1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMERICAN MEDICAL SYSTEMS, INC.
PERSUADE MERGER CORP.
INFLUENCE, INC.
▇▇▇▇▇▇▇▇▇ ENGINEERING LTD.
UROTEK LTD.
KATSUMI ONEDA
AND
▇▇▇▇▇ ▇. ▇▇▇▇
DATED AS OF NOVEMBER 12, 1999
2
TABLE OF CONTENTS
ARTICLE 1...................................................................................................1
1.1 Definitions.........................................................................................1
ARTICLE 2...................................................................................................7
2.1 The Merger..........................................................................................7
2.2 Effective Time......................................................................................7
2.3 Closing of the Merger...............................................................................8
2.4 Effects of the Merger...............................................................................8
2.5 Certificate of Incorporation and Bylaws.............................................................8
2.6 Directors...........................................................................................8
2.7 Officers............................................................................................8
2.8 Merger Consideration................................................................................8
2.9 Cancellation and Conversion of Company Securities at the Effective Time............................10
2.10 Contingent Merger Consideration....................................................................11
2.11 Dissenting Shares..................................................................................16
2.12 Escrow Procedure; Exchange of Certificates.........................................................17
2.13 Contributions at Closing...........................................................................19
ARTICLE 3..................................................................................................19
3.1 Corporate Organization and Power...................................................................20
3.2 Authorization......................................................................................20
3.3 Capitalization of the Company......................................................................21
3.4 Non-Contravention..................................................................................22
3.5 Consents and Approvals.............................................................................22
3.6 Financial Statements; Undisclosed Liabilities......................................................23
3.7 Absence of Certain Changes.........................................................................24
3.8 Assets and Properties..............................................................................25
3.9 Manufacturing Compliance...........................................................................25
3.10 Inventories........................................................................................25
3.11 Receivables and Payables...........................................................................26
3.12 Litigation.........................................................................................27
3.13 Contracts..........................................................................................27
3.14 Permits............................................................................................29
3.15 Compliance with Applicable Laws....................................................................29
3.16 Benefit Plans......................................................................................29
3.17 Labor and Employment Matters.......................................................................32
3.18 Israeli Labor Matters..............................................................................33
3.19 Intellectual Property..............................................................................34
3.20 Environmental Compliance...........................................................................35
3.21 Insurance..........................................................................................37
3.22 Tax Matters........................................................................................37
3.23 Grants, Incentives and Subsidies...................................................................39
3.24 Year 2000..........................................................................................40
3.25 Bank Accounts; Powers of Attorney..................................................................40
3.26 Orders, Commitments and Returns....................................................................40
3.27 Product Liability Claims...........................................................................40
i
3
3.28 Warranties.........................................................................................41
3.29 Relations with Suppliers and Customers.............................................................41
3.30 Absence of Certain Business Practices..............................................................41
3.31 Brokers............................................................................................42
3.32 Minute Books.......................................................................................42
3.33 Business Generally.................................................................................42
3.34 Irrevocable Proxies................................................................................42
3.35 Voting Agreement...................................................................................42
ARTICLE 4..................................................................................................43
4.1 Corporate Existence and Power......................................................................43
4.2 Authorization......................................................................................43
4.3 Consents and Approvals.............................................................................43
4.4 Acquisition of Company Common Stock for Investment.................................................44
4.5 Available Capital Resources........................................................................44
4.6 No Additional Representations or Warranties........................................................44
4.7 Disclosure.........................................................................................44
4.8 Non-Contravention..................................................................................45
4.9 Brokers............................................................................................45
ARTICLE 5..................................................................................................45
5.1 Conduct of the Business............................................................................45
5.2 Company's Agreements as to Specified Matters.......................................................45
5.3 Full Access to Parent..............................................................................47
5.4 Confidentiality....................................................................................47
5.5 Filings; Consents; Removal of Objections...........................................................48
5.6 Further Assurances; Cooperation; Notification......................................................48
5.7 Approval of Stockholders...........................................................................49
5.8 No Solicitation....................................................................................49
5.9 Supplements to Disclosure Schedule.................................................................49
5.10 Sale of Certain Assets of ENT Business and German Subsidiary......................................49
5.11 Public Announcements...............................................................................50
5.12 Preparation of Tax Returns; Tax Matters............................................................50
5.13 Severance Benefits.................................................................................53
5.14 Exchange of Stock..................................................................................53
ARTICLE 6..................................................................................................53
6.1 Representations and Warranties True................................................................53
6.2 Performance........................................................................................53
6.3 Required Approvals and Consents....................................................................54
6.4 No Proceeding or Litigation........................................................................54
6.5 Legislation........................................................................................54
6.6 Certificates.......................................................................................54
6.7 Opinions of Company Counsel........................................................................54
6.8 Escrow Agreement...................................................................................54
6.9 Employment Agreements..............................................................................54
6.10 ▇▇▇▇ Consulting Agreement..........................................................................54
6.11 ▇▇▇▇▇▇ Consulting Agreement........................................................................54
6.12 Sale of ENT Business and German Subsidiary.........................................................55
ii
4
6.13 Dissenting Shares..................................................................................55
6.14 Resignation and Release............................................................................55
6.15 Voting Agreement...................................................................................55
6.16 J & J Agreements...................................................................................55
6.17 Cancellation of Options............................................................................55
6.18 1998 and 1999 Financial Statements.................................................................55
6.19 Interim Financial Statements.......................................................................55
6.20 Jessco Agreement...................................................................................55
6.21 Yozma Agreement....................................................................................55
6.22 SLP Agreement......................................................................................55
6.23 Service Agreements.................................................................................56
6.24 Employee Loan......................................................................................56
6.25 1998 Tax Return....................................................................................56
6.26 Transfer of IMT Subsidiary Stock...................................................................56
6.27 Intellectual Property Transfer Agreement...........................................................56
ARTICLE 7..................................................................................................56
7.1 Representations and Warranties True................................................................56
7.2 Performance........................................................................................57
7.3 Corporate Approvals................................................................................57
7.4 No Proceeding or Litigation........................................................................57
7.5 Legislation........................................................................................57
7.6 Certificates.......................................................................................57
7.7 Opinion of Parent Counsel..........................................................................57
7.8 Escrow Agreement...................................................................................57
7.9 Dissenting Shares..................................................................................57
ARTICLE 8..................................................................................................58
8.1 Methods of Termination.............................................................................58
8.2 Procedure Upon Termination.........................................................................58
8.3 Effect of Termination..............................................................................59
8.4 Reimbursement of Expenses..........................................................................59
ARTICLE 9..................................................................................................59
9.1 Survival...........................................................................................59
9.2 Indemnification by Parent..........................................................................60
9.3 Indemnification by Principal Stockholders..........................................................60
9.4 Claims for Indemnification.........................................................................61
9.5 Indemnification Limits.............................................................................62
9.6 Right of Off-Set...................................................................................63
9.7 Release of Prior Claims............................................................................63
9.8 Principal Stockholder's Right of Contribution......................................................63
ARTICLE 10.................................................................................................63
10.1 Dispute............................................................................................63
10.2 Mediation..........................................................................................64
10.3 Arbitration........................................................................................64
ARTICLE 11.................................................................................................65
11.1 Notices............................................................................................65
11.2 Amendments; No Waivers.............................................................................66
iii
5
11.3 Expenses...........................................................................................66
11.4 Successors and Assigns.............................................................................67
11.5 Governing Law......................................................................................67
11.6 Counterparts; Effectiveness........................................................................67
11.7 Entire Agreement...................................................................................67
11.8 Captions...........................................................................................67
11.9 Severability.......................................................................................67
11.10 Construction.......................................................................................67
11.11 Cumulative Remedies................................................................................68
11.12 Third Party Beneficiaries..........................................................................68
11.13 Appointment of Stockholders'Representatives; Enforcement of Rights, Benefits and Remedies..........68
iv
6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
November 12, 1999, is by and among American Medical Systems, Inc., a Delaware
corporation ("Parent"), Persuade Merger Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Subsidiary"), and Influence, Inc., a
Delaware corporation ("Company"), and ▇▇▇▇▇▇▇▇▇ Engineering Ltd., an Israeli
company, Urotek Ltd., an Israeli company, Katsumi Oneda, an individual residing
in the State of New Jersey, and ▇▇▇▇▇ ▇. ▇▇▇▇, an individual residing in the
State of New York (collectively referred to herein as the "Principal
Stockholders").
