this
Agreement are defined in Section 1 hereof.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of the
Company into Merger Sub (the "Merger") in accordance with this Agreement and the
Delaware General Corporation Law (the "DGCL"). Upon consummation of the Merger,
the Company will cease to exist, and Merger Sub will remain a wholly owned
Subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. This Agreement has been adopted and approved by the respective boards
of directors of Parent, Merger Sub and the Company and by Parent, as the sole
stockholder of Merger Sub.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1
CERTAIN DEFINITIONS
For purposes of the Agreement
1998 PLAN. "1998 Plan" shall have the meaning set forth in Section 6.5.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by Parent) contemplating or otherwise
relating to any Company Acquisition Transaction.
AFFILIATES. "Affiliates" shall mean any Person that directly, or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with, a specified Person.
AGGREGATE LIQUIDATION PREFERENCE. "Aggregate Liquidation Preference"
shall mean that amount equal to (i) the total number of shares of the Company's
Series A Preferred stock issued and outstanding at the Effective Time multiplied
by (ii) 0.09401 plus the amount of all declared but unpaid dividends per each
share of Series A Preferred Stock.
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AGREEMENT. "Agreement" shall mean this Agreement and Plan of Merger
(including the Exhibits and Disclosure Schedules hereto ), as it may be amended
from time to time.
CERTIFICATE OF MERGER. "Certificate of Merger" shall have the meaning
set forth in Section 2.3.
SERIES B PREFERRED STOCK. "Series B Preferred Stock" shall have the
meaning set forth in Section 2.5(a).
CLOSING. "Closing" shall have the meaning set forth in Section 2.3.
CLOSING DATE. "Closing Date" shall have the meaning set forth in Section
2.3.
CODE. "Code" shall mean the Internal Revenue Code of 1968, as amended.
COMPANY. "Company" shall mean Parallax Medical, Inc., a Delaware
corporation.
COMPANY ACCOUNTS RECEIVABLE. "Company Accounts Receivable" shall have
the meaning set forth in Section 3.7.
COMPANY ACQUISITION TRANSACTION. "Company Acquisition Transaction" shall
mean any transaction not contemplated by this Agreement involving:
(a) any sale, lease, exchange, transfer, license or other
disposition or acquisition of the business or assets of the Company
constituting more than 20% of the business or assets of the Company or
accounting for more than 20% of the revenues of the Company in any one
transaction or in a series of related transactions;
(b) any offer to purchase, tender offer, exchange offer or any
similar transaction or series of related transactions made by any Person
involving more than 20% of the outstanding shares of the capital stock
of the Company; or
(c) any merger, consolidation, business combination, share
exchange, reorganization or similar transaction or series of related
transactions involving the Company.
COMPANY COMMON STOCK. "Company Common Stock" shall have the meaning set
forth in Section 2.5(a)(i).
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets is
or may become bound or under which the Company has, or may become subject to,
any obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall have
the meaning set forth in the Preamble to Section 3.
COMPANY FINANCIAL STATEMENTS. "Company Financial Statements" shall mean
those financial statements of the Company set forth in clauses (i) and (ii) of
Section 3.4(a).
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COMPANY OPTION. "Company Option" shall mean any option to purchase
capital stock of the Company held by any director, officer or employee of, or
consultant to, the Company.
COMPANY PENSION PLAN. "Company Pension Plan" shall have the meaning set
forth in Section 3.15(c).
COMPANY PLANS. "Company Plans" shall have the meaning set forth in
Section 3.15(b).
COMPANY PROPRIETARY ASSETS. "Company Proprietary Assets" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
COMPANY RELATED PARTY. "Company Related Party" shall have the meaning
set forth in Section 3.18.
COMPANY RETURNS. "Company Returns" shall have the meaning set forth in
Section 3.14.
COMPANY STOCK CERTIFICATE. "Company Stock Certificate" shall have the
meaning set forth in Section 2.6.
COMPANY STOCKHOLDERS. "Company Stockholders" shall mean all stockholders
of the Company as of the Effective Time.
COMPANY STOCKHOLDERS' INDEMNITY SHARES. "Company Stockholders' Indemnity
Shares" shall have the meaning set forth in Section 2.11.
COMPANY WELFARE PLAN. "Company Welfare Plan" shall have the meaning set
forth in Section 3.15(d).
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, liability,
settlement, judgment, award, fine, penalty, Tax, fee (including reasonable
attorneys' fees), charge, cost (including costs of investigation) or expense of
any nature. Damages shall not include lost profits, lost savings, or other
indirect, special, incidental or consequential damages whether such damages are
based on tort, contract, or any other legal theory, and even if the Indemnitee
has been advised of the possibility of such damages.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
DISSENTING SHARES. "Dissenting Shares" shall have the meaning set forth
in Section 2.9.
EFFECTIVE TIME. "Effective Time" shall have the meaning set forth in
Section 2.3.
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EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, option, right of first
refusal, preemptive right, community property interest or restriction of any
nature (including any restriction on the voting of any security, any restriction
on the transfer of any security or other asset, any restriction on the receipt
of any income derived from any asset, any restriction on the use of any asset
and any restriction on the possession, exercise or transfer of any other
attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company, limited liability company,
joint stock company, firm or other enterprise, association, organization or
entity.
ENVIRONMENTAL LAW. "Environmental Law" shall have the meaning set forth
in Section 3.16.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
ESCROW AGENT. "Escrow Agent" shall be the Person or entity appointed to
act as escrow agent for the Company Stockholders' Indemnity Shares pursuant to
the Escrow Agreement.
ESCROW AGREEMENT. "Escrow Agreement shall have the meaning set forth in
Section 2.11.
ESCROW FUND. "Escrow Fund" shall have the meaning set forth in Section
2.11.
ESCROW PERIOD. "Escrow Period" shall have the meaning set forth in
Section 2.11.
EXCHANGE RATIO. "Exchange Ratio" shall have the meaning set forth in
Section 2.5(a)(i).
EXPIRATION DATE. "Expiration Date" shall have the meaning set forth in
Section 10.1.
GAAP. "GAAP" means generally accepted accounting principals as currently
in effect in the United States.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) federal,
state, local, municipal or other government; or (b) governmental or
quasi-governmental authority of any nature (including any governmental division,
department, agency, commission, instrumentality, official, organization, unit,
body or Entity and any court or other tribunal).
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INDEMNIFIED PARTY. "Indemnified Party" shall have the meaning set forth
in Section 10.5.
INDEMNIFYING PARTY. "Indemnifying Party" shall have the meaning set
forth in Section 10.5.
INDEMNIFICATION NOTICE. "Indemnification Notice" shall have the meaning
set forth in Section 10.5.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. A violation of a representation or warranty or
any other matter will be deemed to have a "Material Adverse Effect" on the
Company or Parent, as the case may be, if such violation or other matter would
have a material adverse effect on the Company's or, taken as a whole, Parent's
and Parent's Subsidiaries, as the case may be, business, condition, assets,
liabilities, operations, financial performance or prospects. "Material Adverse
Effect" shall not include continuing operating losses of the parties, failure to
receive Food and Drug Administration or other regulatory approval or issuances
of patents, any change in economic conditions, business conditions or GAAP
generally affecting the medical devices industry, or any effect on either party
hereto directly resulting from such parties' compliance with Sections 5.2 or
6.2, as applicable.
MATERIAL COMPANY CONTRACT. "Material Company Contract" shall have the
meaning set forth in Section 3.10.
MATERIAL PARENT CONTRACT. "Material Parent Contract" shall have the
meaning set forth in Section 4.10.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
shall have the meaning set forth in Section 3.16.
MERGER SHARES. "Merger Shares" shall have the meaning set forth in
Section 2.5.
MERGER SUB. "Merger Sub" shall mean PX Acquisition Corp., a Delaware
corporation.
PARENT. "Parent" shall mean Medical Device Alliance, Inc., a Nevada
corporation.
PARENT ACCOUNTS RECEIVABLE. "Parent Accounts Receivable" shall have the
meaning set forth in Section 4.7.
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PARENT COMMON STOCK. "Parent Common Stock" shall have the meaning set
forth in Section 2.5.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall have the
meaning set forth in the Preamble to Section 4.
PARENT FINANCIAL STATEMENTS. "Parent Financial Statements" shall have
the meaning set forth in Section 4.4.
PARENT PENSION PLAN. "Parent Pension Plan" shall have the meaning set
forth in Section 4.15(d).
PARENT PLANS. "Parent Plans" shall have the meaning set forth in Section
4.15(b).
PARENT PROPRIETARY ASSETS. "Parent Proprietary Assets" shall mean any
Proprietary Assets owned by or licensed to, or otherwise used by, Parent and its
Subsidiaries.
PARENT RELATED PARTY. "Parent Related Party" shall have the meaning set
forth in Section 4.18.
PARENT RETURNS. "Parent Returns" shall have the meaning set forth in
Section 4.14.
PARENT UNAUDITED INTERIM BALANCE SHEET. "Parent Unaudited Interim
Balance Sheet" shall have the meaning set forth in Section 4.4.
PARENT WELFARE PLAN. "Parent Welfare Plan" shall have the meaning set
forth in Section 4.15(d).
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall have the meaning set
forth in Section 5.1.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service ▇▇▇▇ (whether
registered or unregistered), service ▇▇▇▇ application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset.
RELATED AGREEMENTS. "Related Agreements" shall have the meaning set
forth in Section 4.20.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
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SUBSIDIARIES. "Subsidiaries" shall mean, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which more than fifty percent (50%) of either the equity interest in, or the
voting control of, such corporation or other organization is, directly or
indirectly through Subsidiaries or otherwise, beneficially owned by such party.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
SERIES A PREFERRED STOCK. "Series A. Preferred Stock" shall have the
meaning set forth in Section 2.5.
SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning
set forth in Section 2.1.
TAX. "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means
any and all taxes including, without limitation, (i) any net income, alternative
or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, value added, net worth, license, withholding
payroll, employment, exercise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in (i) or (ii) as a result
of any express or implied obligation to indemnify any other Person.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
THIRD PARTY CLAIM. "Third Party Claim" shall have the meaning set forth
in Section 10.6.
UNAUDITED INTERIM BALANCE SHEET. "Unaudited Interim Balance Sheet" shall
have the meaning set forth in Section 3.4(a)(ii).
SECTION 2
2.1 MERGER OF THE COMPANY INTO MERGER SUB; COMPANY ACTION. Upon the
terms and subject to the conditions set forth in this Agreement, at the
Effective Time, the Company shall be merged with and into Merger Sub, and the
separate existence of the Company shall cease. Merger Sub will continue as the
surviving corporation in the Merger (the "Surviving
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Corporation"). The Company hereby represents that the Board of Directors of the
Company has (A) determined that this Agreement and the transactions contemplated
hereby, including the Merger, are fair to and in the best interests of the
stockholders of the Company, (B) approved and adopted this Agreement and the
transactions contemplated hereby, (C) recommended that the stockholders of the
Company, if required by applicable law in order to consummate the Merger,
approve and adopt this Agreement and the transactions contemplated hereby, and
(D) determined that the consideration to be received by stockholders and other
security holders of the Company pursuant to the Merger is fair to such holders.
2.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the DGCL.
2.3 CLOSING; EFFECTIVE DATE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Nida & ▇▇▇▇▇▇▇, PC, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or
at such other place, time and date as the parties may designate, but in any
event shall be no later than the second business day after the date that all of
the conditions set forth in Sections 7 and 8 have been satisfied or waived (the
"Closing Date"). Contemporaneously with the Closing, a properly executed
certificate of merger conforming to the requirements of the DGCL (the
"Certificate of Merger") shall be filed with the Secretary of State of the State
of Delaware. The Merger shall take effect at the time the Certificate of Merger
is filed with and accepted by the Secretary of State of the State of Delaware
(the "Effective Time").
2.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise agreed to in writing by the Company and Parent prior to the
Effective Time:
(a) the Certificate of Incorporation of the Surviving Corporation
shall be the Certificate of Incorporation of Merger Sub as in effect immediately
prior to the Effective Time, provided, that the name of the Surviving
Corporation shall be "Parallax Medical, Inc.";
(b) the Bylaws of the Surviving Corporation shall be the Bylaws
of Merger Sub as in effect immediately prior to the Effective Time;
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit B;
2.5 CONVERSION OF SHARES; ISSUANCE OF CONTINGENT STOCK; TREATMENT OF
OPTIONS.
(a) Subject to Section 2.7(b) and Section 2.9, at the Effective
Time, by virtue of the Merger and without any further action on the part of
Parent, stockholders of the Parent, Merger Sub, the Company or stockholders of
the Company:
(i) except for Dissenting Shares, each share of common
stock, par value $.001 per share, of the Company (the "Company Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive that number of duly authorized, validly
issued, fully paid and nonassessable shares of Series B Convertible Preferred
Stock, par value $.001 per share, of Parent (the "Series B Preferred Stock;" the
Series B Preferred Stock to be issued in connection with the Merger is referred
to herein as the "Merger
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Shares") equal to (i)(A) 5,000,000 less (B) the Aggregate Liquidation Preference
divided by (ii) the product of (C) the total number of shares of Company Common
Stock issued and outstanding at the Effective Time and (D) 7.50 (rounded to the
nearest eight decimal place) (the "Exchange Ratio"). Except for Dissenting
Shares, each share of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive that number of shares of Series B Preferred Stock equal to (i) the
Aggregate Liquidation Preference divided by (ii) the product of (A) the total
number of shares of the Company's Series A Preferred Stock, par value $.001 per
share (the "Series A Preferred Stock"), issued and outstanding at the Effective
Time and (B) 7.50; and
(ii) each share of Common Stock, par value $.001 per
share, of Merger Sub outstanding immediately prior to the Effective Time shall
be converted into one share of common stock, par value $.001 per share, of the
Surviving Corporation.
(b) If, between the date of this Agreement and the Effective
Time, the shares of Company Common Stock or Parent Common Stock deemed
outstanding are changed into a different number or class of shares by reason of
any stock dividend, subdivision, reclassification, reorganization, stock split,
combination or similar transaction, the total number of Merger Shares shall be
appropriately adjusted, provided that any such adjustment shall in all events
result in the holders of shares of Company Common Stock immediately prior to the
Effective Date receiving no less than the pro rata percentage of Merger Shares
that would have been received by such holders prior to any such adjustment.
(c) At the Effective Time, all rights with respect to Company
Common Stock under Company Options that are then outstanding shall be converted
into and become rights with respect to Parent Common Stock, and Parent shall
assume each Company Option in accordance with the terms (as in effect as of the
date thereof) of the stock option or other agreement, as the case may be, by
which it is evidenced. From and after the Effective Time, (i) each Company
Option assumed by Parent may be exercised solely for shares of Parent Common
Stock, (ii) the number of shares of Parent Common Stock subject to each Company
Option shall be equal to the number of shares of Company Common Stock subject to
such Company Option immediately prior to the Effective Date multiplied by the
Exchange Ratio, rounding down to the nearest whole share of Parent Common Stock
(with cash, less the applicable exercise price, being payable for any fraction
of a share), (iii) the per share exercise price that such Company Option shall
be adjusted by dividing the per share exercise price under each such Company
Option was exercisable immediately prior to the Effective Time by the Exchange
Ratio and rounding up to the nearest cent and (iv) any restriction on the
exercise of any Company Option shall continue in full force and effect and the
term, exercisability, vesting schedule and other provisions of such Company
Option shall otherwise remain unchanged; provided, however, that each such
Company Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
subdivision, reclassification, reorganization, stock split, combination or
similar transaction subsequent to the Effective Time. The Company shall take all
actions that may be necessary (under the stock option or other agreements
pursuant to which Company Options are outstanding) to effectuate the provisions
of this Section 2.5(c) and to ensure that, from and after the Effective Time,
holders of Company Options have no rights with respect thereto other than those
specifically provided herein. As soon as practicable after the Effective
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Time, Parent shall issue to each holder of an outstanding Company Option, a
document evidencing assumption of the Company Option by Parent.