WHEREAS, the Board of Directors of each of the Company, Parent and
Merger Subsidiary have (i) determined that the Merger (as defined below) is fair
and in the best interests of their respective stockholders and (ii) approved the
Merger of Merger Subsidiary with and into the Company, with the Company
surviving, in accordance with the terms and conditions of this Agreement.
WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent, Merger Subsidiary and
the Principal Stockholders hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings:
"Affiliate" means, with respect to any Person, (a) any Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with such other Person, through the ownership of all or part of any
Person, or (b) any Person who may be deemed to be an "affiliate" under Rule 145
of the Securities Act of 1933, as amended.
"Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local common law or duty, caselaw or ruling, statute,
law, ordinance, policy, guidance, rule, administrative interpretation,
regulation, code, order, writ, injunction, directive, judgment, decree or other
requirement of any Governmental Authority (including any Environmental, Safety
and Health Laws) applicable to such Person or any of its Affiliates or Plan
Affiliates or any of their respective properties, assets, officers, directors,
employees, consultants or agents (in connection with such officer's, director's,
employee's, consultant's or agent's activities on behalf of such Person or any
of its Affiliates or Plan Affiliates).
"Benefit Plan" means all Pension Plans, Welfare Plans and Compensation
Plans.
7
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Minneapolis, Minnesota are authorized or required
by law to close.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, as set forth in Section 4980B of the Code, part 6 of Title I
of ERISA and applicable regulations issued thereunder.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Company" means, unless the context otherwise specifically requires,
the Company and its consolidated Subsidiaries.
"Company Common Stock" means the common stock, par value $0.001 per
share, of the Company.
"Company Preferred Stock" means the Series A Convertible Preferred
Stock, par value $0.01 per share, of the Company.
"Company Stock Option Plans" means the Company's 1998 Long-Term
Incentive Plan and the Company's 1995 Stock Option Plan.
"Compensation Plan" means any material benefit or arrangement that is
not either a Pension Plan or a Welfare Plan, including, without limitation, (a)
each employment or consulting agreement, (b) each arrangement providing for
insurance coverage or workers' compensation benefits, (c) each bonus, incentive
bonus or deferred bonus arrangement, (d) each arrangement providing termination
allowance, severance or similar benefits, (e) each equity compensation plan, (f)
each current or deferred compensation agreement, arrangement or policy, and (g)
each compensation policy and practice maintained by the Company or any ERISA
Affiliate of the Company covering the employees, former employees, directors and
former directors of the Company and the beneficiaries of any of them.
"Contingent Merger Consideration" shall have the meaning set forth in
Section 2.8(c).
"Contracts" means all contracts, agreements, options, leases, licenses,
sales and accepted purchase orders, commitments and other instruments of any
kind, whether written or oral, to which the Company is a party on the Closing
Date, including the Scheduled Contracts.
"Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement (net of
insurance proceeds actually received or accrued and net of any tax effect
arising out of any of the foregoing), including, but not limited to, (a)
interest on cash disbursements in respect of any of the foregoing at the
Reference Rate in effect from time to time from the date each such cash
disbursement is made until the Person incurring the same shall have been
indemnified in respect thereof, and (b) reasonable costs, fees and expenses of
attorneys, accountants, bankers and other agents of the Person incurring such
expenses.
2
8
"Environmental, Safety and Health Laws" means all Applicable Laws in
any way relating to Environmentally Regulated Materials, toxic torts,
occupational health and safety, or the environment, including, without
limitation, the Safe Drinking Water and Toxic Enforcement Act ("Proposition
65"), the Federal Resource Conservation and Recovery Act ("RCRA"), the Federal
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"),
the Federal Clean Air Act, the Federal Water Pollution Control Act, the Federal
Safe Drinking Water Act, the Federal Toxic Substances Control Act ("TSCA"), the
Federal National Environmental Policy Act, the Federal Insecticide Fungicide and
Rodenticide Act, the Federal Emergency Planning and Community Right to Know Act,
the Federal Hazard Communication Act, the Federal Occupational Safety and Health
Act, any requirements promulgated pursuant to these Applicable Laws, amendments,
or restatements thereof or similar enactments thereof, as is now or at any time
hereafter may be in effect, or any analogous foreign, state or local Applicable
Laws.
"Environmental Liabilities" means all Liabilities of a Person (whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties, or otherwise) whether currently in existence or arising hereafter which
arise under or relate to any Environmental Law.
"Environmentally Regulated Material" means any element, compound,
waste, pollutant, contaminant, substance, material or any mixture thereof: (a)
the presence of which requires investigation or remediation under any Applicable
Law; (b) that is defined as a "hazardous waste" or "hazardous substance," or
chemicals known to cause cancer or reproductive toxicity under any Applicable
Law; (c) that is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic or mutagenic or otherwise hazardous and is regulated
by any Governmental Authority having or asserting jurisdiction over the Company;
(d) the presence of which causes a nuisance, trespass or other tortious
condition; (e) the presence of which poses a hazard to the health or safety of
Persons; (f) without limitation, that contains gasoline, diesel fuel or other
petroleum hydrocarbons, polychlorinated biphenols (PCBs) or asbestos, (g) that
gives rise to any exposure prohibition or warning requirement under any
Environmental Law; or (h) that is otherwise regulated in any way under any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of any Person means any other Person that, together
with such Person as of the relevant measuring date under ERISA or the Code, was
or is required to be treated as a single employer under Section 414 of the Code
or Section 4001(b)(1) of ERISA.
"Escrow Agent" shall have the meaning set forth in Section 2.12.
"Escrow Agreement" means the agreement to be entered into by and among
Parent, the Company, the Principal Stockholders and the Escrow Agent, pursuant
to which a portion of the Initial Merger Consideration will be held in escrow in
accordance with Section 2.10(e).
"Exchange Agent" shall have the meaning set forth in Section 2.12.
"FDA" means the United States Food and Drug Administration.
"GAAP" means generally accepted accounting principles in the United
States.
3
9
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"Group Health Plan" means any group health plan, as defined in Section
5000(b)(1) of the Code.
"Holdback Merger Consideration" shall have the meaning set forth in
Section 2.8(b).
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended.
"IRS" means the Internal Revenue Service.
"IMT Subsidiary" means Influence Medical Technologies Ltd., a company
organized under the laws of the State of Israel and a wholly owned subsidiary of
the Company.
"Initial Merger Consideration" shall have the meaning set forth in
Section 2.8(a).
"Knowledge" shall mean, with respect to the Company or any of its
Subsidiaries, the knowledge of the members of the Board of Directors and the
knowledge after due inquiry of the senior officers of the Company.
"Liability" or "Liabilities" means any liabilities, obligations or
claims of any kind whatsoever whether absolute, accrued or unaccrued, fixed or
contingent, matured or unmatured, asserted or unasserted, known or unknown,
direct or indirect, contingent or otherwise and whether due or to become due,
including without limitation any foreign or domestic tax liabilities or deferred
tax liabilities incurred in respect of or measured by the Company's or any
Subsidiary's income, or any other debts, liabilities or obligations relating to
or arising out of any act, omission, transaction, circumstance, sale of goods or
services, state of facts or other condition which occurred or existed on or
before the date hereof, whether or not known, due or payable, whether or not the
same is required to be accrued on the financial statements or is disclosed on
the Disclosure Schedule.
"Lien" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance, adverse claim or charge of any kind in respect of such asset.
"Loans" means all indebtedness to third parties for borrowed money owed
by the Company or any of its Subsidiaries, together with any accrued and unpaid
interest thereon.
"Material Adverse Effect" means an individual or cumulative adverse
change in or effect on the business, customers, customer relations, operations,
properties, working capital condition (financial or otherwise), assets,
properties or liabilities of the Company or any of its
4
10
Subsidiaries which (a) is reasonably expected to be materially adverse to the
business, properties, working capital condition (financial or otherwise),
assets, or liabilities of the Company or any of its Subsidiaries taken as a
whole or (b) would prevent the Company, any of its Subsidiaries or any of the
Principal Stockholders from consummating the transactions contemplated hereby.
"Merger Consideration" means the aggregate consideration that becomes
payable to the Stockholders under this Agreement.
"No-Tac" means the product which is designed by the Company to create
an arc-like cavity in the pubic bone passing the suture through the bone cavity
as part of a transvaginal delivery system in a minimally invasive procedure, as
generally described in Israeli Patent Application Serial No. 130307, filed June
4, 1999, entitled "Bone Suturing Device."
"Pension Plan" means an "employee pension benefit plan" as such term is
defined in Section 3(2) of ERISA.
"Permitted Liens" means (a) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which are being contested in good faith by appropriate
proceedings; (b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; (c) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar agreements;
(d) Liens and Encumbrances specifically identified in the Latest Audited Balance
Sheet; (e) Liens securing executory obligations under any lease that constitutes
an "operating lease" under GAAP; and (f) other Liens set forth on the Disclosure
Schedule; provided, however, that, with respect to each of clauses (a) through
(e), to the extent that any such Lien on any of the Company's or its
Subsidiaries' assets arose prior to the date of the Latest Audited Balance Sheet
and relates to, or secures the payment of, a Liability that is required to be
accrued for under GAAP, such Lien shall not be a Permitted Lien unless all such
Liabilities have been fully accrued or otherwise reflected on the Latest Audited
Balance Sheet. Notwithstanding the foregoing, no Lien arising under the Code or
ERISA with respect to the operation, termination, restoration or funding of any
Benefit Plan sponsored by, maintained by or contributed to by the Company or any
of its ERISA Affiliates or arising in connection with any excise tax or penalty
tax with respect to such Benefit Plan shall be a Permitted Lien.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization,
including a Governmental Authority.
"Plan Affiliate" means, with respect to any Person, any Benefit Plan
sponsored by, maintained by or contributed to by such Person, and with respect
to any Benefit Plan, any Person sponsoring, maintaining or contributing to such
plan or arrangement.
"Pro Rata Share," with respect to each share of Company Common Stock
and Company Preferred Stock, shall mean a portion of the Merger Consideration or
Stockholder Expenses determined as follows:
(A) when used in reference to a share of Company Common Stock
shall mean:
5
11
(1) with respect to Initial Merger Consideration and
the Contingent Consideration, a fraction equal to one divided
by the total number of shares of Company Common Stock
outstanding immediately prior to the Effective Time
("Outstanding Common Stock"); and
(2) with respect to Holdback Consideration, a
fraction equal to the quotient of (x) one divided by (y) the
sum of Outstanding Common Stock and the total number of shares
of Company Common Stock issuable upon conversion of all
outstanding shares of Preferred Stock into Company Common
Stock ("Total Outstanding Shares"); and
(B) when used in reference to a share of Company Preferred
Stock shall mean, with respect to Holdback Consideration, a fraction
equal to the quotient of one divided by Total Outstanding Shares; and
(C) when used in reference to a portion of Stockholder
Expenses attributable to a share of Company Common Stock or Company
Preferred Stock, a fraction equal to the quotient of one divided by
Total Outstanding Shares.
"Reference Rate" means the London Interbank Offered Rate for three
month deposits in United States dollars publicly announced from time to time by
Chase Manhattan Bank. Any change in the Reference Rate shall take effect at the
opening of business on the day specified in the public announcement of such
change. Notwithstanding the foregoing, in no event shall the rate of interest
payable by any party hereto under this Agreement exceed the maximum rate
permitted by Applicable Law with respect to such payments under this Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Scheduled Contracts" shall have the meaning set forth in Section
3.13(a).
"Shares" means shares of Company Common Stock and Company Preferred
Stock.
"Staple-Tac" means the product which is designed by the Company to
place an anchor in the pubic bone which is used to attach a sling material with
a fixation of the sling to the anchor without the use of sutures using a
transvaginal delivery system in a minimally invasive procedure, as generally
described in the 510(k) application number K992277 filed with the FDA and in
Israeli Patent Application Serial No. 127,978, filed January 8, 1999, entitled
"Incontinence Device."
"Stockholders" means the Persons who hold of record immediately prior
to the Effective Time the Company Common Stock and Company Preferred Stock.
"Stockholder Expenses" mean expenses to be borne by the Stockholders
pursuant to Section 11.3 or otherwise as authorized and approved by the
Stockholders' Representatives.
"Stockholders' Representatives" has the meaning set forth in Section
11.13.
6
12
"Subsidiary" or "Subsidiaries" mean each corporation or other legal
entity as to which more than fifty percent (50%) of the outstanding equity
securities having ordinary voting rights or power at the time of determination
is being made is owned or controlled, directly or indirectly, by the Company.
"Tax" or "Taxes" means all taxes imposed of any nature including
federal, state, local or foreign net income tax, alternative or add-on minimum
tax, profits or excess profits tax, franchise tax, gross income, adjusted gross
income or gross receipts tax, employment related tax (including employee
withholding or employer payroll tax, FICA or FUTA), real or personal property
tax or ad valorem tax, sales or use tax, excise tax, stamp tax or duty, any
withholding or back up withholding tax, value added tax, severance tax,
prohibited transaction tax, premiums tax, environmental tax, intangibles tax or
occupation tax, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Authority (domestic or foreign)
responsible for the imposition of any such tax. The term Tax shall also include
any Liability of the Company or the Subsidiaries for the Taxes of any other
Person under U.S. Treasury Regulations Section 1.1502-6 (or similar provisions
of state, local or foreign law), as a transferee or successor by contract or
otherwise.
"Tax Return" means all returns, declarations, reports, estimates,
forms, information returns and statements or other information required to be
filed with respect to any Tax.
"U.S. Government" means the United States Government, including any
agencies, commissions, branches, instrumentalities and departments thereof.
"Welfare Plan" means an "employee welfare benefit plan" as such term is
defined in Section 3(1) of ERISA (including without limitation a plan excluded
from coverage by Section 4 of ERISA).
ARTICLE 2
THE MERGER; CONVERSION OF SHARES
2.1 The Merger. At the Effective Time (as defined below) and upon the terms
and subject to the conditions of this Agreement and in accordance with
the Delaware General Corporation Law (the "DGCL"), Merger Subsidiary
shall be merged with and into the Company, and following the merger,
the Company shall continue as the surviving corporation (the "Surviving
Corporation"), the separate corporate existence of Merger Subsidiary
shall cease and the Surviving Corporation shall continue to be governed
by the laws of the State of Delaware (the "Merger").
2.2 Effective Time. Subject to the terms and conditions set forth in this
Agreement, on the Closing Date (as defined below) the Company and
Merger Subsidiary will file, or cause to be filed, with the Secretary
of State of the State of Delaware a Certificate of Merger (the
"Certificate of Merger"), in the form as required by, and executed and
acknowledged in accordance with, the applicable provisions of the DGCL,
and will be substantially in the form attached hereto as Exhibit A. The
Merger shall become effective at the date and time the Certificate of
Merger is filed or, if agreed to by the Parent and the Company, such
later date or time set forth in the Certificate of Merger (the
"Effective Time").
7
13
2.3 Closing of the Merger. Unless this Agreement shall have been terminated
and the transactions contemplated herein abandoned pursuant to Article
8 hereof, the closing of the Merger (the "Closing") will take place on
December 9, 1999 (the "Closing Date"), provided that all of the
conditions to closing set forth in Articles 6 and 7 have been satisfied
or waived by the party or parties entitled to waive the same, at 10:00
a.m., local time, at the offices of ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP,
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
unless another time, date, place or manner (e.g., by telecopy exchange
of signature pages with originals to follow by overnight delivery) is
agreed to in writing by the parties hereto; provided, however, that
that in no event shall the Closing occur later than January 31, 2000
(the "Termination Date").
2.4 Effects of the Merger. The Merger shall have the effects set forth in
the DGCL. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time all the properties, rights, privileges,
powers and franchises of the Company and Merger Subsidiary shall vest
in the Surviving Corporation and all debts, liabilities and duties of
the Company and Merger Subsidiary shall become the debts, liabilities
and duties of the Surviving Corporation.
2.5 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation set forth in the Certificate of Merger shall be the
Certificate of Incorporation of the Surviving Corporation after the
Effective Time until thereafter amended in accordance with Applicable
Law. The bylaws of Merger Subsidiary in effect at the Effective Time
shall be the bylaws of the Surviving Corporation until thereafter
amended in accordance with Applicable Law.
2.6 Directors. The directors of Merger Subsidiary at the Effective Time
shall be the initial directors of the Surviving Corporation, each to
hold office in accordance with the Certificate of Incorporation and
bylaws of the Surviving Corporation until such director's successor is
duly elected or appointed and qualified.