2.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time, (a) all
certificates representing shares of Company Common Stock or Series A Preferred
Stock outstanding immediately prior to the Effective Time shall automatically be
canceled and retired and shall cease to exist, and all holders of certificates
representing shares of Company Common Stock and Series A Preferred Stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company, and (b) the stock transfer books of the
Company shall be closed with respect to all shares of such Company Common Stock
and Series A Preferred Stock outstanding immediately prior to the Effective
Time. No further transfer of any such shares of Company Common Stock and Series
A Preferred Stock shall be made on such stock transfer books after the Effective
Time. If, after the Effective Time, a valid certificate previously representing
any of such shares of Company Common Stock or Series A Preferred Stock (a
"Company Stock Certificate") is presented to the Surviving Corporation or
Parent, such Company Stock Certificate shall be canceled and shall be exchanged
as provided in Section 2.7.
2.7 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE PROCEDURES. Within fifteen (15) days after the
Effective Time, Parent will send or cause to be sent to the holders of Company
Stock Certificates (i) a letter of transmittal in customary form and containing
such provisions as Parent may reasonably specify, and (ii) instructions for use
in effecting the surrender of Company Stock Certificates in exchange for
certificates representing Series B Preferred Stock. Subject to Section 2.7(b),
upon surrender of a Company Stock Certificate for exchange, together with a duly
executed letter of transmittal and such other documents as may be reasonably
required by Parent, (1) the holder of such Company Stock Certificate shall be
issued and delivered in exchange therefor a certificate registered in the name
of such holder representing the number of shares of Series B Preferred Stock
that such holder has the right to receive pursuant to Section 2.5(a)(i) (less
the number of shares to be placed in escrow pursuant to Sections 2.11 and 10.3),
and (2) the Company Stock Certificate so surrendered shall be canceled. Until
surrendered as contemplated by this Section 2.7(a), each Company Stock
Certificate shall be deemed, from and after the Effective Time, to represent
only the right to receive shares of Series B Preferred Stock (and cash in lieu
of any fractional share of Series B Preferred Stock as contemplated by Section
2.7(b)). If any Company Stock Certificate shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Series B Preferred Stock, require the
owner of such lost, stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit of loss and indemnity agreement against any claim that may
be made against Parent or the Surviving Corporation with respect to such Company
Stock Certificate.
(b) FRACTIONAL SHARES. No fractional shares of Series B Preferred
Stock shall be issued in connection with the Merger, and no certificates for any
such fractional shares shall be issued. In lieu of such fractional shares, any
holder of Company Common Stock who would otherwise be entitled to receive a
fraction of a share of Series B Preferred Stock (after aggregating all
fractional shares of Series B Preferred Stock issuable to such holder) shall,
upon surrender of such holder's Company Stock Certificate(s), be paid in cash
the dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by 7.50.
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(c) LEGENDS. The Merger Shares to be issued in the Merger shall
be characterized as "restricted securities" for purposes of Rule 144 under the
Securities Act, and each certificate representing any of such shares shall bear
a legend identical or similar in effect to the following legend (together with
any other legend or legends required by applicable state securities laws or
otherwise):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT AND SUCH LAWS OR IN COMPLIANCE
WITH AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
(d) NO LIABILITY. Neither Parent nor the Surviving Corporation
shall be liable to any holder or former holder of Company Common Stock or Series
A Preferred Stock for any Merger Shares (or dividends or distributions with
respect thereto), or for any cash amounts, delivered to any public official
pursuant to any applicable abandoned property, escheat or similar law.
2.8 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368(a) of
the Code. The parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
2.9 DISSENTING SHARES. Notwithstanding anything to the contrary
contained in this Agreement, any shares of Company Common Stock outstanding
immediately prior to the Effective Time that were not voted in favor of the
Merger and are held by stockholders who have complied with the applicable
provisions of the DGCL (the "Dissenting Shares") shall not be converted into or
represent the right to receive Series B Preferred Stock in accordance with
Section 2.5(a)(i) (or cash in lieu of fractional shares in accordance with
Section 2.7(b)), and each holder of Dissenting Shares shall be entitled only to
such rights as may be granted to such holder under the DGCL. From and after the
Effective Time, a holder of Dissenting Shares shall not have and shall not be
entitled to exercise any of the voting rights or other rights of a stockholder
of the Surviving Corporation. If any holder of Dissenting Shares shall fail to
assert or perfect, or shall waive, rescind, withdraw or otherwise lose, such
holder's right to dissent and obtain payment under the DGCL, then such shares
shall automatically be converted into and shall represent only the right to
receive (upon the surrender of Company Stock Certificate(s) previously
representing such shares) Series B Preferred Stock in accordance with Section
2.5(a)(i) (and cash in lieu of any fractional share in accordance with Section
2.7(b)).
2.10 FURTHER ACTION. If, at any time after the Effective Time, any further
action is necessary to carry out the purposes of this Agreement or to vest the
Surviving Corporation with full right, title and possession of and to all rights
and property of Merger Sub and the Company, the officers and directors of the
Surviving Corporation shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
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2.11 COMPANY STOCKHOLDERS' INDEMNITY SHARES. At the Effective Time, Parent shall
withhold fifty percent (50%) of the total number of Merger Shares to be issued
to each Company Stockholder in connection with the Merger (the "Company
Stockholders' Indemnity Shares"). The Company Stockholders' Indemnity Shares
will be represented by a certificate or certificates issued in the names of the
respective Company Stockholders, shall be delivered to the Escrow Agent as
collateral security for the Company's indemnification obligations set forth in
Section 10.3 and the Company Stockholder's indemnification obligations under the
Escrow Agreement, and except as set forth in Section 10, shall be held in escrow
(the "Escrow Fund") by the Escrow Agent to satisfy any claims made on or before
the first anniversary of the Closing Date (the "Escrow Period"). Each Company
Stockholder shall deposit with the Escrow Agent a stock power duly executed in
blank, with the instructions to attach such stock power to such Company
Stockholder's respective Company Stockholder Indemnity Shares. The
administration of the Company Stockholders' Indemnity Shares during the Escrow
Period by the Escrow Agent shall be pursuant to the terms of an Escrow Agreement
substantially in the form attached hereto as Exhibit G (the "Escrow Agreement")
among Parent, the Company Stockholders, and Escrow Agent. The Escrow Fund shall
be allocated among the Company Stockholders on a pro-rata basis in accordance
with the number of Merger Shares to be received by the Company Stockholders at
the Effective Time (excluding for purposes of this calculation any Dissenting
Shares). Upon compliance with the terms hereof and subject to the provisions of
the Escrow Agreement, Parent shall be entitled to obtain indemnity from the
Escrow Fund for Damages covered by the indemnity provided for in Section 10.3 of
this Agreement.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub
that, except as set forth in the disclosure schedule prepared by the Company in
accordance with the requirements of Section 11.11 and delivered by the Company
to Parent on the date of this Agreement (the "Company Disclosure Schedule"):
3.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware with full corporate
power and authority to (i) conduct its business in the manner in which it is now
being conducted, (ii) own and use its assets in the manner in which its assets
are now being owned and used and (iii) perform its obligations under all
Material Company Contracts by which it is bound. The Company has no
Subsidiaries.
(b) The Company is qualified to do business as a foreign
corporation, and is in good standing, under the laws of the jurisdictions set
forth in Part 3.1(b) of the Company Disclosure Schedule, which are all the
jurisdictions where the nature of its business requires such qualification and
where the failure to be so qualified would have a Material Adverse Effect on the
Company.
3.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered or otherwise made available to Parent accurate and complete copies of:
(1) the Company's
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certificate of incorporation and bylaws as currently in effect, including all
amendments thereto; (2) the stock records of the Company; and (3) the minutes
and other records of the meetings and other proceedings (including any actions
taken by written consent or otherwise without a meeting) of the stockholders of
the Company, the Board of Directors of the Company and all committees of the
Board of Directors of the Company. The Company is not in violation of any of the
provisions of its certificate of incorporation or bylaws. The books of account,
stock records, minute books and other records of the Company are accurate and
complete in all material respects, and have been maintained in accordance with
prudent business practices.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of: (a) 20,000,000 shares of Company Common Stock, of which 6,318,695 shares
have been issued and are outstanding as of the date hereof and (b) 5,000,000
shares of preferred stock, of which 2,233,882 shares of Series A Preferred Stock
have been issued and are outstanding as of the date hereof. The Company has
reserved 3,000,000 shares of capital stock for issuance under its 1998 Stock
Plan, of which no shares or options have been issued. Part 3.3(a) of the Company
Disclosure Schedule sets forth the names of stockholders of the Company and the
number of shares and certificate numbers of Company Common Stock or Series A
Preferred Stock owned of record by each of such stockholders. Part 3.3(b) of the
Company Disclosure Schedule sets forth, with respect to each Company Option that
is outstanding on the date of this Agreement: (i) the name of the holder of such
Company Option; (ii) the total amount of Company Common Stock subject to such
Company Option; (iii) the date of which such Company Option was granted; (iv)
the vesting schedule for such Company Option; and (v) the exercise price of such
Company Option. All of the outstanding shares of Company Common Stock and Series
A Preferred Stock have been duly authorized and validly issued, and are fully
paid and nonassessable, and none of such shares is subject to any repurchase
option (except as set forth in Part 3.3(c) of the Company Disclosure Schedule)
or restriction on transfer other than restrictions imposed by federal or state
securities laws. Except as set forth in this Section 3.3 or on Part 3.3 of the
Company Disclosure Schedule, there are no authorized or outstanding shares,
subscriptions, options, calls, warrants or other rights (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of the Company. All outstanding shares of Company Common Stock have
been issued in substantial compliance with applicable federal and state
securities laws and other applicable Legal Requirements and all requirements set
forth in applicable Company Contracts. Except as provided on Part 3.3 of the
Company Disclosure Schedule, the Company has never repurchased, redeemed or
otherwise reacquired any shares of capital stock or other securities.
3.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the unaudited balance
sheet of the Company as of May 31, 1998 (the "Unaudited Interim Balance Sheet"),
and the related unaudited statement of income of the Company for the five-month
period then ended (collectively, the "Company Financial Statements").
(b) The Company Financial Statements present fairly the financial
position of the Company as of the respective dates thereof and the results of
operations and cash flows of the Company for the periods covered thereby.
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3.5 ABSENCE OF CHANGES. Since May 31, 1998:
(a) The Company has not suffered any Material Adverse Effect and,
to the Company's knowledge, no event has occurred that will, or could reasonably
be expected to, have a Material Adverse Effect on the Company;
(b) there has not been any material damage or destruction to any
of the Company's assets (whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance
of (i) any capital stock or other security (except for Company Common Stock
issued upon the exercise of outstanding Company Options), (ii) any option, call,
warrant or right to acquire, or otherwise relating to, any capital stock or any
other security (except for Company Options described in Part 3.3 of the Company
Disclosure Schedule), or (iii) any instrument convertible into or exchangeable
for any capital stock or other security;
(e) there has been no amendment to the Company's certificate of
incorporation or bylaws, and the Company has not effected or been a party to any
Company Acquisition Transaction, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
(f) the Company has not amended or waived any of its rights
under, or permitted the acceleration of vesting under (i) any provision of any
agreement evidencing any outstanding Company Option, or (ii) any restricted
stock purchase agreement;
(g) the Company has not formed any Subsidiary or acquired any
equity interest or other interest in any other Entity;
(h) except for expenditures incurred in connection herewith and
the transactions contemplated hereby, which shall not exceed $65,000, the
Company has not made any capital expenditure which, when added to all other
capital expenditures made by the Company since May 31, 1998, exceeds $25,000 in
the aggregate;
(i) except for this Agreement and the agreements contemplated
herein, the Company has not (i) entered into any Material Company Contract, or
(ii) amended or prematurely terminated, or waived any material right or remedy
under, any Material Company Contract to which it is or was a party or under
which it has or had any material rights or obligations;
(j) the Company has not (i) acquired, leased or licensed any
right or other asset from any other Person, (ii) sold or otherwise disposed of,
or leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
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(k) the Company has not written off as uncollectible, or
established any reserve with respect to, any account receivable or other
indebtedness in excess of $25,000 individually or in the aggregate;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of assets valued at $25,000 or less, individually or in the
aggregate, made in the ordinary course of business and consistent with the
Company's past practices;
(m) the Company has not (i) lent money to any Person, or (ii)
incurred or guaranteed any indebtedness for borrowed money in excess of $25,000
individually or in the aggregate;
(n) the Company has not (i) established, adopted or amended any
Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, or (iii) hired any new employee except in the ordinary
course of business and consistent with past practices;
(o) the Company has not changed any of its methods of accounting
or accounting practices in any respect;
(p) the Company has not made any material Tax election other than
in the ordinary course of business;
(q) the Company has not commenced or settled any Legal
Proceeding;
(r) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(s) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(r)" above.
3.6 TITLE TO ASSETS.
(a) The Company owns, and has good and valid title to, all assets
purported to be owned by it, including all of the assets reflected in the
Company Financial Statements and all other assets reflected in the Company's
books and records as being owned by the Company. All of said assets are owned by
the Company free and clear of any liens or other Encumbrances, except for (i)
any lien for current taxes not yet due and payable, and (ii) minor liens that
have arisen in the ordinary course of business and that do not (in any case or
in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of the Company.
(b) Part 3.6(b) of the Company Disclosure Schedule identifies all
assets that are being leased or licensed to the Company that involve obligations
of the Company in excess of $25,000 on an individual basis.
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3.7 ACCOUNTS RECEIVABLE; LOANS AND ADVANCES.
(a) All accounts receivable of the Company, if any, that are
reflected in the Unaudited Interim Balance Sheet or in the accounting records of
the Company as of the Closing Date (collectively, the "Company Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of business.
Unless paid prior to the Closing Date, the Company Accounts Receivable, if any,
are or will be, as of the Closing Date, current and collectible net of any
respective reserves shown in the Unaudited Interim Balance Sheet (which reserves
are adequate and calculated consistent with past practice). There is no contest,
claim, or right of set-off, other than returns in the ordinary course of
business, under any Contract with any obligor of any Company Accounts Receivable
relating to the amount or validity of such Company Accounts Receivable.
(b) Part 3.7(b) of the Company Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of all loans and
advances made by the Company to all employees, directors, consultants or
independent contractors of the Company, other than routine travel advances made
to employees in the ordinary course of business.
3.8 EQUIPMENT; REAL PROPERTY.
(a) The assets of the Company are adequate for the uses to which
they are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of the Company's business in the
manner in which such business is now being conducted.
(b) The Company does not own any real property. Part 3.8 of the
Company Disclosure Schedule contains an accurate and complete list of all, if
any, leases or subleases of real property entered into by the Company.
3.9 PROPRIETARY ASSETS.
(a) The Company has good and valid title to, or has sufficient
licenses to use, all Company Proprietary Assets free and clear of all liens and
other Encumbrances, and has a valid right to use all Company Proprietary Assets.
Part 3.9 of the Company Disclosure Schedule contains a complete and accurate
list of all patents, patent applications, trademarks (registered or
unregistered), trademark applications, registered copyrights owned and licenses
held by the Company. The Company is not obligated to make any payment to any
Person for the use of any Company Proprietary Asset. Except as set forth on Part
3.9 of the Company Disclosure Schedule, to the knowledge of the Company, the
Company is free to use, modify, copy, distribute, sell, license or otherwise
exploit on an exclusive basis each of the Company Proprietary Assets that is
owned by the Company and is able to use each of the Company Proprietary Assets
that is licensed by the Company.
(b) The Company has taken reasonable measures and precautions
necessary to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would not be
impaired by public disclosure in any material respect) and otherwise to maintain
and protect the value of all Company Proprietary Assets.
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(c) To the knowledge of the Company, none of the Company
Proprietary Assets infringes or conflicts with any Proprietary Asset owned or
used by any other Person. To the knowledge of the Company, the Company is not
misappropriating or making any unlawful use of, and the Company has not at any
time misappropriated or made any unlawful use of, or received any notice or
other communication of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or used by any
other Person. To the knowledge of the Company, no other Person is infringing,
misappropriating or making any unlawful use of, and to the knowledge of the
Company, no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any Company Proprietary Asset.
(d) To the knowledge of the Company, the Company Proprietary
Assets constitute all the Proprietary Assets necessary to enable the Company to
conduct its business in the manner in which such business has been conducted.
The Company has not licensed any of the Company Proprietary Assets to any Person
on an exclusive basis and the Company has not entered into any covenant not to
compete or Contract limiting its ability to exploit fully any of its Proprietary
Assets or to transact business in any market or geographical area or with any
Person.
3.10 CONTRACTS.
(a) Part 3.10(a) of the Company Disclosure Schedule identifies
each Company Contract that constitutes a "Material Company Contract." For
purposes of this Agreement, a "Material Company Contract" shall be deemed to be
any Contract:
(i) relating to the employment or engagement of, or the
performance of services by, any employee, consultant or independent contractor
which involves a potential commitment of the Company in excess of $50,000 per
year;
(ii) relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Company Proprietary
Asset (except for any Company Proprietary Asset that is licensed to the Company
under any third party software license agreement generally available to the
public at a cost of less than $10,000);
(iii) imposing any restriction on the Company's right or
ability (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or other
asset to or perform any services for any other Person or to transact business or
deal in any other manner with any other Person, or (C) to develop or distribute
any technology;
(iv) creating or involving any agency relationship,
distribution arrangement or franchise relationship involving payments or
obligations in excess of $25,000 per year;
(v) creating or relating to the creation of any
Encumbrance with respect to any asset owned or used by the Company having a
value in excess of $25,000;
(vi) involving or incorporating any guaranty, any pledge,
any performance or completion bond, any indemnity (other than customary
intellectual property indemnities for hardware and software sold by the
Company), any right of contribution or any
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surety arrangement, any of which obligations involve a Company obligation in
excess of $25,000 per year;
(vii) creating or relating to any partnership or joint
venture or any sharing of revenues, profits, losses, costs or liabilities;
(viii) relating to the purchase or sale of any product or
other asset by or to, or the performance of any services by or for, any Company
Related Party;
(ix) entered into outside the ordinary course of business;
(x) that may not be terminated by the Company (without
penalty) within 60 days after the delivery of a termination notice by the
Company;
(xi) contemplating or involving (A) the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $25,000 in the aggregate, or (B) the performance of services having a value
in excess of $25,000 in the aggregate); and
(xii) relating to the lease or sublease, either as lessee
or sublessee, lessor or sublessor, of real or Personal property or intangibles,
having annual payments in excess of $25,000.
(b) The Company has delivered to Parent accurate and complete
copies of all Material Company Contracts identified in Part 3.10(a) of the
Company Disclosure Schedule, including all amendments thereto. Each Contract
identified in Part 3.10(a) of the Company Disclosure Schedule is valid and in
full force and effect, and is enforceable by the Company in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) The Company:
(i) has not violated or breached, or committed any
material default under, any Material Company Contract in any material respect;
(ii) represents that, to its knowledge, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to, (A) result in a
violation or breach of any of the provisions of any Material Company Contract,
(B) give any Person the right to declare a default or exercise any remedy under
any Material Company Contract, (C) give any Person the right to accelerate the
maturity or performance of any Material Company Contract, or (D) give any Person
the right to cancel, terminate or modify any Material Company Contract;
(iii) has not, since May 31, 1998, received any notice or
other communication regarding (i) any actual or possible violation or breach of,
or default under, any Material Company Contract, or (ii) any actual or possible
termination of any Material Company Contract; and
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(iv) has not waived any of its material rights under any
Material Company Contract.
3.11 NO UNDISCLOSED LIABILITIES. Except as set forth in the Company
Financial Statements and except for current liabilities incurred in the ordinary
course of business since the date of the Company Financial Statements, the
Company has no accrued, contingent or other liabilities of any nature, either
matured or unmatured.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times been, in compliance with all applicable Legal Requirements, except where
the failure to comply with such Legal Requirements has not had and will not have
a Material Adverse Effect on the Company. The Company has not received any
notice or other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any Legal Requirement.
3.13 GOVERNMENTAL AUTHORIZATIONS. The Company has all Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted. The Company is, and
at all times has been, in compliance with the material terms and requirements of
such Governmental Authorizations. The Company has not received any notice or
other communication from any Governmental Body regarding (a) any actual or
possible violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
3.14 TAX MATTERS.
(a) All Tax Returns required to be filed with any Tax authority
with respect to any Taxable period ending on or before the Closing, by or on
behalf of Company, have been or will be completed and filed when due (including
any extensions of such due date) and all amounts shown due on such Tax Returns
on or before the Effective Time have been or will be paid on or before such
date. The Company Financial Statements (i) fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the date of
the balance sheet included in such Financial Statements (the "Company Balance
Sheet") and Company has not and will not incur any Tax liability in excess of
the amount reflected on such Company Balance Sheet (excluding any amounts
reserved or accrued thereon to reflect timing differences between financial
accounting and taxable income) with respect to such periods and (ii) properly
accrues in accordance with GAAP all material liabilities for Taxes payable after
the date of the Company Balance Sheet with respect to all transactions and
events occurring on or prior to such date. All information set forth in the
Company Financial Statements relating to Tax matters is true, complete and
accurate in all material respects. No material Tax liability since the date of
the Company Balance Sheet has been incurred by Company other than in the
ordinary course of business, and adequate provision has been made by Company for
all Taxes since that date in accordance with GAAP on at least a quarterly basis.
(b) Company has previously provided or made available to Parent
true and correct copies of all income, franchise, and sales Tax Returns, and, as
reasonably requested by Parent, prior to or following the date hereof, presently
existing information statements and reports. Company has withheld and paid to
the applicable financial institutions or Tax authority
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all amounts required to be withheld. To the best knowledge of Company, no Tax
Returns filed with respect to Taxable years of Company through the Taxable year
ended December 31, 1997 in the case of the United States, have been examined and
closed. Company (or any member of any affiliated or combined group of which
Company has been a member) has not granted any extension or waiver of the
limitation period applicable to any Tax Returns that is still in effect. There
is no material claim, audit, action, suit, proceeding, or (to the knowledge of
Company) investigation now pending or (to the knowledge of Company) threatened
against or with respect to Company in respect of any Tax or assessment. No
notice of deficiency or similar document of any Tax authority has been received
by Company, and there are no liabilities for Taxes (including liabilities for
interest, additions to Tax and penalties thereof and related expenses) with
respect to the issues that have been raised (and are currently pending) by any
Tax authority that could, if determined adversely to Company, materially and
adversely affect the liability of Company for Taxes. There are no liens for
Taxes (other than for current Taxes not yet due and payable) upon the assets of
Company. Company has never been a member of an affiliated group of corporations,
within the meaning of Section 1504 of the Code. Company is in full compliance
with all the terms and conditions of any Tax exemptions or other Tax-sharing
agreement or order of a foreign government and the consummation of the Merger
will not have any adverse effect on the continued validity and effectiveness of
any such Tax exemption or other Tax-sharing agreement or order. Neither Company
nor any Person on behalf of Company has entered into or will enter into any
agreement or consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income tax law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of state, local or foreign income tax law) apply to any
disposition of any asset owned by Company. None of the assets of the Company are
property that the Company is required to treat as being property of any other
person pursuant to the so-called "safe harbor lease" provisions of Section
168(f)(8) of the Code. None of the assets of Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code. Company has not made
and will not make a deemed dividend election under Treas. Reg.
Section1.1502-32(f)(2) or a consent dividend election under Section 565 of the
Code. Company has never been a party to any transaction intended to qualify
under Section 355 of the Internal Revenue Code or any corresponding provision of
state law. Company has not participated in (and will not participate in) an
international boycott within the meaning of Section 999 of the Code. No Company
shareholder is other than a United States Person within the meaning of the Code.
Company does not have and has not had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention between the
United States of America and such foreign country and Company has not engaged in
a trade or business within any foreign country. Company has never elected to be
treated as an S-corporation under Section 1362 of the code or any corresponding
provision of federal or state law. All material elections with respect to
Company's three most recent taxable years are reflected on the Company Tax
Returns for such periods, copies of which have been provided or made available
to Parent. After the date of this Agreement, no material election with respect
to Taxes will be made without the prior written consent of Parent, which consent
will not be unreasonably withheld or delayed. Company is not currently and never
has been subject to the reporting requirements of Section 6038A of the Code.
There is no agreement, contract or arrangement to which Company is a party that
could, individually or collectively, result in the payment of any amount that
would not be deductible by reason of Sections 280G (as determined without regard
to Section 280G(b)(4), 162 (other than 162(a)) or 404 of the Code. Company is
not a party to or bound by any Tax indemnity, Tax sharing or Tax allocation
agreement (whether written or unwritten or arising
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under operation of federal law as a result of being a member of a group filing
consolidated Tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than Company nor does
Company owe any amount under any such Agreement. Company has previously provided
or made available to Parent true and correct copies of all income, franchise,
and sales Tax Returns, and, as reasonably requested by Parent, prior to or
following the date hereof, presently existing information statements and
reports. Company is not, and has not been, a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 978(c)(1)(A)(ii) of the Code. Other than by reason
of the Merger, Company bas not been and will not be required to include any
material adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior to the Merger. As used in this Section 3.14, the term
"Company" means Company and any entity included in or required under GAAP to be
included in any of the Company Financial Statements.
(c) No claim or Legal Proceeding is pending or has been
threatened against or with respect to the Company in respect of any Tax. There
are no unsatisfied liabilities for Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to any
notice of deficiency or similar document received by the Company. There are no
liens for Taxes upon any of the assets of the Company, except liens for current
Taxes not yet due and payable.
(d) At least ninety percent (90%) of the fair market value of the
net assets and at least seventy percent (70%) of the fair market value of the
gross assets held by the Company immediately prior to the Merger will be
transferred to Merger Sub in the Merger. For the purpose of determining the
percentage of the Company's net and gross assets transferred by it in the
Merger, the following assets will be treated as property held by the Company
immediately prior but not transferred in the Merger: (i) assets disposed of by
the Company prior to or by Merger Sub subsequent to the Merger and in
contemplation thereof (including without limitation any asset disposed of by the
Company, other than in the ordinary course of business, pursuant to a plan or
intent existing during the period ending on the Effective Time and beginning
with the commencement of negotiations (whether formal or informal) with Parent
regarding the Merger (the "Pre-Merger Period")), (ii) assets used to pay
Stockholders with respect to Dissenting Shares or other expenses or liabilities
incurred in connection with the Merger, and (iii) assets used to make
distribution, redemption or other payments in respect of the Company capital
stock or rights to acquire such stock (including payments treated as such for
tax purposes) that are made in contemplation of the Merger or related thereto;
(e) The Company has made no transfer of any of its assets
(including any distribution of assets with respect to, or in redemption of,
stock) in contemplation of the Merger or during the Pre-Merger Period other than
(i) in the ordinary course of business, (ii) cash paid to the Company
Stockholders with respect to Dissenting Shares, and (iii) payments for expenses
incurred in connection with the Merger;
(f) The Company has not declared any dividends on shares of the
Company preferred stock;
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(g) The Company will continue to operate its historic business
through the Effective Time;
(h) The liabilities of the Company and the liabilities to which
the Company's assets are subject have been incurred by the Company in the
ordinary course of its business;
(i) Other than shares of the Company capital stock or options to
acquire the Company capital stock issued as compensation to present or former
service providers (including, without limitation, employees and directors) of
the Company in the ordinary course of business, no issuances of the Company
capital stock or rights to acquire the Company capital stock have occurred or
will occur during the Pre-Merger Period other than pursuant to options,
warrants, agreements or conversion rights outstanding prior to the Pre-Merger
Period;
(j) The Company is not and will not be, on the Effective Time, an
"investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv) of
the Code;
(k) The Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368 (a)(3)(A) of the
Code;
(l) Other than the possible payment of cash to the Company
Stockholders with respect to Dissenting Shares in accordance with the terms of
the Agreement, neither the Company nor any Person related to the Company (within
the meaning of Treasury Regulation Sections 1.368-1(e)(3), (4) and (5)) has or
will during the Pre-Merger Period acquire any the Company capital stock or any
interest therein (including by way of options, pledges or similar arrangements
or any transaction that reduces the risk of loss of owning the Company capital
stock).
(m) Merger Sub, Parent, the Company and the Company Stockholders
will each pay separately its or their own expenses in connection with the Merger
as contemplated by the Agreement, other than the Company expenses solely and
directly related to the Merger in accordance with Rev. Rul. 73-54, 1973-1 C.B.
187;
(n) No direct or indirect Subsidiary of the Company owns any
shares of the Company capital stock;
(o) Notwithstanding anything above in this Section 3.14 to the
contrary, the Company makes no representations regarding any actions or conduct
of Merger Sub pursuant to Parent's exercise of control over Merger Sub or
Parent.
3.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 3.15(a) of the Company Disclosure Schedule contains a
list of all salaried employees of the Company as of the date of this Agreement
whose annual salaries are greater than $50,000, and correctly reflects their
salaries, any other compensation payable to them (including compensation payable
pursuant to bonus, deferred compensation or commission arrangements), their
dates of employment and their positions. The Company is not a party to any
collective bargaining contract or other Contract with a labor union involving
any of its employees.
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(b) Part 3.15(b) of the Company Disclosure Schedule identifies
each salary, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance pay, termination pay, hospitalization,
medical, insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or agreement (individually referred to as a "Company
Plan" and collectively referred to as the "Company Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any current or former employee of the Company.
(c) The Company does not maintain, sponsor or contribute to, and,
has not at any time in the past maintained, sponsored or contributed to, any
employee pension benefit plan (as defined in Section 3(2) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of the Company (a "Company
Pension Plan").
(d) The Company does not maintain, sponsor or contribute to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of the Company (a "Company
Welfare Plan") except for those Company Welfare Plans described in Part 3.15(d)
of the Company Disclosure Schedule, none of which is a multiemployer plan
(within the meaning of Section 3(37) of ERISA).