2.7 Officers. The officers of Merger Subsidiary at the Effective Time shall
be the initial officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and bylaws
of the Surviving Corporation until such officer's successor is duly
elected or appointed and qualified.
2.8 Merger Consideration. Subject to adjustment pursuant to Section 2.8(a),
the Side Letter, as defined in Section 2.8(b), Section 2.10 (Contingent
Merger Consideration), Section 2.12 (Dissenting Shares) and Section 9.6
(Right of Off-Set), the consideration to be paid for all of the Company
Common Stock and Company Preferred Stock issued and outstanding
immediately prior to the Effective Time will consist of Forty-Six
Million U.S. Dollars ($46,000,000), which shall be payable as follows:
(a) Twenty-Five Million U.S. Dollars ($25,000,000), less the sum
of (A) all Loans outstanding at the Effective Time, (B) an
amount equal to fifty percent (50%) of all outstanding and
unpaid accounts payable that are as of five (5) Business Days
prior to the Closing Date more than 60 days past due or that
relate to services that were performed more than 90 days prior
to the Closing Date, all of which are, or
8
14
will be, listed on Schedule 3.11(b) of the Disclosure
Schedule; provided, however, if that such accounts payable are
greater than $400,000, then an amount equal to the positive
difference of (x) all outstanding and unpaid accounts payable
that are as of five (5) Business Days prior to the Closing
Date more than 60 days past due or that relate to services
that were performed more than 90 days prior to the Closing
Date minus (y) $200,000, (C) all fees and expenses associated
with terminating the Investment Agreement, dated August 17,
1998, between the Company and ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ Development
Corporation and the Distribution Agreement, dated August 17,
1998, among the Company, IMT Subsidiary, and Indigo Medical,
Incorporated (collectively, the "J & J Agreements") and (D)
the consideration that would have been payable to Dissenting
Shareholders (as defined below) if they had not perfected
their rights as Dissenting Shareholders will be payable at the
Effective Time (the "Initial Merger Consideration") to the
Exchange Agent for distribution to the Stockholders in
accordance with the terms of the Escrow Agreement.
(b) Up to Eleven Million U.S. Dollars ($11,000,000) will be
payable to the extent, but only to the extent, set forth in
the letter agreement, dated the date hereof (the "Side
Letter"), among the parties, and in accordance with the terms
of the Escrow Agreement (the "Holdback Merger Consideration").
(c) Up to Ten Million U.S. Dollars ($10,000,000) will be payable
to the extent, but only to the extent, set forth in Section
2.10 and will be payable to the holders of Company Common
Stock and former Optionholders (as defined below) in
accordance with the terms of Section 2.9 and the Escrow
Agreement (the "Contingent Merger Consideration").
(d) Assuming an aggregate adjustment to the Initial Merger
Consideration and Stockholder Expenses of $3,000,000 and based
on the number of shares of Company Common Stock and Company
Preferred Stock outstanding on the date hereof (and the number
of shares of Company Common Stock estimated by the Company to
be issued immediately prior to the Effective Time of the
Merger in connection with the exercise or cancellation of
Company Stock Options (as defined below): (i) the maximum
aggregate per share amount that could be paid to the holders
of Company Common Stock and holders of Company Stock Options
is $4.49 per share of Company Common Stock, consisting of
Initial Merger Consideration of $2.16 per share of Company
Common Stock, Holdback Merger Consideration of up to $1.15 per
share of Company Common Stock and Contingent Merger
Consideration of up to $1.18 per share of Company Common
Stock; and (ii) the maximum aggregate per share amount that
could be paid to the holders of Company Preferred Stock is
$7.00 per share of Company Preferred Stock, consisting of
Initial Merger Consideration of $5.21 per share of Company
Preferred Stock and Holdback Merger Consideration of up to
$1.79 per share of Company Preferred Stock. If, however, the
number of shares of Company Common Stock or Company Preferred
Stock changes or is inaccurate in any way, the per share
merger consideration amount will be adjusted, but in no event
will
9
15
the aggregate merger consideration be increased to more than
Forty-Six Million U.S. Dollars ($46,000,000).
2.9 Cancellation and Conversion of Company Securities at the Effective
Time. As of the Effective Time, by virtue of the Merger and without any
action on the part of any holder of any share of capital stock of the
Company or Merger Subsidiary:
(a) Subject to the terms and conditions of Section 2.12, each
share of Company Common Stock, issued and outstanding
immediately prior to the Effective Time (other than (1)
Company Common Stock held in the Company's treasury or by any
of the Company's Subsidiaries, (2) Company Common Stock held
by Parent, Merger Subsidiary or any other Subsidiary of
Parent, and (3) Dissenting Shares) shall automatically be
converted into the right to receive (x) a Pro Rata Share of
the Initial Merger Consideration, (less the amount of such
Initial Merger Consideration payable, before expenses, to
holders of Company Preferred Stock pursuant to Section 2.9(b)
below) and (y) a Pro Rata Share of any Holdback Merger
Consideration and Contingent Merger Consideration, if any,
which becomes payable under this Agreement, less any portion
of the Contingent Merger Consideration off-set by Parent
pursuant to Section 9.6, and, in each case, less a Pro Rata
Share of any Stockholder Expenses;
(b) Subject to the terms and conditions of Section 2.12, each
share of Company Preferred Stock, issued and outstanding
immediately prior to the Effective Time (other than (1)
Preferred Stock held in the Company's treasury or by any of
the Company's Subsidiaries, (2) Company Preferred Stock held
by Parent, Merger Subsidiary or any other Subsidiary of
Parent, and (3) Dissenting Shares) shall automatically be
converted into the right to receive (x) a portion of the
Initial Merger Consideration equal to the greater of (I)
$5.00, or (II) an amount equal to the product of (a) 1.56
multiplied by (b) an amount equal to (1) the sum of the
Initial Merger Consideration plus the Contingent Merger
Consideration (assuming that 100% of the Contingent Merger
Consideration is earned), multiplied by (2) a fraction, the
numerator of which is one and the denominator of which is the
number of Total Outstanding Shares, and (y) a Pro Rata Share
of any Holdback Merger Consideration, if any, which becomes
payable in accordance with this Agreement, and, in each case,
less a Pro Rata Share of any Stockholder Expenses;
(c) Each outstanding option evidencing the right to purchase
Company Common Stock immediately prior to the Effective Time
as set forth in the Capitalization Certificate (as defined
below) (a "Company Stock Option" or collectively "Company
Stock Options") issued pursuant to any Company Stock Option
Plan shall be cancelled and shall be validly exercised by the
holder of such Company Stock Option or shall be converted into
and exchanged for the number of shares of Company Common Stock
that would be issuable to the holder of such Company Stock
Option upon a cashless exercise of such Company Stock Option
calculated on a basis determined by the Board of Directors of
the Company to be fair to such holders of Company Stock
Options. Except as otherwise agreed to in writing by the
parties hereto, the Company Stock Option Plans and any other
10
16
plan, program or arrangement providing for the issuance or
grant of any interest in respect of the capital stock of the
Company shall terminate as of the Effective Time, and the
Company shall ensure that following the Effective Time no
holder of a Company Stock Option (an "Optionholder or
collectively "Optionholders") shall have any right thereunder
to acquire any equity securities of the Company, Parent or
Merger Subsidiary.
(d) Each share of the common stock, par value $.01 per share, of
Merger Subsidiary ("Merger Subsidiary Common Stock"), issued
and outstanding at the Effective Time of the Merger shall be
converted into one share of common stock, par value $.001 per
share, of the Surviving Corporation ("Surviving Corporation
Common Stock").
(e) Each share of Company Common Stock and Company Preferred Stock
held in the treasury of the Company and each share of Company
Common Stock and Company Preferred Stock held by Parent,
Merger Subsidiary or any Subsidiary of Parent, Merger
Subsidiary or the Company immediately prior to the Effective
Time will, by virtue of the Merger and without any action on
the part of Merger Subsidiary, the Company or the holder
thereof, be canceled, retired and cease to exist without
payment of any consideration therefore and without any
conversion thereof.