(e) With respect to each Company Plan, the Company has delivered
to Parent:
(i) an accurate and complete copy of such Company Plan
(including all amendments thereto);
(ii) an accurate and complete copy of the annual report
(if required under ERISA) with respect to such Company Plan for each of 1996 and
1997;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each Summary of Material Modifications
(if required under ERISA) with respect to such Company Plan, and (B) each
material employee communication relating to such Company Plan;
(iv) if such Company Plan is funded through a trust or any
third party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating
to such Company Plan, including service provider agreements, insurance
contracts, minimum premium contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and
recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
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(f) The Company is not required to be, and, to the knowledge of
the Company, the Company has never been required to be, treated as a single
employer with any other Person under Section 4001(b)(1) of ERISA or Section
414(b), (c), (m) or (o) of the Code. The Company has never been a member of an
"affiliated service group" within the meaning of Section 414(m) of the Code. The
Company has never made a complete or partial withdrawal from a "multiemployer
plan" (as defined in Section 3(37) of ERISA) resulting in "withdrawal liability"
(as defined in Section 4201 of ERISA), without regard to subsequent reduction or
waiver of such liability under either Section 4207 or 4208 of ERISA.
(g) The Company does not have any plan or commitment to create
any additional Company Welfare Plan or any Company Pension Plan, or to modify or
change any existing Company Welfare Plan or Company Pension Plan (other than to
comply with applicable law).
(h) No Company Welfare Plan provides death, medical or health
benefits (whether or not insured) with respect to any current or former employee
of the Company after any such employee's termination of service (other than (i)
benefit coverage mandated by applicable law, including coverage provided
pursuant to Section 4980B of the Code, (ii) deferred compensation benefits
accrued as liabilities on the Unaudited Interim Balance Sheet, and (iii)
benefits the full cost of which are borne by current or former employees of the
Company (or their beneficiaries)).
(i) With respect to each of the Company Welfare Plans
constituting a group health plan within the meaning of Section 4980B(g)(2) of
the Code, the provisions of Section 4980B of the Code ("COBRA") have been
complied with in all material respects.
(j) Each of the Company Plans has been operated and administered
in all material respects in accordance with applicable Legal Requirements,
including ERISA and the Code.
(k) Each of the Company Plans intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
Internal Revenue Service, and the Company is not aware of any reason why any
such determination letter should be revoked.
(l) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any bonus payment, golden
parachute payment, severance payment or other payment to any current or former
employee or director of the Company (whether or not under any Company Plan), or
materially increase the benefits payable under any Company Plan, or result in
any acceleration of the time of payment or vesting of any such benefits.
(m) The Company is in compliance in all material respects with
all applicable Legal Requirements and Contracts relating to employment,
employment practices, employee compensation, wages, bonuses and terms and
conditions of employment.
3.16 ENVIRONMENTAL MATTERS. The Company is and has at all times been in
compliance, in all material respects, with all applicable Environmental Laws.
The Company possesses all material permits and other Governmental Authorizations
required under applicable
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Environmental Laws, and the Company is and has at all times been in material
compliance with the terms and requirements of all such Governmental
Authorizations. The Company has not received any notice or other communication
(whether from a Governmental Body, citizens group, employee or otherwise) that
alleges that the Company is not in compliance with any Environmental Law, and,
to the knowledge of the Company, there are no circumstances that could
reasonably be expected to prevent or interfere with the Company's compliance
with any Environmental Law in the future. To the knowledge of the Company, no
current or prior owner of any real property leased or controlled by the Company
has received any notice or other communication (whether from a Governmental
Body, citizens group, employee or otherwise) that alleges that such current or
prior owner or the Company is not or was not in compliance with any
Environmental Law. (For purposes of this Section 3.16 and Section 4.16: (i)
"Environmental Law" means any federal, state or local Legal Requirement relating
to pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata), including
any law or regulation relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern; and (ii) "Materials
of Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment).
3.17 INSURANCE. The business and properties of the Company are insured
for the benefit of the Company in amounts deemed adequate by the Company's
management against risks usually insured against by Persons operating businesses
similar to those of the Company in the localities where such properties are
located and at a similar stage as the Company is in product development. Part
3.17 of the Company Disclosure Schedule contains a complete and accurate list of
all insurance policies held by the Company. All such policies have been
delivered by the Company to Parent.
3.18 RELATED PARTY TRANSACTIONS. Except as set forth in the Company
Financial Statements: (a) no Company Related Party has, and no Company Related
Party has at any time had, any direct or indirect interest in any material asset
used in or otherwise relating to the business of the Company; (b) no Company
Related Party is, or has at any time been, indebted to the Company nor has
Company been indebted to a Company Related Party; (c) no Company Related Party
has entered into, or has had any direct or indirect financial interest in, any
Material Company Contract, transaction or business dealing involving the
Company; (d) no Company Related Party is competing, or has at any time competed,
directly or indirectly, with the Company; and (e) no Company Related Party has
any claim or right against the Company (other than rights to receive
compensation for services performed as an employee of the Company). (For
purposes of this Section 3.18, each of the following shall be deemed to be a
"Company Related Party": (i) each individual who is, or who has at any time
been, an officer or director of the Company or directly or indirectly, a holder
of ten percent (10%) or more of the equity securities of a Company; (ii) each
individual who is, or who at any time has been, a member of the immediate family
of any of the individuals referred to in clause "(i)" above; and (iii) any trust
or other Entity (other than the Company) in which any one of the individuals
referred to in clauses "(i)" and "(ii)" above holds (or in which more than one
of such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest.)
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3.19 LEGAL PROCEEDINGS; ORDERS. There is no pending Legal Proceeding,
and, to the knowledge of the Company, no Person has threatened to commence any
Legal Proceeding that: (i) may have a Material Adverse Effect on the Company or
its business; or (ii) challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of the
other transactions contemplated by this Agreement. To the knowledge of the
Company, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
There is no order, writ, injunction, judgment or decree to which the Company, or
any of the material assets owned or used by the Company, is subject. To the
knowledge of the Company, no officer or other employee of the Company is subject
to any order, writ, injunction, judgment or decree that prohibits such officer
or other employee from engaging in or continuing any conduct, activity or
practice relating to the Company's business. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
3.20 AUTHORITY; BINDING NATURE OF AGREEMENT. Except for the approval of
the Merger by the stockholders of the Company, the Company has full corporate
power and authority to enter into and to perform its obligations under this
Agreement and the other agreements to be executed by the Company in connection
herewith to which it is a party; and the execution, delivery and performance by
the Company of this Agreement, the other agreements to be executed in connection
herewith to which it is a party and the transactions contemplated hereby have
been duly authorized by all necessary action on the part of the Company, its
Board of Directors and its stockholders. This Agreement and the other agreements
executed in connection herewith to which the Company is a party constitute the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement thereof may be
limited by (i) laws of general application relating to bankruptcy, insolvency,
moratorium, reorganization or other similar laws, both state and federal,
affecting the enforcement of creditors' rights or remedies in general, and (ii)
rules of law governing specific performance, injunctive relief and other
equitable remedies.
3.21 NON-CONTRAVENTION; CONSENTS AND NOTICES. Neither (1) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement to which it is a party, nor (2) the consummation
of the Merger or any of the other transactions contemplated by this Agreement,
will directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of
the provisions of the Company's certificate of incorporation or bylaws;
(b) with respect to the Company, contravene, conflict with or
result in a violation of, or give any Governmental Body or other Person the
right to challenge any of the transactions contemplated by this Agreement or to
exercise any remedy or obtain any relief under, any Legal Requirement or any
order, writ, injunction, judgment or decree to which the Company, or any of the
material assets owned or used by the Company, is subject;
(c) with respect to the Company, contravene, conflict with or
result in a violation of any of the terms or requirements of, or give any
Governmental Body the right to
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revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
Company's business or to any of the material assets owned or used by the
Company;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Material Company
Contract, or give any Person the right to (i) declare a default or exercise any
remedy under any Material Company Contract, (ii) accelerate the maturity or
performance of any Material Company Contract, or (iii) cancel, terminate or
modify any Material Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
Except as may be required by the DGCL and any applicable state
securities or blue sky laws, the Company is not and will not be required to make
any filing with or give any notice to, or to obtain any Consent from, any Person
in connection with (x) the execution, delivery or performance of this Agreement
or any of the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement.
3.22 FULL DISCLOSURE. This Agreement (including the Company Disclosure
Schedule) does not, (i) contain any representation, warranty or information that
is false or misleading with respect to any material fact, or (ii) omit to state
any material fact necessary in order to make the representations, warranties and
information contained and to be contained herein and therein not false or
misleading.
3.23 FINDER'S FEE. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
or any of the other transactions contemplated thereby based upon arrangements
made by or on behalf of the Company.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, represent and warrant to the
Company and the Company Stockholders, all of whom shall be third party
beneficiaries of this Section 4, that, except as set forth in the disclosure
schedule prepared by Parent in accordance with the requirements of Section 11.10
and that has been delivered by Parent to the Company on the date of this
Agreement (the "Parent Disclosure Schedule"):
4.1 DUE ORGANIZATION, ETC.
(a) Parent and its Subsidiaries are corporations duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation and each has full corporate power and authority
to (i) conduct its business in the manner in which it is now being conducted,
(ii) own and use its assets in the manner in which its assets are now being
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owned and used and (iii) perform its obligations under all Material Parent
Contracts by which it is bound. The Subsidiaries of Parent are listed on Part
4.1(a) of the Parent Disclosure Schedule.
(b) Parent and its Subsidiaries are qualified to do business as a
foreign corporation, and are in good standing, under the laws of each
jurisdiction, where the nature of their business requires such qualification and
where the failure to be so qualified would have a Material Adverse Effect on
Parent.
4.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. Parent has
delivered or otherwise made available to Company accurate and complete copies
of: (1) Parent's certificate of incorporation and bylaws as currently in effect,
including all amendments thereto; (2) the stock records of Parent; and (3) the
minutes and other records of the meetings and other proceedings (including any
actions taken by written consent or otherwise without a meeting) of the
stockholders of Parent, the Board of Directors of Parent and all committees of
the Board of Directors of Parent. Parent is not in violation of any of the
provisions of its certificate of incorporation or bylaws. The books of account,
stock records, minute books and other records of Parent are accurate and
complete in all material respects, and have been maintained in accordance with
prudent business practices.
4.3 CAPITALIZATION. The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock, 10,151,263 shares of which have been
issued and are outstanding as of the date hereof, and 20,000,000 shares of
preferred stock, none of which are issued and outstanding as of the date hereof.
Except as disclosed on Part 4.3 of the Parent Disclosure Schedule, Parent has no
outstanding stock options, warrants or other convertible securities to purchase
of Parent Common Stock as of the date hereof (the "Parent Options"). Parent has
reserved 1,300,000 shares for issuance under the 1998 Plan of which 300,000
shares shall be reserved for issuance to directors, officers, employees or
agents of the Surviving Corporation. All of the outstanding shares of Parent and
Merger Sub capital stock have been duly authorized and validly issued, and are
fully paid and nonassessable, and none of such shares is subject to any
repurchase option or restriction on transfer other than restrictions imposed by
federal or state securities laws. All outstanding shares of Parent and Merger
Sub capital stock have been issued in compliance with all applicable federal and
state securities laws and other applicable Legal Requirements, and all
requirements set forth in applicable Parent Contracts. All of the outstanding
shares of capital stock of Parent's Subsidiaries are owned beneficially and of
record by Parent, free and clear of any Encumbrances. Except as set forth above,
there are no authorized or outstanding shares, subscriptions, options, calls,
warrants or other rights (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of Parent. The Merger Shares,
when issued by Parent to the Company's stockholders in accordance with the terms
of this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, will be issued in compliance with applicable federal and state
securities laws and will be free and clear of any Encumbrances created or
imposed, directly or indirectly, by Parent. There are no preemptive or similar
rights with respect to the Parent's capital stock.
4.4 FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company the following
consolidated financial statements (collectively, the "Parent Financial
Statements"):
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(i) the unaudited balance sheets of Parent as of December
31, 1997 and 1996, and the related unaudited statements of income, statements of
stockholders' equity and statements of cash flows of Parent for the year then
ended; and
(ii) The unaudited balance sheet of Parent as of May 31,
1998 (the "Parent Unaudited Interim Balance Sheet"), and the related unaudited
statement of income of Parent for the five-month period then ended.
(b) The Parent Financial Statements present fairly the financial
position of Parent on a consolidated basis, which includes Parent's
Subsidiaries, as of the respective dates thereof and the results of operations
and cash flows of Parent for the periods covered thereby. The Parent Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered (except
that the Parent Financial Statements do not contain footnotes and are subject to
normal and recurring year end audit adjustments, which will not, individually or
in the aggregate be material in magnitude).
4.5 ABSENCE OF CHANGES. Since May 31, 1998:
(a) Parent has not suffered any Material Adverse Effect, and, to
the knowledge of Parent, no event has occurred that will, or could reasonably be
expected to, have a Material Adverse Effect on Parent and its Subsidiaries;
(b) there has not been any material loss, damage or destruction
to any of the assets of Parent (whether or not covered by insurance);
(c) Parent has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock nor has repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) Parent has not sold, issued or authorized the issuance of (i)
any capital stock or other security (except for Parent Common Stock issued upon
the exercise of outstanding Parent Options), (ii) any option, call, warrant or
right to acquire, or otherwise relating to, any capital stock or any other
security (except for Parent Options), or (iii) any instrument convertible into
or exchangeable for any capital stock or other security;
(e) there has been no amendment to the certificate of
incorporation or bylaws of Parent, and Parent has not effected any
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(f) Parent has not amended or waived any of its rights under, or
permitted the acceleration of vesting under (i) any provision of any agreement
evidencing any outstanding Parent Option, or (ii) any restricted stock purchase
agreement;
(g) Neither Parent nor its Subsidiaries have written off as
uncollectible, or established any reserve with respect to, any account
receivable or other indebtedness in excess of $100,000 individually or in the
aggregate;
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(h) Parent has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of assets valued at $100,000 or less, individually or in the
aggregate, made in the ordinary course of business and consistent with past
practices;
(i) Parent has not changed any of its methods of accounting or
accounting practices in any respect;
(j) Parent has not made any material Tax election other than in
the ordinary course of business;
(k) Neither Parent nor its Subsidiaries have commenced or settled
any Legal Proceeding;
(l) Neither Parent nor its Subsidiaries have agreed or committed
to take any of the actions referred to in clauses "(c)" through "(k)" above.
4.6 TITLE TO ASSETS.
(a) Parent and each of its Subsidiaries owns, and has good and
valid title to, all assets purported to be owned by it, including the assets
reflected in the Parent Financial Statements and all other assets reflected in
such entity's books and records as being owned by it. All of said assets are
owned by Parent and each of its Subsidiaries, free and clear of any
Encumbrances, except for (i) any lien for current taxes not yet due and payable
and (ii) minor liens that have arisen in the ordinary course of business and
that do not (in any case or in the aggregate) materially detract from the value
of the assets subject thereto or materially impair the operations of Parent.
(b) Part 4.6(b) of the Parent Disclosure Schedule identifies all
assets that are being leased or licensed to Parent that involve obligations in
excess of $100,000 on an individual basis.
4.7 ACCOUNTS RECEIVABLE; LOANS AND ADVANCES.
(a) All accounts receivable of Parent and its Subsidiaries that
are reflected in the Parent Unaudited Interim Balance Sheet (collectively, the
"Parent Accounts Receivable") represent or will represent valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business. Unless paid prior to the Closing Date, the Parent Accounts
Receivable are or will be, as of the Closing Date, current and collectible net
of any respective reserves shown in the Parent Unaudited Interim Balance Sheet
(which reserves are adequate and calculated consistent with past practice).
There is no contest, claim, or right of set-off, other than returns in the
ordinary course of business, under any Contract with any obligor of any Parent
Accounts Receivable relating to the amount or validity of such Parent Accounts
Receivable.
(b) Part 4.7(b) of Parent Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of all loans and
advances made by Parent to any
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employee, director, consultant or independent contractor of Parent other than
routine travel advances made to employees in the ordinary course of business.
4.8 EQUIPMENT; REAL PROPERTY.
(a) The assets of Parent are adequate for the uses to which they
are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of Parent's business in the manner in
which such business is now being conducted.
(b) Parent does not own any real property. Part 4.8 of the Parent
Disclosure Schedule contains a complete and accurate list of all leases or
sublessees of real property entered into by Parent.
4.9 PROPRIETARY ASSETS.
(a) Parent and its Subsidiaries have good and valid title to, or
have sufficient licenses to use, all Parent Proprietary Assets free and clear of
all Encumbrances, and have a valid right to use all Parent Proprietary Assets.
Neither Parent nor its Subsidiaries are obligated to make any payment to any
Person for the use of any Parent Proprietary Asset. To the knowledge of Parent,
Parent and its Subsidiaries are free to use, modify, copy, distribute, sell,
license or otherwise exploit on an exclusive basis each of the Parent
Proprietary Assets.
(b) Parent and its Subsidiaries have taken reasonable measures
and precautions necessary to protect and maintain the confidentiality and
secrecy of all Parent Proprietary Assets (except Parent Proprietary Assets whose
value would be unimpaired by public disclosure) and otherwise to maintain and
protect the value of all Parent Proprietary Assets.
(c) To the knowledge of Parent, none of the Parent Proprietary
Assets infringes or conflicts with any Proprietary Asset owned or used by any
other Person. To the knowledge of Parent, neither Parent nor its Subsidiaries
are misappropriating or making any unlawful use of, and neither Parent nor its
Subsidiaries has at any time misappropriated or made any unlawful use of, or
received any notice or other communication of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the knowledge of Parent, no other
Person is infringing, misappropriating or making any unlawful use of, and no
Proprietary Asset owned or used by any other Person infringes or conflicts with,
any Parent Proprietary Asset.
(d) To the knowledge of Parent, Parent Proprietary Assets
constitute all the Proprietary Assets necessary to enable Parent or its
Subsidiaries to conduct their respective businesses in the manner in which such
businesses have been conducted. Neither Parent nor its Subsidiaries have
licensed any of the Parent Proprietary Assets to any Person on an exclusive
basis and Parent or its Subsidiaries have not entered into any covenant not to
compete or Contract limiting its ability to exploit fully any of its Proprietary
Assets or to transact business in any market or geographical area or with any
Person.
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4.10 CONTRACTS.
(a) Part 4.10(a) of the Parent Disclosure Schedule identifies
each Parent Contract that constitutes a "Material Parent Contract." For purposes
of this Agreement, a "Material Parent Contract" shall be deemed to be any
Contract:
(i) relating to the employment or engagement of, or the
performance of services by, any employee, consultant or independent contractor
which involves a potential commitment of Parent in excess of $100,000 per year;
(ii) relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Parent Proprietary
Asset (except for any Parent Proprietary Asset that is licensed to the Parent
under any third party software license agreement generally available to the
public at a cost of less than $25,000);
(iii) imposing any restriction on Parent's right or
ability (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or other
asset to or perform any services for any other Person or to transact business or
deal in any other manner with any other Person, or (C) to develop or distribute
any technology;
(iv) creating or involving any agency relationship,
distribution arrangement or franchise relationship involving payments or
obligations in excess of $100,000 per year;
(v) creating or relating to the creation of any
Encumbrance with respect to any asset owned or used by Parent having a value in
excess of $100,000;
(vi) involving or incorporating any guaranty, any pledge,
any performance or completion bond, any indemnity (other than customary
intellectual property indemnities for hardware and software sold by Parent), any
right of contribution or any surety arrangement, any of which obligations
involve a Parent obligation in excess of $100,000 per year;
(vii) creating or relating to any partnership or joint
venture or any sharing of revenues, profits, losses, costs or liabilities;
(viii) relating to the purchase or sale of any product or
other asset by or to, or the performance of any services by or for, any Parent
Related Party;
(ix) entered into outside the ordinary course of business;
(x) that may not be terminated by Parent (without penalty)
within 60 days after the delivery of a termination notice by Parent;
(xi) contemplating or involving (A) the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $100,000 in the aggregate, or (B) the performance of services having a value
in excess of $100,000 in the aggregate; and
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(xii) relating to the lease or sublease, either as lessee
or lessor, sublessee or sublessor, of real or Personal property or intangibles.
(b) Parent has delivered to the Company accurate and complete
copies of all Material Parent Contracts identified in Part 4.10(a) of the Parent
Disclosure Schedule, including all amendments thereto. Each Material Parent
Contract identified in Part 4.10(a) of the Parent Disclosure Schedule is valid
and in full force and effect, and is enforceable by Parent in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Parent:
(i) has not violated or breached, or committed any
material default under, any Material Parent Contract in any material respect;
(ii) represents that, to its knowledge, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to, (A) result in a
violation or breach of any of the provisions of any Material Parent Contract,
(B) give any Person the right to declare a default or exercise any remedy under
any Material Parent Contract, (C) give any Person the right to accelerate the
maturity or performance of any Material Parent Contract, or (D) give any Person
the right to cancel, terminate or modify any Material Parent Contract;
(iii) has not received any notice or other communication
regarding (i) any actual or possible violation or breach of, or default under,
any Material Parent Contract, or (ii) any actual or possible termination of any
Material Parent Contract; and
(iv) has not waived any of their material rights under any
Material Parent Contract.
4.11 NO UNDISCLOSED LIABILITIES. Except as set forth in the Parent
Financial Statements and except for current liabilities incurred in the ordinary
course of business since the date of the Parent Financial Statements, neither
Parent nor its Subsidiaries have accrued, contingent or other liabilities of any
nature, either matured or unmatured.
4.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Parent and its Subsidiaries
are, and have at all times been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on Parent. Neither
Parent nor its Subsidiaries have received any notice or other communication from
any Governmental Body regarding any actual or possible violation of, or failure
to comply with, any Legal Requirement.
4.13 GOVERNMENTAL AUTHORIZATIONS. Parent and each of its Subsidiaries
have all Governmental Authorizations necessary to enable Parent and each of its
Subsidiaries to conduct its business in the manner in which its business is
currently being conducted. Parent and each of its Subsidiaries are, and at all
times has been, in compliance with the material terms and requirements of such
Governmental Authorizations. Neither Parent nor its Subsidiaries have
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received any notice or other communication from any Governmental Body regarding
(a) any actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
4.14 TAX MATTERS.
(a) All Tax Returns required to be filed with any Tax authority
with respect to any Taxable period ending on or before the Closing, by or on
behalf of Parent, have been or will be completed and filed when due (including
any extensions of such due date) and all amounts show due on such Tax Returns on
or before the Effective Time have been or will be paid on or before such date.
The Parent Financial Statements (i) fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the date of the
balance sheet included in the Parent Financial Statements (the "Parent Balance
Sheet") and Parent has not and will not incur any Tax liability in excess of the
amount reflected on such Parent Balance Sheet (excluding any amounts reserved or
accrued thereon to reflect timing differences between financial accounting and
taxable income) with respect to such periods and (ii) properly accrues in
accordance with GAAP all material liabilities for Taxes payable after the date
of the Parent Balance Sheet with respect to all transactions and events
occurring on or prior to such date. All information set forth in the Parent
Financial Statements relating to Tax matters is true, complete and accurate in
all material respects. No material Tax liability since the date of the Parent
Balance Sheet has been incurred by Parent other than in the ordinary course of
business, and adequate provision has been made by Parent for all Taxes since
that date in accordance with GAAP on at least a quarterly basis.
(b) Parent has previously provided or made available to the
Company true and correct copies of all income, franchise, and sales Tax Returns,
and, as reasonably requested by Parent, prior to or following the date hereof,
presently existing information statements and reports. Parent has withheld and
paid to the applicable financial institutions or Tax authority all amounts
required to be withheld. To the best knowledge of Parent, no Tax Returns filed
with respect to Taxable years of Parent through the Taxable year ended December
31, 1997 in the case of the United States, have been examined and closed. Parent
(or any member of any affiliated or combined group of which Parent has been a
member) has not granted any extension or waiver of the limitation period
applicable to any Tax Returns that is still in effect. There is no material
claim, audit, action, suit, proceeding, or (to the knowledge of Parent)
investigation now pending or (to the knowledge of Parent) threatened against or
with respect to Parent in respect of any Tax or assessment. No notice of
deficiency or similar document of any Tax authority has been received by Parent,
and there are no liabilities for Taxes (including liabilities for interest,
additions to Tax and penalties thereof and related expenses) with respect to the
issues that have been raised (and are currently pending) by any Tax authority
that could, if determined adversely to Parent, materially and adversely affect
the liability of Parent for Taxes. There are no liens for Taxes (other than for
current Taxes not yet due and payable) upon the assets of Parent. Parent has
never been a member of an affiliated group of corporations, within the meaning
of Section 1504 of the Code. Parent is in full compliance with all the terms and
conditions of any Tax exemptions or other Tax-sharing agreement or order of a
foreign government and the consummation of the Merger will not have any adverse
effect on the continued validity and effectiveness of any such Tax exemption or
other Tax-sharing agreement or order. Neither Parent nor any Person on behalf
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of Parent has entered into or will enter into any agreement or consent pursuant
to the collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income tax law) apply to any disposition of any asset owned by
Parent. None of the assets of the Parent are property that the Parent is
required to treat as being property of any other person pursuant to the
so-called "safe harbor lease" provisions of Section 168(f)(8) of the Code. None
of the assets of Parent is "tax-exempt use property" within the meaning of
Section 168(h) of the Code. Parent has not made and will not make a deemed
dividend election under Treas. Reg. Section1.1502-32(f)(2) or a consent dividend
election under Section 565 of the Code. Parent has never been a party to any
transaction intended to qualify under Section 355 of the Internal Revenue Code
or any corresponding provision of state law. Parent has not participated in (
and will not participate in) an international boycott within the meaning of
Section 999 of the Code. No Parent shareholder is other than a United States
Person within the meaning of the Code. Parent does not have and has not had a
permanent establishment in any foreign country, as defined in any applicable tax
treaty or convention between the United States of America and such foreign
country and Parent has not engaged in a trade or business within any foreign
country. Parent has never elected to be treated as an S-corporation under
Section 1362 of the code or any corresponding provision of federal or state law.
All material elections with respect to Parent's three most recent taxable years
are reflected on the Parent Tax Returns for such periods, copies of which have
been provided or made available to Parent. After the date of this Agreement, no
material election with respect to Taxes will be made without the prior written
consent of Parent, which consent will not be unreasonably withheld or delayed.
Parent is not currently and never has been subject to the reporting requirements
of Section 6038A of the Code. There is no agreement, contract or arrangement to
which Parent is a party that could, individually or collectively, result in the
payment of any amount that would not be deductible by reason of Sections 280G
(as determined without regard to Section 280G(b)(4), 162 (other than 162(a)) or
404 of the Code. Parent is not a party to or bound by any Tax indemnity, Tax
sharing or Tax allocation agreement (whether written or unwritten or arising
under operation of federal law as a result of being a member of a group filing
consolidated Tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than Parent nor does Parent
owe any amount under any such Agreement. Parent has previously provided or made
available to Parent true and correct copies of all income, franchise, and sales
Tax Returns, and, as reasonably requested by Parent, prior to or following the
date hereof, presently existing information statements and reports. Parent is
not, and has not been, a United States real property holding corporation (as
defined in Section 897(c)(2) of the Code) during the applicable period specified
in Section 978(c)(1)(A)(ii) of the Code. Other than by reason of the Merger,
Parent bas not been and will not be required to include any material adjustment
in Taxable income for any Tax period (or portion thereof) pursuant to Section
481 or 263A of the Code or any comparable provision under state or foreign Tax
laws as a result of transactions, events or accounting methods employed prior to
the Merger. As used in this Section 4.14, the term "Parent" means Parent and
entity included or required under GAAP to be included in any of the Parent
Financial Statements.
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(c) No claim or Legal Proceeding is pending or has been
threatened against or with respect to Parent or any of its Subsidiaries in
respect of any Tax. There are no unsatisfied liabilities for Taxes (including
liabilities for interest, additions to tax and penalties thereon and related
expenses) with respect to any notice of deficiency or similar document received
by Parent or its Subsidiaries. There are no liens for Taxes upon any of the
assets of Parent or its Subsidiaries, except liens for current Taxes not yet due
and payable.
(d) Parent is participating in the Merger for good and valid
business reasons and not for tax purposes;
(e) Prior to the Merger, Parent will be in "Control" of Merger
Sub. As used herein, "Control" of a corporation shall consist of ownership of
stock possessing at least eighty percent (80%) of the total combined voting
power of all classes of stock entitled to vote and at least eighty percent (80%)
of the total number of shares of all other classes of stock of the corporation.
For purposes of determining Control, a Person shall not be considered to own
voting stock if rights to vote such stock (or to restrict or otherwise control
the voting of such stock) are held by a third party (including a voting trust)
other than an agent of such Person;
(f) Other than the acquisition of shares of Company capital stock
upon the consummation of the Merger in accordance with the terms of this
Agreement, neither Parent nor any Person related to Parent (within the meaning
of Treasury Regulation Sections 1.368-1(e)(3), (4) and (5)) has or will acquire
any Company capital stock or any interest therein (including by way of options,
pledges or similar arrangements or any transaction that reduces the risk of loss
of owning Company capital stock). Other than (i) the possible reacquisition of
shares held in escrow pursuant to the Escrow Agreement and (ii) the possible
redemption of shares pursuant to the election of the holders thereof pursuant to
the Certificate of Designation, Rights and Preferences of the Series B
Convertible Preferred Stock (the "Certificate of Designation"), neither Parent
nor any Person related to Parent (within the meaning of Treasury Regulation
Sections 1.368-1(e)(3), (4) and (5)) has or, as of the Effective Time will have,
any plan or intention to reacquire any of the shares of Parent capital stock
issued in the Merger or acquire any interest in such shares (including by way of
options, pledges or similar arrangements or any transaction that reduces the
risk of loss of owning such Parent capital stock) and no such reacquisition of
shares or acquisition of an interest therein will occur (even if not pursuant to
a plan or intent existing as of the effective time) during the two-year period
following the effective time.