2.10 Contingent Merger Consideration. Subject to the Parent's and Surviving
Corporation's right to offset, if any, pursuant to Section 9.6, against
any Contingent Merger Consideration amounts otherwise due and owing the
holders of Company Common Stock (other than Dissenting Shares) under
this Section 2.10, the Parent shall pay, at the times set forth below,
to the Exchange Agent or the Escrow Agent, as the case may be, for
distribution to the Stockholders in accordance with the terms and
conditions of the Escrow Agreement the amounts set forth in this
Section 2.10, less any amount that would have been payable to
Dissenting Shareholders if they had not perfected their rights as
Dissenting Shareholders (the "Contingent Purchase Price Amount"),
following completion, to the Principal Stockholder's and Parent's
reasonable satisfaction, of the milestones (the "Milestones") set forth
in this Section 2.10. The Parent, the Company and the IMT Subsidiary
shall at all relevant times use reasonable efforts to cooperate with
and assist the Company, the IMT Subsidiary, the Principal Stockholders,
the Stockholders' Representatives or the listed individual, as
applicable, to enable such person to achieve the Milestones in a timely
manner, and each of the Parent, the Company and the IMT Subsidiary
shall use reasonable efforts to take such actions, including actively
pursuing regulatory exemptions, clearances and approvals. Parent shall
provide the Stockholders' Representatives with reasonable notice as
soon as practicable but in any event no later than ten (10) Business
Days prior to the determination date or deadline for the satisfaction
of any Milestone described in this Section 2.10 of any deficiency known
to Parent in the satisfaction of such milestone.
(a) One Million U.S. Dollars ($1,000,000) upon (i) completion of
the Staple-Tac product design which shall be capable of being
manufactured in commercial quantities and sold as a
commercially viable product including, but not limited to,
11
17
commercialization free of claims for infringement of third
party intellectual property rights, (ii) receipt of feedback
from at least three (3) key physicians, who shall be mutually
selected by Parent and either ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D., ("Beyar")
or ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ("▇▇▇▇▇▇▇▇▇"), after testing the Staple-Tac
product on an aggregate of at least ten (10) patients to the
effect that that product is satisfactory for its intended use
without further material design changes and (iii) receipt by
Parent or Company of FDA clearance or approval to market the
Staple-Tac product in the U.S. All of the foregoing shall be
completed within six (6) months of the Closing Date, provided
that if Parent requests additional design changes, such
completion date may be extended by the Stockholders'
Representatives for a reasonable period of time in order to
complete requested design changes, but in no event shall such
completion date be extended beyond January 31, 2001.
(b) One Million U.S. Dollars ($1,000,000) upon (i) completion of
the No-Tac product design which shall be capable of being
manufactured in commercial quantities and sold as a
commercially viable product including, but not limited to,
commercialization free of claims for infringement of third
party intellectual property rights, (ii) receipt of feedback
from at least three (3) key physicians, who shall be mutually
selected by Parent and either Beyar or ▇▇▇▇▇▇▇▇▇, after
testing the No-Tac product on an aggregate of at least ten
(10) patients to the effect that that product is satisfactory
for its intended use without further material design changes
and (iii) receipt by Parent or Company of FDA exemption
status, clearance or approval to market the No-Tac product in
the U.S. All of the foregoing shall be completed within six
(6) months of the Closing Date, provided that if Parent
requests additional design changes, such completion date may
be extended by the Stockholders' Representatives for a
reasonable period of time in order to complete requested
design changes, but in no event shall such completion date be
extended beyond January 31, 2001.
(c) For each of the following Milestones successfully completed,
to the Principal Stockholders' Representatives and Parent's
reasonable satisfaction, by the respective completion date set
forth below, the Parent will pay to the Exchange Agent or the
Escrow Agent, as the case may be, for distribution to the
Stockholders in accordance with the terms and conditions of
the Escrow Agreement, Five Hundred Thousand U.S. Dollars
($500,000) (an aggregate of $4,000,000 if all of the following
Milestones are successfully completed by their respective
completion dates) within 30 days of completion of each such
Milestone; provided, however, in no event will a payment be
due with respect to a Milestone under this Section 2.10(c)
that is not completed by its respective completion date:
(i) On or before December 31, 1999, Parent shall have
received from the Company's current research and
development staff design history files, design
documentation and regulatory filings, correspondence
and approvals (to the extent received) on all of the
Company's current products, whether commercially
available or under development.
12
18
(ii) On or before December 31, 1999, Parent shall have
received from the Company's current research and
development staff documentation of all of its current
intellectual property ideas including, but not
limited to, patents granted, pending and/or in
process of submission.
(iii) Following completion of the Milestones in (i) and
(ii) above and on or before March 31, 2000, Beyar and
▇▇▇▇▇▇▇▇▇, will have cross-trained the Parent's
research and development personnel on all of the
Company's research and development projects and
current products through a five-day visit to the
Parent's headquarters in Minnetonka, Minnesota, all
reasonable expenses of such visit to be paid by
Parent.
(iv) Prior to the Closing Date, the Company shall have
provided to Parent in writing a list of all
salespersons, regional managers, and clinical
specialists and technicians currently involved with
selling the Company's products and shall provide the
Parent with an indication of which of those persons
the Company believes Parent should retain and suggest
methods to retain such persons. Such list shall also
provide Parent reasonable detail on all such persons'
capabilities and sensitivities.
(v) Prior to or within forty-five (45) days after the
Closing Date, ▇▇▇▇▇ ▇. ▇▇▇▇, M.D., the Chief
Executive Officer and President of the Company
("▇▇▇▇") or ▇▇▇ ▇▇▇▇, the Company's Director of Sales
("Cote") shall have completed in person meetings with
each of the Company's salespersons, regional
managers, and clinical specialists and technicians
(collectively, the "Sales Personnel") identified by
the Parent on Exhibit B attached to this Agreement
(the "Parent Retention List") and, subject to prior
review by the Company, deliver the Parent's
"retention message" resulting in the retention of at
least 50% of the Sales Personnel identified on the
Parent Retention List six months after the Effective
Time. If Parent terminates for performance reasons
any of the Sales Personnel on the Parent Retention
List, the percentage retained shall be calculated as
if such person was not initially included on the
Parent Retention List. However, there will be no
obligation to retain Sales Personnel as of six months
after the Effective Time who are not offered
reasonably obtainable target compensation goals of
approximately $100,000 - $110,000 for the year 2000.
(vi) The Company's personnel will be actively involved in
planning and conducting, at Parent's expense, two
domestic and one international training seminars of
the Parent's sales force on the Company's current
products. Such training seminars must be completed by
January 31, 2000, if Parent holds sales meeting by
such date, or by such later date as Parent holds
sales meetings, but no later than March 31, 2000. In
order to complete this Milestone, however, Beyar must
attend, at Parent's request, at least one United
States and one international training seminar.
13
19
(vii) Beyar will be available to travel, at Parent's
expense, in the United States and internationally to
meet with key customers, for such number of days, not
to exceed ten (10) business days, as Parent may
reasonably request with reasonable prior notice
during the period beginning on the Closing Date and
ending on January 31, 2001.
(viii) The Parent or the Company will have filed U.S.
patents for the Staple-Tac and No-Tac products with
material claims that are reasonably satisfactory to
Parent's patent counsel and ▇▇▇▇▇▇▇▇▇. The Parent or
the Company shall file these patents at a mutually
agreed upon time, but not later than December 31,
1999.
(d) For each of the following Milestones successfully completed,
to the Principal Stockholder's and Parent's reasonable
satisfaction, by January 31, 2001, the Parent will pay to the
Exchange Agent or the Escrow Agent, as the case may be, for
distribution to the Stockholders in accordance with the terms
and conditions of the Escrow Agreement, Five Hundred Seventy
One Thousand Four Hundred Twenty Eight Dollars ($571,428) (an
aggregate of $4,000,000 if all of the following Milestones are
successfully completed by January 31, 2001) within 30 days of
completion of each such Milestone; provided, however, in no
event will a payment be due with respect to a Milestone under
this Section 2.10(d) that is not completed by January 31,
2001:
(i) Parent shall have received from Beyar and ▇▇▇▇▇▇▇▇▇
all written documentation of all new gynecology and
urology product ideas conceived prior to January 31,
2001. In order to satisfy this Milestone, all such
ideas must be accompanied by reasonable concept
descriptions, a description of the strategic fit of
the idea, and concept drawings. In addition, if
Parent decides to pursue any such ideas, Beyar and
▇▇▇▇▇▇▇▇▇ shall have assisted and cooperated with
Parent in developing prototypes and generating animal
or human data reasonably substantiating the
functionality of such ideas during the period prior
to January 31, 2001.