(g) Parent has no plan or intention to cause Merger Sub to issue
additional shares of stock after the Merger that would result in Parent losing
Control of Merger Sub;
(h) Except for transfers described in both Section 368(a)(2)(C)
of the Code and Treasury Regulation Section 1.368-2(j)(4) ("Permissible
Transfers"), Parent has no plan or intention to take any of the following
actions: (i) liquidate Merger Sub; (ii) except for the Merger, merge Merger Sub
with or into another corporation including Parent or its affiliates; (iii) sell,
distribute or otherwise dispose of the capital stock of Merger Sub; or (iv)
cause Merger Sub to sell or otherwise dispose of any of its assets or of any of
the assets acquired from Company except for dispositions made in the ordinary
course of business or payment of expenses incurred by Merger Sub pursuant to the
Merger (including payments with respect to Dissenting Shares and fractional
shares, if any); provided, however, that nothing herein shall be understood to
impose any
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limitation on the right of Parent to transfer assets or engage in any other
transaction which Parent may determine to be necessary, appropriate or desirable
in the exercise of its business judgment after the Merger in response to the
circumstances then existing (as opposed to a plan or intention arising prior to
the Merger);
(i) At the time of the Merger, Merger Sub will have no
liabilities or assets subject to liabilities, except to the extent incurred in
connection with the transactions contemplated by the Agreement. Merger Sub is a
newly formed corporation that was created for the sole purpose of facilitating
the Merger, and it has conducted no business activities prior to the Effective
Time;
(j) Following the Merger, either the historic business of Company
will be continued or a significant portion of Company's historic business assets
will be utilized in a business; provided, however, that to the extent that the
business or assets of Merger Sub are subject to a Permissible Transfer, Parent
will cause the transferee to continue the historic business of Company or use a
significant portion of Company's assets in a business;
(k) Neither Parent nor any current or former Subsidiary of Parent
owns, or has owned during the past five (5) years, directly or indirectly, any
shares of Company capital stock, or the right to acquire or vote any such
shares;
(l) Neither Parent nor Merger Sub is an investment company within
the meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code;
(m) No Stockholder of Company is acting as agent for Parent in
connection with the Merger or approval thereof, and Parent will not reimburse
any Company Stockholder for Company capital stock such Stockholder may have
purchased or for other obligations such Stockholder may have incurred;
(n) Neither Parent nor Merger Sub is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code;
(o) The payment of cash in lieu of fractional shares of Parent is
solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
Company Stockholders in lieu of fractional shares of Series B Preferred Stock
will not exceed one percent (1%) of the total consideration that will be issued
in the Merger to Company Stockholders in exchange for their shares of Company
capital stock. The fractional share interests of each Company Stockholder will
be aggregated and no Company Stockholder will receive cash in an amount greater
than the value of one full share of Series B Preferred Stock;
(p) No shares of Merger Sub have been or will be used as
consideration or issued to Stockholders of Company pursuant to the Merger;
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(q) The Series B Preferred Stock held in escrow pursuant to the
Escrow Agreement will appear as issued and outstanding on the balance sheet of
Parent;
(r) Except as otherwise specifically provided in this Agreement,
Merger Sub, Parent, the Company and the Stockholders of the Company will each
pay separately its or their own expenses in connection with the Merger as
contemplated by the Agreement;
(s) There is no intercorporate indebtedness existing between
Parent and Company or between Merger Sub and the Company that was issued,
acquired or will be settled at a discount as a result of the Merger, and Parent
will assume no liabilities of the Company or any Company Stockholder in
connection with the Merger, other than the Company expenses solely and directly
related to the Merger in accordance with Rev. Rul. 73-54, 1973-1 C.B. 187;
(t) None of the compensation received by any
stockholder-employees of the Company will be separate consideration for, or
allocable to, any of their shares of the Company capital stock; none of the
shares of Series B Preferred Stock received by any stockholder-employees of the
Company will be separate consideration for, or allocable to, any employment
agreement or any covenants not to compete; and the compensation paid to any
stockholder-employees of the Company will be for services actually rendered and
will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services;
(u) Notwithstanding anything above in this Section 4.14 to the
contrary, Parent makes no representations regarding any actions or conduct of
the Company prior to the Effective Time.
4.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 4.15(a) of the Parent Disclosure Schedule contains a
list of all salaried employees of Parent as of the date of this Agreement whose
annual salaries are greater than $100,000, and correctly reflects their
salaries, any other compensation payable to them (including compensation payable
pursuant to bonus, deferred compensation or commission arrangements), their
dates of employment and their positions. Parent is not a party to any collective
bargaining contract or other Contract with a labor union involving any of its
employees.
(b) Part 4.15(b) of the Parent Disclosure Documents identifies
each salary, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance pay, termination pay, hospitalization,
medical, insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or agreement (individually referred to as a "Parent
Plan" and collectively referred to as the "Parent Plans") sponsored, maintained,
contributed to or required to be contributed to by Parent for the benefit of any
current or former employee of Parent.
(c) Parent does not maintain, sponsor or contribute to, and has
not at any time in the past maintained, sponsored or contributed to, any
employee pension benefit plan (as defined in Section 3(2) of ERISA), whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of Parent (a "Parent Pension
Plan").
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(d) Parent does not maintain, sponsor or contribute to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of Parent (a "Parent Welfare
Plan") except for those Parent Welfare Plans described in Part 4.15(d) of the
Parent Disclosure Schedule, none of which is a multiemployer plan (within the
meaning of Section 3(37) of ERISA).
(e) With respect to each Parent Plan, Parent has delivered to the
Company:
(i) an accurate and complete copy of such Parent Plan
(including all amendments thereto);
(ii) an accurate and complete copy of the annual report
(if required under ERISA) with respect to such Parent Plan for each of 1996 and
1997;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each Summary of Material Modifications
(if required under ERISA) with respect to such Parent Plan, and (B) each
material employee communication relating to such Parent Plan;
(iv) if such Parent Plan is funded through a trust or any
third party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating
to such Parent Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
(f) Parent is not required to be, and, to the knowledge of
Parent, Parent has never been required to be, treated as a single employer with
any other Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m)
or (o) of the Code. Parent has never been a member of an "affiliated service
group" within the meaning of Section 414(m) of the Code. Parent has never made a
complete or partial withdrawal from a "multiemployer plan" (as defined in
Section 3(37) of ERISA) resulting in "withdrawal liability" (as defined in
Section 4201 of ERISA), without regard to subsequent reduction or waiver of such
liability under either Section 4207 or 4208 of ERISA.
(g) Parent does not have any plan or commitment to create any
additional Parent Welfare Plan or any Parent Pension Plan, or to modify or
change any existing Parent Welfare Plan or Parent Pension Plan (other than to
comply with applicable law).
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(h) No Parent Welfare Plan provides death, medical or health
benefits (whether or not insured) with respect to any current or former employee
of Parent after any such employee's termination of service (other than (i)
benefit coverage mandated by applicable law, including coverage provided
pursuant to Section 4980B of the Code, (ii) deferred compensation benefits
accrued as liabilities on the Parent Unaudited Interim Balance Sheet, and (iii)
benefits the full cost of which are borne by current or former employees of
Parent (or their beneficiaries)).
(i) With respect to each of Parent Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(j) Each of the Parent Plans has been operated and administered
in all material respects in accordance with applicable Legal Requirements,
including ERISA and the Code.
(k) Each of the Parent Plans intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
Internal Revenue Service, and Parent is not aware of any reason why any such
determination letter should be revoked.
(l) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any bonus payment, golden
parachute payment, severance payment or other payment to any current or former
employee or director of Parent (whether or not under any Parent Plan), or
materially increase the benefits payable under any Parent Plan, or result in any
acceleration of the time of payment or vesting of any such benefits.
(m) Parent is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, employee compensation, wages, bonuses and terms and conditions of
employment.
4.16 ENVIRONMENTAL MATTERS. Parent is and has at all times been in
compliance, in all material respects, with all applicable Environmental Laws.
Parent possesses all material permits and other Governmental Authorizations
required under applicable Environmental Laws, and Parent is and has at all times
been in material compliance with the terms and requirements of all such
Governmental Authorizations. Parent has not received any notice or other
communication (whether from a Governmental Body, citizens group, employee or
otherwise) that alleges that Parent is not in compliance with any Environmental
Law, and, to the knowledge of Parent, there are no circumstances that could
reasonably be expected to prevent or interfere with Parent's compliance with any
Environmental Law in the future. To the knowledge of Parent, no current or prior
owner of any real property leased or controlled by Parent has received any
notice or other communication (whether from a Governmental Body, citizens group,
employee or otherwise) that alleges that such current or prior owner or Parent
is not or was not in compliance with any Environmental Law.
4.17 INSURANCE. The business and properties of Parent and each of its
Subsidiaries are insured for the benefit of Parent and each of its Subsidiaries
in amounts deemed adequate by their respective management against risks usually
insured against by Persons operating businesses similar to those of Parent or
such Subsidiaries in the localities where such properties are located. Part 4.17
of the Parent Disclosure Schedule contains a complete and accurate list of all
insurance
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policies held by Parent. Copies of all such policies have been delivered by the
Parent to the Company.
4.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 4.18 of the
Parent Disclosure Schedule or in the Parent Financial Statements: (a) no Parent
Related Party has, and no Parent Related Party has at any time had, any direct
or indirect interest in any material asset used in or otherwise relating to the
business of Parent; (b) no Parent Related Party is, or has at any time been,
indebted to Parent or any of its Subsidiaries nor has Parent or any of its
Subsidiaries been indebted to a Parent Related Party; (c) no Parent Related
Party has entered into, or has had any direct or indirect financial interest in,
any Material Parent Contract, transaction or business dealing involving Parent;
(d) no Parent Related Party is competing, or has at any time competed, directly
or indirectly, with Parent; and (e) no Parent Related Party has any claim or
right against Parent (other than rights to receive compensation for services
performed as an employee of Parent). (For purposes of this Section 4.18, each of
the following shall be deemed to be a "Parent Related Party": (i) each
individual who is, or who has at any time been, an officer or director of Parent
or, directly or indirectly, a holder of ten percent (10%) or more of the equity
securities of Parent; (ii) each individual who is, or who at any time has been,
a member of the immediate family of any of the individuals referred to in clause
"(i)" above; (iii) any trust or other Entity (other than Parent) in which any
one of the individuals referred to in clauses "(i)" and "(ii)" above holds (or
in which more than one of such individuals collectively hold), beneficially or
otherwise, a material voting, proprietary or equity interest); (iv) any entity
which is under common ownership or control with Parent or stockholders holding
ten percent (10%) of the equity securities of Parent; or (v) any entity owned or
controlled by Inamed Corporation or ▇▇▇▇▇▇ Medical Corporation.
4.19 LEGAL PROCEEDINGS; ORDERS. Except as discussed on Part 4.19 of the
Parent Disclosure Schedule, there is no pending Legal Proceeding, and, to the
knowledge of Parent, no Person has threatened to commence any Legal Proceeding
that: (i) may have a Material Adverse Effect on Parent its Subsidiaries or their
business; or (ii) challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of the
other transactions contemplated by this Agreement. To the knowledge of Parent,
no event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such Legal Proceeding. There is no
order, writ, injunction, judgment or decree to which Parent, its Subsidiaries or
any of the material assets owned or used by Parent or its Subsidiaries, is
subject. To the knowledge of Parent, no officer or other employee of Parent or
its Subsidiaries is subject to any order, writ, injunction, judgment or decree
that prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to Parent's or its Subsidiaries'
business. There is no action, suit, proceeding or investigation by Parent or its
Subsidiaries currently pending or which Parent or its Subsidiaries intend to
initiate.
4.20 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the full corporate power and authority to perform their obligations under this
Agreement and the other agreements to be executed by each of them in connection
herewith to which each is party (collectively, "Related Agreements"); the
execution, delivery and performance by Parent and Merger Sub of this Agreement
and the Related Agreements to which each is a party have been duly authorized by
all necessary action on the part of Parent and its Boards of Directors, and the
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execution, delivery and performance of this Agreement and the Related Agreements
to which each is a party by Merger Sub have been duly authorized by all
necessary action on the part of Parent, as the sole shareholder of Merger Sub.
This Agreement and the Related Agreements to which each is a party constitutes
the legal, valid and binding obligation of Parent and Merger Sub, enforceable
against them in accordance with its terms, except as enforcement thereof may be
limited by (i) laws of general application relating to bankruptcy, insolvency
moratorium, reorganization or other similar laws, both state and federal,
affecting the enforcement of creditors' rights or remedies in general, and (ii)
rules of law governing specific performance, injunctive relief and other
equitable remedies.
4.21 NON-CONTRAVENTION; CONSENTS AND NOTICES. Neither (1) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, nor (2) the consummation of the Merger or any of
the other transactions contemplated by this Agreement, will directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of
the provisions of Parent's certificate of incorporation or bylaws;
(b) with respect to Parent, contravene, conflict with or result
in a violation of, or give any Governmental Body or other Person the right to
challenge any of the transactions contemplated by this Agreement or to exercise
any remedy or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which Parent, or any of the material assets
owned or used by Parent, is subject;
(c) with respect to Parent, contravene, conflict with or result
in a violation of any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, any Governmental Authorization that is held
by Parent or that otherwise relates to Parent's business or to any of the
material assets owned or used by Parent;
(d) contravene, conflict with or result in a violation of breach
of, or result in a default under, any provision of any Material Parent Contract,
or give any Person the right to (i) declare a default or exercise any remedy
under any Material Parent Contract, (ii) accelerate the maturity or performance
of any Material Parent Contract, or (iii) cancel, terminate or modify any
Material Parent Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by Parent (except
for minor liens that will not, in any case or in the aggregate, materially
detract from the value of the assets subject thereto or materially impair the
operations of Parent).
Except as may be required by the Securities Act, the Exchange Act, state
securities or "blue sky" laws, and the DGCL, Parent is not, nor will be
required, to make any filing with or give any notice to, or to obtain any
Consent from, any Person in connection with the execution and delivery of this
Agreement or the consummation of the Merger.
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4.22 FULL DISCLOSURE. This Agreement (including the Parent Disclosure
Schedule) does not, (i) contain any representation, warranty or information that
is false or misleading with respect to any material fact, or (ii) omit to state
any material fact necessary in order to make the representations, warranties and
information contained and to be contained herein and therein not false or
misleading.
4.23 FINDER'S FEE. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
or any of the other transactions contemplated thereby based upon arrangements
made by or on behalf of Parent.
SECTION 5
CERTAIN COVENANTS OF THE COMPANY
5.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the earlier of (i) the Effective Time or (ii) termination of
this Agreement (the "Pre-Closing Period"), the Company shall, and shall cause
its Representatives to: (a) provide Parent and Parent's Representatives, at
Parent's expense, with reasonable access to the Company's Representatives,
Personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company and (b)
provide Parent and Parent's Representatives, at Parent's expense, with such
copies of the existing books, records, Tax Returns, work papers and other
documents and information relating to the Company, and with such additional
financial, operating and other data and information regarding the Company, as
Parent or its Representatives may reasonably request.
5.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period,
except as contemplated by or made in connection with this Agreement or consented
to by Parent in writing, the Company shall:
(a) conduct its business and operations in the ordinary course
and in substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use commercially reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and goodwill with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company in each case, in all material respects;
(c) use commercially reasonable efforts to keep in full force all
insurance policies in effect as of the date of this Agreement;
(d) cause its chief executive officer to report regularly (but in
no event less frequently than every two weeks) to Parent concerning the status
of the Company's business;
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(e) not declare, accrue, set aside or pay any dividend or make
any other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities except that the Company may repurchase shares from former service
providers in accordance with the agreements identified in Part 5.2(e) of the
Company Disclosure Schedule in connection with any termination of services
thereunder;
(f) not sell, issue or authorize the issuance of (i) any capital
stock or other security, (ii) any option, call, warrant or right to acquire, or
relating to, any capital stock or other security or (iii) any instrument
convertible into or exchangeable for any capital stock or other security (except
that the Company shall be permitted to issue Company Common Stock upon the
exercise of outstanding Company Options);
(g) not amend or waive any of its rights under, or authorize the
acceleration of vesting under (i) any provision of any agreement evidencing any
outstanding Company Option or (ii) any provision of any restricted stock
purchase agreement;
(h) not amend or permit the adoption of any amendment to the
Company's certificate of incorporation or bylaws, or effect or permit the
Company to become a party to any Company Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(i) not form any Subsidiary or acquire any equity interest or
other interest in any other Entity;
(j) not make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of the Company during the Pre-Closing Period, do not exceed $10,000 in the
aggregate;
(k) not (i) enter into or become bound by, or permit any of the
assets owned or used by it to become bound by, any Material Company Contract, or
(ii) amend or prematurely terminate, or waive any material right or remedy
under, any Material Company Contract;
(l) not (i) acquire, lease or license any material right or other
material asset from any other Person, (ii) sell or otherwise dispose of, or
lease or license, any material right or other material asset to any other Person
except that the Company may sell or license inventory in the ordinary course of
business, or (iii) waive or relinquish any right, except for immaterial assets
acquired, leased, licensed or disposed of by the Company pursuant to Contracts
that are not Material Company Contracts;
(m) not (i) lend money to any Person (other than ordinary
advances for travel and entertainment), or (ii) incur or guarantee any
indebtedness in excess of $10,000;
(n) not (i) pay any bonus or make any profit-sharing or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees except pursuant to agreements in effect on the date
hereof, or (ii) hire any new employee whose aggregate annual compensation is
expected to exceed $50,000;
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(o) not change any of its methods of accounting or accounting
practices in any respect (except as otherwise required by generally accepted
accounting principles or any change therein);
(p) not make any material Tax election except in the ordinary
care of business;
(q) not commence or settle any Legal Proceeding;
(r) except as contemplated by this Agreement, not enter into any
material transaction or take any other material action outside the ordinary
course of business or inconsistent with its past practices; and
(s) not agree or commit to take any of the actions described in
clauses "(e)" through "(r)" of this Section 5.2.
5.3 NOTIFICATION; UPDATES TO COMPANY DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, the Company shall promptly
notify Parent in writing of:
(i) the discovery by the Company of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would cause
or constitute an inaccuracy in or breach of any representation or warranty made
by the Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of the
Company; and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 5.3(a) requires any change in the
Company Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Company Disclosure
Schedule were dated as of the date of the occurrence, existence or discovery of
such event, condition, fact or circumstance, then the Company shall promptly
deliver to Parent an update to the Company Disclosure Schedule specifying such
change. Any such update shall be deemed to be disclosed under the Company
Disclosure Schedule, provided, however, that no such update shall be deemed to
supplement or amend the Company Disclosure Schedule for the purpose of
determining whether any of the conditions set forth in Section 7 has been
satisfied.
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5.4 NO SOLICITATION. Upon the execution of this Agreement, the Company
shall, and shall cause each of its Representatives to, discontinue any ongoing
discussions or negotiations (other than any ongoing discussions with Parent)
relating to a possible Company Acquisition Transaction. During the Pre-Closing
Period, the Company shall not directly or indirectly, and shall not authorize or
permit any Representative of the Company directly or indirectly to, (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
Acquisition Proposal or take any action that could reasonably be expected to
lead to an Acquisition Proposal, (ii) furnish any information regarding the
Company to any Person in connection with or in response to any inquiry, interest
or proposal relating to possible Acquisition Proposal, (iii) continue or engage
in any discussions or negotiations, with any Person with respect to any possible
Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or Contract
contemplating or otherwise relating to any Company Acquisition Transaction. The
Company shall, and shall cause each of its representatives to, promptly provide
Parent with an oral and written description of any expression of interest,
inquiry, proposal or offer relating to a possible Company Acquisition
Transaction that is received by the Company or any of the Company's
representatives from any Person (other than Parent) on or prior to the Effective
Time.
SECTION 6
CERTAIN COVENANTS OF PARENT
6.1 ACCESS AND INVESTIGATION. During the Pre-Closing Period, Parent
shall, and shall cause its Representatives to: (a) provide the Company and the
Company's Representatives, at Company's expense, with reasonable access to
Parent's Representatives, Personnel and assets and to all existing books,
records, Tax Returns, work papers and other documents and information relating
to Parent; and (b) provide the Company and the Company's Representatives, at
Company's expense, with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to Parent, and with
such additional financial, operating and other data and information regarding
Parent, as the Company or its Representatives may reasonably request.
6.2 OPERATION OF PARENT'S BUSINESS. During the Pre-Closing Period,
except as contemplated by or made in connection with this Agreement or consented
to by the Company in writing, Parent shall:
(a) conduct its business and operations in the ordinary course
and in substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use commercially reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and goodwill with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with Parent, in all material respects;
(c) use commercially reasonable efforts to keep in full force all
insurance policies in place as of the date of this Agreement;
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(d) not declare, accrue, set aside or pay any dividend or make
any other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities (other than the surrender of options in connection with terminations
of employment);
(e) not change any of its methods of accounting or accounting
practices in any respect (except as otherwise required by generally accepted
accounting principles or any change therein);
(f) not make any material Tax election except in the ordinary
course of business;
(g) not commence or settle any Legal Proceeding; and
(h) not agree or commit to take any of the actions described in
clauses "(d)" through "(g)" of this Section 6.2.
6.3 NOTIFICATION; UPDATES TO PARENT DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, Parent shall promptly notify
the Company in writing of:
(i) the discovery by Parent of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by Parent in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would cause
or constitute an inaccuracy in or breach of any representation or warranty made
by Parent in this Agreement; if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of Parent;
and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 6.3(a) requires any change in the
Parent Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Parent Disclosure Schedule
were dated as of the date of the occurrence, existence or discovery of such
event, condition, fact or circumstance, then Parent shall promptly deliver to
the Company an update to the Parent Disclosure Schedule specifying such change.
Any such update shall be deemed to be disclosed under the Parent Disclosure
Schedule, provided, however, that no such
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update shall be deemed to supplement or amend the Parent Disclosure Schedule
for the purpose of determining whether any of the conditions set forth in
Section 8 has been satisfied.
6.4 REGULATORY FILINGS. Prior to the Effective Time, Parent shall make
all required filings with state regulatory authorities, and shall ensure that
the Merger Shares will be issued in compliance under the securities or "blue
sky" laws of every jurisdiction of the United States in which any registered
stockholder of the Company has an address of record on the record date for
determining the stockholders entitled to notice of and to vote on the Merger.
6.5 STOCK OPTION PLAN; EMPLOYEE BENEFITS. At the Effective Time, Parent
shall reserve 300,000 shares of Parent Common Stock (the "Reserve Shares") to be
issued pursuant to option grants under Parent's 1998 Stock Compensation Program,
in the form attached hereto as Exhibit I (the "1998 Plan"), to employees and
future employees of Surviving Corporation at the recommendation of the Board of
Directors of the Surviving Corporation. One Hundred Twenty Five Thousand of the
Reserve Shares shall be reserved for issuance to employees of Surviving
Corporation under the 1998 Plan only in the event that Surviving Corporation
receives final U.S. Food and Drug Administration approval of its bone cement
product. Parent shall cause the employee benefits made available to employees of
the Surviving Corporation to be substantially equivalent to employee benefits
made available to similarly situated employees of Parent and Parent's other
subsidiaries.
6.6 REORGANIZATION. Neither Parent nor Merger Sub will, either before or
after the Effective Time, take any action or fail to take any action if such
action or failure to act could reasonably be expected to cause the Merger to
fail to qualify as a "reorganization" within the meaning of Section 368 of the
Code or materially increase the risk thereof other than actions expressly
contemplated by this Agreement.
6.7 LOAN. At or within five business days following the Closing, Parent
will loan to Surviving Corporation $200,000 pursuant to the Funding Commitment
Letter, a form of which is attached hereto on Exhibit F.
SECTION 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties made
by the Company in this Agreement and in each of the other agreements and
instruments entered into and delivered by the Company to Parent in connection
with the transactions contemplated by this Agreement shall have been accurate in
all material respects as of the date of this Agreement, and shall be accurate in
all material respects as of the Closing Date as if made at the Closing Date
(without giving effect to any update to the Company Disclosure Schedule except
as to matters previously approved by Parent in writing).
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7.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that the
Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all respects.
7.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on the Company and there shall not
have occurred any change or development, or any combination of changes or
developments, that would reasonably be expected to have a Material Adverse
Effect on the Company.
7.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to Parent a
certificate of the Chief Executive Officer of the Company evidencing compliance
with the conditions set forth in Sections 7.1, 7.2 and 7.3.
7.5 STOCKHOLDER APPROVAL. The stockholders of the Company shall have
approved this Agreement and the Merger in accordance with and as required by the
DGCL.
7.6 CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Consents identified in Part 3.21 of the Company Disclosure Schedule) shall
have been obtained and shall be in full force and effect.
7.7 LEGAL OPINION. Parent shall have received a legal opinion of
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP in the form of
Exhibit C, dated as of the Closing Date;
7.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.9 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Proceeding in which a Governmental Authority is or is threatened to become a
party: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the transactions contemplated thereby; (b) relating to the
Merger and seeking to obtain from Parent or the Company any damages that may be
material to Parent or the Company; (c) seeking to prohibit or limit in any
material respect Parent's ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of the Surviving
Corporation; or (d) which would materially and adversely affect the right of
Parent or the Surviving Corporation to own the assets or operate the business of
the Company.
7.10 NO OTHER LITIGATION. There shall not be pending any Proceeding in
which there is a reasonable possibility of an outcome that would have a Material
Adverse Effect on Parent or the Company by: (a) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the transactions
contemplated thereby; (b) relating to the Merger and seeking to obtain from
Parent or the Company any damages that may be material to Parent or the Company;
(c) seeking to prohibit or limit in any material respect Parent's ability to
vote, receive dividends with respect to or otherwise exercise ownership rights
with respect to the stock of the Surviving
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Corporation; or (d) which would affect adversely the right of Parent or the
Surviving Corporation to own the assets or operate the business of the Company.
7.11 CONTINUITY OF INTEREST CERTIFICATES. Company shall use commercially
reasonable efforts to deliver or cause to be delivered to counsel for Parent and
Company prior to the Effective Time, from each stockholder of the Company, a
Continuity of Interest Certificate in the form attached hereto as Exhibit J.
7.12 DISSENTING SHARES. Holders of not more than ten percent (10%) of
the Company's outstanding capital stock shall have not voted in favor of the
Merger.
SECTION 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
8.1 ACCURACY OF REPRESENTATIONS. The representations and warranties made
by Parent and Merger Sub in this Agreement and in each of the other agreements
and instruments delivered entered into and by Parent or Merger Sub to the
Company in connection with the transactions contemplated by this Agreement shall
have been accurate in all material respects as of the date of this Agreement,
and shall be accurate in all material respects as of the Closing Date as if made
at the Closing Date (without giving effect to any update to the Parent
Disclosure Schedule except as to matters previously approved by the Company in
writing).
8.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that Parent
and/or Merger Sub is required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all respects.
8.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on Parent and there shall not have
occurred any change or development, or any combination of changes or
developments, that would reasonably be expected to have a Material Adverse
Effect on Parent.
8.4 COMPLIANCE CERTIFICATE. Parent shall have delivered to the Company a
certificate of the Chief Executive Officer of Parent evidencing compliance with
the conditions set forth in Sections 8.1, 8.2 and 8.3.
8.5 STOCKHOLDER APPROVAL. The stockholders of the Company, if necessary,
shall have approved this Agreement and the Merger in accordance with and as
required by the DGCL.
8.6 CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Consents identified in Part 4.21 of the Parent Disclosure Schedule) shall
have been obtained and shall be in full force and effect.
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8.7 LEGAL OPINION. The Company shall have received a legal opinion of
Nida & ▇▇▇▇▇▇▇, P.C., dated as of the Closing Date, in the form of Exhibit D.
8.8 REGISTRATION RIGHTS. Parent and the stockholders of the Company
shall have executed and delivered a Registration Rights Agreement, dated as of
the Closing Date, in the form of Exhibit E.
8.9 FUNDING COMMITMENT LETTER. Parent shall have executed and delivered
a Funding Commitment Letter in favor of the Surviving Corporation, dated as of
the Closing Date, in the form of Exhibit F.
8.10 STOCK OPTION PLAN. Parent shall have adopted the 1998 Plan.
8.11 PREISSMAN EMPLOYMENT AGREEMENT. The Surviving Corporation and
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall have executed and delivered an Employment Agreement,
dated as of the Closing Date, in the form of Exhibit H.
8.12 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
8.13 NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Proceeding in which a Governmental Authority is or is threatened
to become a party: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby; (b)
relating to the Merger and seeking to obtain from Parent or the Company any
damages that may be material to Parent or the Company; (c) seeking to prohibit
or limit in any material respect Parent's ability to vote, receive dividends
with respect to or otherwise exercise ownership rights with respect to the stock
of the Surviving Corporation; or (d) which would materially and adversely affect
the right of Parent or the Surviving Corporation to own the assets or operate
the business of the Company.
8.14 NO OTHER LITIGATION. There shall not be pending any Proceeding in
which there is a reasonable possibility of an outcome that would have a Material
Adverse Effect on Parent or the Company: (a) challenging or seeking to restrain
or prohibit the consummation of the Merger or any of the transactions
contemplated thereby; (b) relating to the Merger and seeking to obtain from
Parent or the Company any damages that may be material to Parent or the Company;
(c) seeking to prohibit or limit in any material respect Parent's ability to
vote, receive dividends with respect to or otherwise exercise ownership rights
with respect to the stock of the Surviving Corporation; or (d) which would
affect adversely the right of Parent or the Surviving Corporation to own the
assets or operate the business of the Company.
8.15 CERTIFICATE OF DESIGNATION. Parent shall have authorized and filed
with the Secretary of State of the State of Delaware the Certificate of
Designation attached hereto as Exhibit K.
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8.16 DISSENTING SHARES. Holders of not more than ten percent (10%) of
the Company's outstanding capital stock shall have not voted in favor of the
Merger.
SECTION 9
TERMINATION
9.1 TERMINATION. This Agreement may be terminated prior to the Effective
Date:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have
been consummated within sixty (60) days of the date hereof (unless the failure
to consummate the Merger is attributable to a failure on the part of the party
seeking to terminate this Agreement to perform any material obligation required
to be performed by such party at or prior to the Effective Date);
(c) by either Parent or the Company if a court of competent
jurisdiction or other Governmental Body shall have issued a final and
nonappealable order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger;
(d) by either Parent or the Company if this Agreement is not
approved by the stockholders of the Company; or
(e) by such party if any of the other party's representations and
warranties contained in this Agreement shall be or shall have become materially
inaccurate, or if any of the other party's covenants contained in this Agreement
shall have been breached in any material respect; provided, however, that if an
inaccuracy in a party's representations and warranties or a breach of a covenant
by a party is curable by such party and such party is continuing to exercise all
reasonable efforts to cure such inaccuracy or breach, then the breaching party
shall have thirty (30) days from the time of receipt of written notice from the
nonbreaching party of such breach or inaccuracy to cure such breach and if it is
not cured within such thirty (30) day period, the nonbreaching party may
terminate this Agreement under this Section 9.1(e) on account of such inaccuracy
or breach.