(ii) At least 75% of Israeli personnel listed on the
Parent Retention List must be retained through
January 31, 2001. However, if Parent or IMT
Subsidiary, with Parent's prior consent, terminates
for performance reasons any person on the Parent
Retention List and is able to replace such person at
no additional compensation cost to Parent or if any
person is terminated by Parent for non-performance
reasons, such replacement will be counted toward the
75% requirement.
(iii) At a minimum, either Beyar or ▇▇▇▇▇▇▇▇▇ must attend,
at Parent's expense, and be involved in the Parent's
booth at one annual meeting of each of American
Urological Association, European Association of
Urology, and International Continence Society between
the Effective Time and January 31, 2001.
14
20
(iv) Production of the Company's In-Fast product, as it is
produced on the date hereof, at Parent's facility is
operating in substantial compliance with all Applicable Laws
pertaining to medical devices including, but not limited to,
the United States Food, Drug and Cosmetic Act (the "FDC
Act") and the regulations promulgated thereunder, and the
Good Manufacturing Practices/Quality System Regulations
("GMP/QSR Regulations") promulgated under the FDC Act and
ISO 9001, 9002, EN 29001, 46001 requirements in order to
manufacture the Company's In-Fast product. Prior to transfer
of production of the Company's products to Parent's
facility, the Company shall have continued to manufacture
products in quantities sufficient to meet demand (based on
three month rolling projections of expected demand) without
any material backorders. Notwithstanding the foregoing, this
Milestone shall be deemed to have been achieved if (A)
Parent decides not to transfer production of the Company's
products to Parent's facility by January 31, 2001, (B) the
Company has not had any material backorders prior to January
31, 2001, and (C) Parent's decision not to transfer
manufacturing is not based on the inability to obtain the
foregoing regulatory approvals.
(v) During the two (2) years following the Effective Time, none
of the officers or directors of the Company or any of its
Subsidiaries shall have alone, or in any capacity with
another firm or entity, employed, attempted to employ (by
soliciting or assisting anyone else in the solicitation of)
or engaged as an independent contractor or otherwise any
person who was an employee of the Company or any Subsidiary
on and immediately following the Closing Date. The foregoing
restriction shall not prevent (A) the hiring of any such
employees who are terminated by Parent or by the Company or
the IMT Subsidiary, with the prior written consent of
Parent, after the Closing Date or (B) the hiring of an
employee who voluntarily leaves Parent, the Company or the
IMT Subsidiary, provided that such employees who voluntarily
leave are not hired for a period of nine (9) months, unless
Parent agrees to a shorter period with respect to any
particular employee who voluntarily leaves.
(vi) Beyar, ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇, shall be available at the
Parent's prior reasonable request to attend meetings in the
United States, at Parent's expense, and by telephone for the
purpose of resolving any litigation involving Boston
Scientific Corporation ("BSC Litigation"), including
planning and negotiating settlement, until such BSC
Litigation is finally resolved. The Parent will not require
more than ten (10) business days of travel time in the
United States from each such person, and the Parent will pay
all reasonable travel expenses for such persons.
(vii) Beyar, Globerman, ▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, the Chief
Financial Officer of the Company ("▇▇▇▇▇▇") shall be
available at the Parent's prior reasonable request to attend
meetings or court proceedings in the United States, at
Parent's expense, and by telephone for the purpose of
planning
15
21
and defending any BSC Litigation. Such persons must attend
any and all court proceedings involving any BSC Litigation,
as requested by Parent, including, without limitation, any
depositions of any person, arbitrations, mediations,
settlement conferences, hearings and trials; provided,
however, that Parent will not require more than ten (10)
business days of time in the United States from each such
person (in addition to any days of travel time pursuant to
sub-paragraph (vi) above) to prepare and plan for such court
proceedings. Parent will pay all reasonable travel expenses
for such persons.
(e) Except as described below, any Contingent Purchase Price Amounts
that become payable under this Section 2.10 shall be paid by the
Parent to the Exchange Agent and distributed to the Stockholders
in accordance with the terms and conditions of the Escrow
Agreement. One hundred percent (100%) of the first Two Million
Dollars ($2,000,000) of the Contingent Merger Consideration
earned pursuant to Sections 2.10(c) and (d) and fifty percent
(50%) any additional Contingent Merger Consideration earned
pursuant to Sections 2.10(c) and (d) (the "Escrow Funds") shall
be paid to the Escrow Agent and held in escrow as a nonexclusive
(except as otherwise provided in this Agreement) means to secure
any obligation of the Principal Stockholders or the Stockholders
in respect of any Indemnification Liability, as defined in
Section 9.3; provided that during the term of the Escrow
Agreement, any indemnification or other claim by Parent hereunder
shall be satisfied out of the Escrow Funds in accordance with the
Escrow Agreement before any such claim is made directly against
any Principal Stockholder. The Escrow Funds shall not be
distributed to the Stockholders until eighteen (18) months after
the Effective Time and shall only be distributed in accordance
with the terms and conditions of the Escrow Agreement. In the
event that Parent shall have perfected, prior to the expiration
of such 18 month period, a claim for indemnification pursuant to
Section 9.4, the Stockholders' Representatives and the Parent
shall endeavor in good faith to determine a reasonable estimate
of the maximum amount of such claim and shall instruct the Escrow
Agent to deliver any excess amount of Escrow Funds to the
Exchange Agent for distribution to the Stockholder in accordance
with the Escrow Agreement.
(f) Nothing contained in this Section 2.10 shall be deemed to require
that any individual named in this Section perform any services
except in accordance with all Applicable Laws, including those
related to the transfer of technology from any jurisdiction.
2.11 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any Shares issued and outstanding immediately prior to the
Effective Time that are held by any holder of Shares who has not
voted in favor of the Merger (if entitled to vote) and has
properly exercised and perfected appraisal rights in accordance
with Section 262 of the DGCL (such holders are referred to as
"Dissenting
16
22
Stockholders" and such shares are referred to as "Dissenting
Shares") will not be converted into the right to receive the
Merger Consideration, but will become entitled to the right to
receive such consideration as may be determined to be due to the
holders of such Dissenting Shares pursuant to the DGCL; provided,
however, that any holder of Dissenting Shares who will have
failed to perfect or who effectively will have withdrawn or lost
such rights of appraisal under the DGCL will forfeit the right to
appraisal of such Shares, and such Shares will no longer be
Dissenting Shares and, as of the Effective Time, will be deemed
to have been converted into the right to receive the Merger
Consideration.
(b) The Company will give Parent and Merger Subsidiary prompt notice
of any written demands for appraisal, withdrawals of demands for
appraisal and any other related instruments received by the
Company and, Parent will have the right to participate in all
negotiations and proceedings with respect to such demands. Prior
to the Effective Time, the Company will not, except with the
prior written consent of Parent, make any payment with respect
to, or settle or offer to settle, any such demands.
Notwithstanding anything to the contrary in this Section 2.11 if
(i) the Merger is terminated, rescinded or abandoned or (ii) if
the Stockholders revoke the authority to effect the Merger, then
the right of any Stockholder to be paid the fair value of such
Stockholder's Shares will cease. The Surviving Corporation will
comply with all obligations of the DGCL with respect to
Dissenting Stockholders.
(c) The holders of shares of Parent Common Stock shall not be
entitled to appraisal rights.
2.12 Escrow Procedure; Exchange of Certificates.
(a) ▇▇▇▇▇ Fargo Bank or such other bank as the parties may agree
shall act as the exchange agent (in such capacity, the "Exchange
Agent") and escrow agent (in such capacity, the "Escrow Agent")
pursuant to the Escrow Agreement, for the benefit of the holders
of Company Common Stock and Company Preferred Stock for the
purpose of exchanging certificates which immediately prior to the
Effective Time represented Company Common Stock or Company
Preferred Stock (the "Certificates") for the Merger
Consideration.
(b) At the Closing, Parent shall deposit, or shall cause to be
deposited, with the Exchange Agent pursuant to the Escrow
Agreement, for the benefit of the Stockholders, cash in U.S.
dollars in an amount equal to the Initial Merger Consideration
plus any Contingent Merger Consideration earned by Closing.