9.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 9.1, this Agreement shall be of no further
force or effect; provided, however, that (i) this Section 9.2, Section 9.3,
Section 10 and Section 11.16 shall survive the termination of this Agreement and
shall remain in full force and effect, and (ii) the termination of this
Agreement shall not relieve any party from any liability for any breach of this
Agreement.
9.3 FEES AND EXPENSES. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred in the future by such party in
connection with the transactions contemplated by this Agreement, including all
fees, costs and expenses incurred by such party in connection with or by virtue
of (a) the investigation and review conducted by such party (or its
Representatives) with respect to the other party's business (and the furnishing
of information to the other party and its
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Representatives in connection with such investigation and review), (b) the
negotiation, preparation and review of this Agreement and all agreements,
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with the transactions contemplated by this Agreement,
(c) the preparation and submission of any filing or notice required to be made
or given in connection with any of the transactions contemplated by this
Agreement, and the obtaining of all Consents and Governmental Authorizations
required to be obtained in connection with any of such transactions, and (d) the
consummation of the Merger, provided however, that the fees and expenses of
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, ▇.▇. not to exceed
$80,000, shall be paid within five (5) business days of Closing by Surviving
Corporation.
SECTION 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
10.1 SURVIVAL OF COMPANY REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Company herein (including the
representations and warranties set forth in Section 3 or contained in the
certificate delivered by an officer of the Company pursuant to Section 7.4)
shall survive the Closing and shall expire on the first anniversary of the
Closing Date (the "Expiration Date"); provided, however, that if, at any date
prior to the Expiration Date, Parent delivers to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (the
"Stockholders' Agent") a written notice alleging the existence of an inaccuracy
in or a breach of any of the representations or warranties made by the Company
(and setting forth in reasonable detail the basis for Parent's belief that such
an inaccuracy or breach may exist) and asserting a claim for recovery under
Section 10.3 based on such alleged inaccuracy or breach, then the claim asserted
in such notice shall survive the Expiration Date until such date as such claim
is fully and finally resolved. The representations, warranties, covenants and
obligations of the Company and the rights and remedies that may be exercised by
Parent shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, the
Parent; provided, however, that there shall be no liability for any matter
disclosed to Parent pursuant to Section 5.3 and which Parent expressly waives in
writing as a condition to closing. For purposes of this Agreement, each
statement or other item of information set forth in the Company Disclosure
Schedule or any update to the Company Disclosure Schedule shall be deemed to be
a representation and warranty made by the Company in this Agreement.
10.2 SURVIVAL OF PARENT AND MERGER SUB REPRESENTATIONS AND WARRANTIES.
The representations and warranties made by Parent and Merger Sub herein
(including the representations and warranties set forth in Section 4 or
contained in any certificate delivered by an officer of Parent) shall survive
the Closing and shall expire on the Expiration Date; provided however, that if,
at any date prior to the Expiration Date, the Company delivers to Parent a
written notice alleging the existence of an inaccuracy in or a breach of any of
the representations or warranties made by Parent or Merger Sub (and setting
forth in reasonable detail the basis for the Company's belief that such an
inaccuracy or breach may exist) and asserting a claim for recovery under Section
10.4 based on such alleged inaccuracy or breach, then the claim asserted in such
notice shall survive the Expiration Date until such date as such claim is fully
and finally resolved. The representations, warranties, covenants and obligations
of the Parent and Merger Sub and the rights and remedies that may be exercised
by the Company, shall not be limited or otherwise
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60
affected by or as a result of any information furnished to, or any investigation
made by or knowledge of, the Company; provided, however, that there shall be no
liability for any matters disclosed to the Company pursuant to Section 6.3 and
which the Company expressly waives in writing as a condition to closing. For
purposes of this Agreement, each statement or other item of information set
forth in the Parent Disclosure Schedule or in any update to the Parent
Disclosure Schedule shall be deemed to be a representation and warranty made by
Parent and Merger Sub in this Agreement.
10.3 INDEMNIFICATION BY THE COMPANY STOCKHOLDERS. Subject to the
limitations contained in Section 10.1, and Section 10.6, from and after the
Effective Time, pursuant to the terms and conditions of the Escrow Agreement and
as set forth herein, the Company Stockholders shall hold harmless and indemnify
Parent and Merger Sub from and against, and shall compensate and reimburse
Parent for, any Damages which are directly suffered or incurred by Parent or
Merger Sub (regardless of whether or not such Damages relate to any Third Party
Claim) and which arise from or as a result of, or are directly connected with
any inaccuracy in or breach of any representation or warranty made by the
Company in this Agreement (including Section 3) or contained in the certificate
delivered by an officer of the Company pursuant to Section 7.4.
10.4 INDEMNIFICATION BY PARENT AND MERGER SUB. Subject to the
limitations contained in Sections 10.2 and Section 10.6, from and after the
Effective Time, Parent shall hold harmless and indemnify the Company and the
Company Stockholders from and against, and shall compensate and reimburse the
Company and the Company Stockholders for any Damages which are directly suffered
or incurred by the Company Stockholders (regardless of whether or not such
Damages relate to any Third Party Claim) and which arise from or as a result of,
or are directly connected with any inaccuracy in or breach of any representation
or warranty made by Parent or Merger Sub in this Agreement (including Section 4)
or contained in the certificate delivered by an officer of Parent pursuant to
Section 8.4.
10.5 NOTICE; DEFENSE OF CLAIM.
(a) If any party entitled to indemnification under Section 10.3
or Section 10.4 (which for purposes of this Section 10.5 shall include the
Surviving Corporation and Parent) (the "Indemnified Party") shall receive notice
or otherwise learn of the assertion by any other Person of any claim or of the
commencement by any such Person of any action (a "Third Party Claim") with
respect to which a party may be obligated to provide indemnification pursuant to
Section 10.3 or Section 10.4 (the "Indemnifying Party"), such Indemnified Party
shall give written notice thereof to the Indemnifying Party within ten (10)
business days after becoming aware of such Third Party Claim (provided, that any
notice to the Company Stockholders shall be provided to the Stockholders' Agent)
(the "Indemnification Notice"); provided, however, that the failure of any
Indemnified Party to give notice as provided in this Section 10.5 shall not
relieve the Indemnifying Party of its obligations under Section 10.3 or Section
10.4, as the case may be, except to the extent that the Indemnifying Party
actually is prejudiced by such failure to give notice. Such notice shall
describe the Third Party Claim in reasonable detail, and shall indicate the
amount of the Damages that has been paid or reasonably expects to pay or incur
(in accordance with GAAP) by such Indemnified Party. Thereafter, such
Indemnified Party shall deliver to the Indemnifying Party within 5 business days
after the Indemnified Party's receipt
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thereof, copies of all notices and documents received by the Indemnified Party
relating to the Third Party Claim (including court papers).
(b) If, promptly after receipt by the Indemnifying Party of
notice of any Third Party Claim as provided in Section 10.5(a), the Indemnifying
Party shall give written notice to the Indemnified Party stating that it intends
to assume the defense thereof, at its own cost, then the defense of such Third
Party Claim, including selection of counsel reasonably satisfactory to the
Indemnified Party, shall be by the Indemnifying Party and the Indemnified Party
shall make no payment on such Third Party Claim as long as the Indemnifying
Party is conducting a good faith and diligent defense. The Indemnified Party
shall make available all information and assistance that the Indemnifying Party
may reasonably request and shall cooperate with the Indemnifying party in such
defense. Notwithstanding the foregoing, the Indemnified Party shall at all times
have the right to fully participate in such defense at its own expense directly
or through counsel. If no such notice to assume the defense against a Third
Party Claim is received by the Indemnified Party from the Indemnifying Party,
the Indemnified Party shall, at the expense of the Indemnifying Party, undertake
the defense of such Third Party Claim, with counsel selected by the Indemnified
Party, and shall have the right to compromise or settle the same exercising
reasonable judgment.
(c) No Third Party Claim made against any Indemnified Party shall
be settled without the prior written consent of the Indemnifying Party.
10.6 FURTHER LIMITATIONS ON INDEMNIFICATION. Notwithstanding the
foregoing, the right to indemnification under this Section 10 shall be subject
to the following:
(a) No Indemnifying Party shall have liability under Section 10.3
or Section 10.4 except to the extent that the Damages exceed $50,000 in the
aggregate, in which event the Indemnifying Party shall be liable for all
Damages.
(b) No indemnification shall be payable pursuant to Sections 10.3
or 10.4, as the case may be, after the Expiration Date, except for claims for
Damages made prior to the Expiration Date but not then resolved.
(c) Parent shall be entitled to offset the amount of any Damages
incurred by Parent pursuant to Section 10.3. Any such offset for Damages under
this Section 10.6(c) shall be effected by the cancellation of that number of
Merger Shares in the Escrow Fund. For purposes of determining the number of
Merger Shares to be delivered to Parent out of the Escrow Fund, the Merger
Shares will be valued at $7.50 per share (as adjusted for stock splits,
combinations, recapitalizations or similar events).
(d) The limitations of Sections 10.1, 10.2 and 10.6(a) shall not
apply to any claim for Damages that are determined by a court of competent
jurisdiction in a proceeding from which no further appeal is permitted to be
taken to have been primarily caused by fraud or intentional misrepresentation or
intentional breach of any party.
(e) In determining the amount of any indemnity under Section 10.3
or 10.4, the Damages shall be reduced (including, without limitation,
retroactively) by any insurance proceeds, tax benefit or other similar recovery
or offset realized, directly or indirectly, by the
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Indemnified Party actually recovered by or on behalf of such Indemnified Party
in reduction of the loss giving rise to the claim for Damages.
(f) The rights of Parent to make claims upon the Escrow Fund in
accordance with this Section 10 shall be the sole and exclusive remedy of Parent
after the Closing with respect to any representation, warranty, covenant or
agreement made by the Company under this Agreement and no former stockholder,
optionholder, warrantholder, director, officer, employee or agent of the Company
shall have any personal liability to Parent or the Surviving Corporation after
the Closing in connection with the Merger.
10.7 STOCKHOLDERS' AGENT.
(a) The Stockholder's Agent shall be constituted and appointed as
agent for and on behalf of the Company Stockholders to give and receive notices
and communications, to authorize delivery to Parent of the Merger Shares or
other property from the Escrow Fund in satisfaction of claims by Parent, to
object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Stockholders' Agent for the
accomplishment of the foregoing. Such agency may be changed by the holders of a
majority in interest of the Merger Shares in the Escrow Fund from time to time
upon not less than ten (10) days' prior written notice to Parent. The
Stockholders' Agent may resign upon thirty (30) days notice to the parties to
this Agreement and the Company Stockholders. No bond shall be required of the
Stockholders' Agent, and the Stockholders' Agent shall receive no compensation
for his services. Notices or communications to or from the Stockholders' Agent
shall constitute notice to or from each of the Company Stockholders.
(b) The Stockholders' Agent shall not be liable for any act done
or omitted hereunder as Stockholders' Agent while acting in good faith and in
the exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Company
Stockholders shall severally indemnify the Stockholders' Agent and hold him
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Stockholders' Agent shall have reasonable access to
information about Parent and Surviving Corporation and the reasonable assistance
of Parent and Surviving Corporation's officers and employees for purposes of
performing its duties and exercising its rights hereunder, provided that the
Stockholders' Agent shall treat confidentially and not disclose any nonpublic
information from or about Parent and Surviving Corporation to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
10.8 ACTIONS OF THE STOCKHOLDERS' AGENT. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all
Company Stockholders for whom Merger Shares otherwise issuable to them are
deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of the Company Stockholders, and the Escrow Agent and Parent may rely upon
any decision, act, consent or instruction of the Stockholders' Agent as being
the decision, act, consent or instruction of each and every Company Stockholder.
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SECTION 11
MISCELLANEOUS PROVISIONS
11.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
11.2 ATTORNEYS' FEES. Subject to Section 9.3, if any action at law or
suit in equity to enforce this Agreement or the rights of any of the parties
hereunder is brought against any party hereto, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
11.3 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent or Merger Sub:
Medical Device Alliance, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chairman of the Board
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and
Medical Device Alliance, Inc.
▇▇ ▇▇▇▇▇▇'▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice):
Nida and ▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: C. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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if to the Company or Stockholders' Agent:
Parallax Medical, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice):
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
11.4 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
11.5 GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
11.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall be enforceable by and inure solely to the benefit of, the parties hereto
and their successors and assigns; provided, however, that this Agreement may not
be assigned by any party without the written consent of the other parties, and
any attempted assignment without such consent shall be void and of no effect.
None of the provisions of this Agreement are intended to provide any rights or
remedies to any Person other than the parties hereto and their respective
successors and assigns, if any, and the Company Stockholders and holders of
Company Options with respect to their right to receive Parent securities
pursuant to Section 2.5 and under Section 6.7.
11.7 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
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11.8 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
11.9 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
11.10 DISCLOSURE SCHEDULES. The disclosure schedules shall be arranged
in separate parts corresponding to the numbered and lettered sections contained
in Section 3 or in Section 4, as the case may be, and the information disclosed
in any numbered or lettered part shall be deemed to relate to and to qualify
only the particular representation and warranty set forth in the corresponding
numbered or lettered section in Section 3 or in Section 4, as the case may be,
and shall not be deemed to relate to or to qualify any other representation or
warranty.
11.11 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and, supersede all prior and contemporaneous
agreements and understandings among or between any of the parties relating to
the subject matter hereof.
11.12 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
11.13 HEADINGS. The bold-faced section headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.
11.14 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one and
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the same instrument. Signatures may be exchanged by telecopy, with original
signatures to follow. Each of the parties hereto agrees that it will be bound by
its own telecopied signature and that it accepts the telecopied signatures of
the other parties to this Agreement. The original signature pages shall be
forwarded to Parent or its counsel and Parent and its counsel will provide all
of the parties hereto with a copy of the entire Agreement.
11.15 CONFIDENTIALITY. The parties acknowledge that Parent and Company have
previously executed a Confidentiality Disclosure Agreement, dated June 3, 1998,
which Confidentiality Disclosure Agreement shall continue in full force and
effect in accordance with its terms.
The parties hereto have caused this Agreement to be executed and
delivered as of July ____, 1998.
MEDICAL DEVICE ALLIANCE, INC.,
a Nevada corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman of the Board
PX ACQUISITION CORP., a Delaware
corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman of the Board
PARALLAX MEDICAL, INC., a Delaware
corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
President
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EXHIBIT B
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
Directors
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Officers
Chairman of the Board --- ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer --- ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
President --- ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Treasurer and Secretary --- ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
68
EXHIBIT C
FORM OF OPINION OF ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
2
69
EXHIBIT D
FORM OF OPINION OF NIDA & ▇▇▇▇▇▇▇
3
70
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
4
71
EXHIBIT F
FORM OF FUNDING COMMITMENT LETTER
5
72
EXHIBIT G
FORM OF ESCROW AGREEMENT
6
73
EXHIBIT H
FORM OF PREISSMAN EMPLOYMENT AGREEMENT
7
74
EXHIBIT I
1998 PLAN
8
75
EXHIBIT J
FORM OF CONTINUITY OF INTEREST CERTIFICATE
9
76
EXHIBIT K
FORM OF CERTIFICATE OF DESIGNATION
10
77
PARENT DISCLOSURE SCHEDULE
11
78
COMPANY DISCLOSURE SCHEDULE
12