(c) To the extent that sums are released by the Exchange Agent to the
Stockholders or the Parent in accordance with this Agreement or
the Escrow Agreement, the pro-rata portion of any accumulated
interest shall be distributed therewith.
(d) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of
Certificates: (i) a letter of transmittal
17
23
(which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery
of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Merger Subsidiary and the
Company may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for a
cash payment of the proper Merger Consideration when and if it
becomes payable under this Agreement. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Merger Subsidiary,
together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in
exchange therefor by check an amount equal to the proper Merger
Consideration when and if it becomes payable under this
Agreement, and the Certificate so surrendered shall forthwith be
canceled. No interest shall be paid or accrued on any Merger
Consideration upon the surrender of any Certificates. In the
event of a transfer of ownership of Company Common Stock or
Company Preferred Stock which is not registered in the transfer
records of the Company, payment of the proper Merger
Consideration when and if it becomes payable under this Agreement
may be paid to a transferee if the Certificate representing such
Company Common Stock or Company Preferred Stock, as applicable,
is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence
that any applicable stock transfer or other taxes required as a
result of such payment to a Person other than the registered
holder of such shares have been paid. Until surrendered and
exchanged as contemplated by this Section 2.12, each Certificate
shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender an amount equal to
the proper Merger Consideration when and if it becomes payable
under this Agreement.
(e) In the event that any Certificate shall have been lost, stolen or
destroyed, the Exchange Agent will, upon the making of an
affidavit of that fact by the holder claiming such Certificate to
have been lost, stolen or destroyed, pay the proper Merger
Consideration as may be required pursuant to this Agreement, but
for the failure to deliver such Certificate to the Exchange
Agent; provided, however, that the Surviving Corporation may, in
its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed
Certificate to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against
the Surviving Corporation with respect to the Certificate alleged
to have been lost, stolen or destroyed.
(f) The Merger Consideration paid upon the surrender of Certificates
for exchange of Company Common Stock and Company Preferred Stock
in accordance with the terms hereof shall be deemed to have been
paid in full satisfaction of all rights pertaining to such
Company Common Stock and Company Preferred Stock. After the
Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving
Corporation of the Company Common Stock or Company Preferred
Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to
the
18
24
Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article 2, except as otherwise
provided by Applicable Law.
(g) Any portion of the Merger Consideration set aside for
distribution pursuant to this Section 2.12 to any holder of
Company Common Stock or Company Preferred Stock that remains
undistributed to any such holder for four years after the
Effective Time shall be delivered to the Parent, upon demand, and
any such holders who have not theretofore complied with this
Article 2 shall thereafter look only to the Parent for payment of
their claim for any Merger Consideration.
(h) Notwithstanding Section 2.12(e), neither the Surviving
Corporation nor Parent shall be liable to any holder of Company
Common Stock or Company Preferred Stock for any Merger
Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(i) Any amounts of Merger Consideration remaining unclaimed by any
holder of Company Common Stock or Company Preferred Stock four
years after the Effective Time (or such earlier date immediately
prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) shall to the extent
permitted by Applicable Law, become the property of the Parent
free and clear of any claim or interest of any Person previously
entitled thereto.
2.13 Contributions at Closing. On the Closing Date, Parent shall contribute
an amount to the Company equal to the amount of outstanding Loans and
shall cause the Company to repay the Loans at the Closing. Within 30
days of the Closing Date, Parent shall pay or cause the Company to pay
all accounts payable in respect of which an adjustment to the Initial
Merger Consideration is made pursuant to Section 2.8(a), except for
those accounts with respect to which Parent has a good faith objection,
in which case the amount to be deducted pursuant to Section 2.8(a)
shall be appropriately adjusted.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY and the principal stockholders
As an inducement to Parent and Merger Subsidiary to enter into this
Agreement and to consummate the transactions contemplated herein, the Company
represents and warrants to Parent and Merger Subsidiary, as of the date of this
Agreement and as of the Closing Date, that the statements contained in this
Article 3 are true and correct, and the Principal Stockholders, jointly and
severally, represent and warrant to Parent and Merger Subsidiary, as of the date
of this Agreement and as of the Closing Date, that the statements contained in
Section 3.2(b) are true and correct, in each case except as set forth in (a) the
disclosure schedule attached hereto as Exhibit C which the Company has prepared
and delivered to Parent and Merger Subsidiary prior to the date of this
Agreement (the "Disclosure Schedule") or (b) with respect to Section 3.3 a
certificate of an officer of the Company delivered to Parent (the
"Capitalization Certificate"). The Disclosure Schedule is arranged in sections
corresponding to the sections and subsections of this Article 3, and disclosure
in one section of the Disclosure Schedule shall constitute disclosure
19
25
for all sections of the Disclosure Schedule only to the extent to which the
applicability of such disclosure is reasonably apparent.
3.1 Corporate Organization and Power. The Company and each Subsidiary is a
corporation duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of incorporation, and has all
requisite corporate power and authority, and all governmental licenses,
governmental authorizations, governmental consents and governmental
approvals, required to carry on its business as now conducted and to
own, lease and operate the assets and properties of the Company and
each Subsidiary as now owned, leased and operated. The Company and each
Subsidiary is duly qualified or licensed to do business as a foreign
corporation and is in good standing in every jurisdiction in which the
character or location of its properties and assets owned, leased or
operated by the Company or any Subsidiary or the nature of the business
conducted by the Company or any Subsidiary requires such qualification
or licensing, except where the failure to be so qualified, licensed or
in good standing in such other jurisdiction could not, individually or
in the aggregate, have a Material Adverse Effect on the Company or its
Subsidiaries. The Company has heretofore delivered to Parent complete
and accurate copies of its Certificate of Incorporation and bylaws and
the organizational and governing documents for each Subsidiary, as
currently in effect. Except as set forth in the Disclosure Schedule,
neither the Company nor any Subsidiary, directly or indirectly, owns or
controls or has any capital, equity, partnership, participation or
other ownership interest in any corporation, partnership, joint venture
or other business association or entity, except for the Company's
ownership of its Subsidiaries. The Disclosure Schedule contains a list
of the name and jurisdiction of incorporation of each Subsidiary and
all jurisdictions in which the Company and each Subsidiary is qualified
or licensed to do business. Except as set forth in the Disclosure
Schedule, in the case of each Subsidiary: (i) all outstanding capital
stock and other equity securities are owned or controlled directly or
indirectly by Company free and clear of all Liens; (ii) there are no
contractual or consensual limitations on Company's ability to vote or
alienate such securities; (iii) there are no outstanding options,
warrants or other rights to purchase or acquire securities of such
Subsidiary; (iv) there are no other contractual or consensual charges
or impediments which would materially limit or impair the ownership of
such equity interests or the ability effectively to exercise the full
rights of ownership or control of such equity interests, including
without limitation, any voting trusts, voting agreements, or rights of
first refusal or first option; (v) there are no contracts, commitments,
understandings, arrangements or restrictions by which any such
corporation is bound to issue, sell, transfer or to purchase or acquire
any shares of its capital stock or other equity securities or options,
warrants or rights; and (vi) all of the outstanding capital stock of
such corporation is duly authorized, validly issued, fully paid,
nonassessable and was not issued in violation of preemptive rights.
3.2 Authorization.
(a) The Company has the full corporate power and authority to enter
into this Agreement and to carry out the transactions
contemplated herein. The Board of Directors of the Company have
taken, and prior to the Closing the Stockholders will have taken,
all action required by law, the Company's Certificate of
20
26
Incorporation and bylaws and otherwise to duly and validly
authorize and approve the execution, delivery and performance by
the Company of this Agreement and the consummation by the Company
of the transactions contemplated herein and no other corporate
proceedings on the part of the Company or any Subsidiary are, or
will be, necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. The affirmative vote of a
majority of the holders of Company Common Stock is the only vote
of the holders of any class or series of the Company's capital
stock necessary to approve and adopt this Agreement and to
consummate the Merger. This Agreement has been, and the
agreements, if any, required by Article 6 will be, duly and
validly executed and delivered by the Company and constitutes the
legal, valid and binding obligations of the Company, enforceable
against it in accordance with their terms, subject to laws of
general application relating to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally and rules of law governing specific
performance, injunctive relief or other equitable remedies.
(b) The Principal Stockholders, and each of them, have the legal
capacity to enter into this Agreement and to carry out the
transactions contemplated herein, including without limitation
the legal capacity to execute, deliver and perform the agreements
or contracts, if any, required by Article 6 to be executed and
delivered by each of them as a condition to Closing. This
Agreement has been, and the agreements, if any, required by
Article 6 will be, duly and validly executed and delivered by the
Principal Stockholders and constitute the legal, valid and
binding obligations of the Principal Stockholders, enforceable
against them in accordance with their terms, subject to laws of
general application relating to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally and rules of law governing specific
performance, injunctive relief or other equitable remedies. All
issued and outstanding Shares owned by the Principal Stockholders
are owned (of record and beneficially) solely by each respective
Principal Stockholder in the exact amounts as shown on stock
ledger of the Company previously made available to Parent.
3.3 Capitalization of the Company. The authorized capital stock of the
Company consists of (i) 30,000,000 shares of Company Common Stock,
7,286,679 shares of which are issued and outstanding, and (ii) 850,000
shares of preferred stock, 100,000 shares of which are undesignated,
and 750,000 shares of which are designated as Company Preferred Stock,
713,000 shares of which are issued and outstanding and convertible into
1,112,280 shares of Company Common Stock. All of the issued and
outstanding Shares are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. All issued and outstanding
Shares are owned (of record) solely by the Stockholders in the exact
amounts as shown on the Capitalization Certificate. There are 1,675,963
shares of Company Common Stock issuable upon or otherwise deliverable
in connection with the exercise of outstanding Company Stock Options.
Except as set forth on the Disclosure Schedule, there are outstanding
(i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company or the Subsidiaries
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, (iii) no options, warrants, conversion
privileges, contracts, understandings, agreements or other
21
27
rights to purchase or acquire from the Company, the Subsidiaries or the
Principal Stockholders, and, no obligations of the Company or the
Subsidiaries to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company, and (iv) no equity equivalent interests in
the ownership or earnings of the Company or the Subsidiaries or other
similar rights (collectively, "Company Securities"). Except as set
forth on the Disclosure Schedule, there are no outstanding obligations
of the Company to repurchase, redeem or otherwise acquire any Company
Securities. Except as set forth in the Disclosure Schedule, there are
no stockholder agreements, voting trusts or other agreements or
understandings to which the Company or any Principal Stockholder is a
party or by which they are bound relating to the voting or registration
of any shares of capital stock of the Company.
3.4 Non-Contravention. Except as set forth in the Disclosure Schedule,
neither the execution, delivery and performance by the Company or
Principal Stockholders of this Agreement nor the consummation of the
transactions contemplated herein will (i) contravene or conflict with
the Certificate of Incorporation or bylaws of the Company or any
charter documents or bylaws of any Subsidiary, (ii) except as would not
have a Material Adverse Effect, contravene or conflict with or
constitute a violation of any provision of any Applicable Law binding
upon or applicable to the Company, any Subsidiary, the Principal
Stockholders, or any of the Company's or Subsidiary's assets; (iii)
result in the creation or imposition of any Lien on any of the
Company's or Subsidiary's assets, other than Permitted Liens or (iv) be
in conflict with, constitute (with or without due notice or lapse of
time or both) a default under, result in the loss of any material
benefit under, or give rise to any right of termination, cancellation,
increased payments or acceleration under any terms, conditions or
provisions of any note, bond, lease, mortgage, indenture, license,
contract, franchise, permit, instrument or other agreement or
obligation to which the Company, any Subsidiary or any Principal
Stockholders is a party, or by which any of their respective properties
or assets may be bound.
3.5 Consents and Approvals. Except as set forth in the Disclosure Schedule
and subject to the approval of the Stockholders, no consent, approval,
order or authorization of or from, or registration, notification,
declaration or filing with (hereinafter sometimes separately referred
to as a "Consent" and sometimes collectively as "Consents") any
individual or entity, including without limitation any Governmental
Authority or Person, is required in connection with the execution,
delivery or performance of this Agreement by the Company or any
Principal Stockholder or the consummation by the Company or any
Principal Stockholder of the transactions contemplated herein. The
Company is the "acquired person" within the meaning of Rule 801.2(b)
promulgated pursuant to the HSR Act and does not within the meaning of
Rule 801.1 of the HSR Act directly or indirectly control (as defined in
Rule 801.1(b)) any entities, trusts, partnerships or other business
organizations. The Company had total assets as of the date of its last
regularly prepared balance sheet (as determined in accordance with Rule
801.11 of the HSR Act) of less than Ten Million Dollars ($10,000,000)
and annual net sales for its most recent fiscal year (as determined in
accordance with Rule 801.11 of the HSR Act) of less than Ten Million
Dollars ($10,000,000). To the knowledge of the Company, there are no
facts
22
28
relating to the identity or circumstances of the Company that would
prevent or materially delay obtaining any of the Consents.
3.6 Financial Statements; Undisclosed Liabilities
(a) The Company has previously provided Parent with, or Parent has
otherwise obtained, true and complete copies of the audited
balance sheets and related statements of operations and cash
flows for the Company and the Subsidiaries as of and for the
fiscal years ended December 31, 1996 and 1997 (collectively, the
"1996 and 1997 Financial Statements"). At least five (5) days
prior to the Closing Date, the Company shall deliver to Parent
(i) the audited balance sheets and related statements of
operations and cash flows for the Company and the Subsidiaries as
of and for the for fiscal year ended December 31, 1998 and the
six (6) month period ended June 30, 1999 (collectively, the "1998
and 1999 Financial Statements") and (ii) unaudited balance sheets
and related statements of operations and cash flows for the
Company and the Subsidiaries as of and for the quarter ended
September 30, 1999 (the "Interim Financial Statements"). All of
the foregoing audited financial statements are collectively
referred to as the "Financial Statements" and, the June 30, 1999
audited balance sheet is referred to herein as the "Latest
Audited Balance Sheet."
(b) Each of the 1996 and 1997 Financial Statements (i) has been
prepared based on the books and records of the Company and the
Subsidiaries in accordance with GAAP and the Company's normal
accounting practices, consistent with past practice and with each
other, and present fairly the financial condition, results of
operations of the Company as of the dates indicated or for the
periods indicated; (ii) contains and reflects all necessary
adjustments, accruals, provisions and allowances for a fair
presentation of its financial condition and the results of its
operations for the periods covered by 1996 and 1997 Financial
Statements; (iii) to the extent applicable, contains and
reflects, if and to the extent required by GAAP, adequate
provisions for all reasonably anticipated liabilities for all
Taxes with respect to the periods then ended and all prior
periods; and (iv) with respect to contracts and commitments for
the sale of goods or the provision of services by the Company,
contains and reflects, if and to the extent required by GAAP,
adequate reserves for all reasonably anticipated losses and costs
and expenses in excess of expected receipts.
(c) The 1998 and 1999 Financial Statements and the Interim Financial
Statements (i) will be prepared based on the books and records of
the Company and the Subsidiaries in accordance with GAAP and the
Company's normal accounting practices, consistent with past
practice and with each other, and will present fairly the
financial condition, results of operations of the Company as of
the dates indicated or for the periods indicated; (ii) will
contain and reflect all necessary adjustments, accruals,
provisions and allowances for a fair presentation of its
financial condition and the results of its operations for the
periods covered by the 1998 and 1999 Financial Statements and the
Interim Financial Statements; (iii) to the extent applicable,
will contain and reflect, if and to the extent required by
23
29
GAAP, adequate provisions for all reasonably anticipated
liabilities for all Taxes with respect to the periods then ended
and all prior periods; and (iv) with respect to contracts and
commitments for the sale of goods or the provision of services by
the Company, will contain and reflect, if and to the extent
required by GAAP, adequate reserves for all reasonably
anticipated losses and costs and expenses in excess of expected
receipts.
(d) There are no Liabilities of the Company or any Subsidiary
including Liabilities which may become known or which arise only
after the Closing and which result from acts, omissions or
occurrences of the Company or any Subsidiary prior to the Closing
other than: (i) Liabilities and obligations which are fully
reflected or reserved for in the Latest Audited Balance Sheet;
(ii) Liabilities for express executory obligations to be
performed after the Closing (other than any express executory
obligations that might arise due to any default or other failure
of performance by the Company or any Subsidiary prior to the
Closing Date) under the Scheduled Contracts (as defined below);
(iii) Liabilities incurred by the Company or any Subsidiary in
the ordinary course of business since the Latest Audited Balance
Sheet (none of which results from, arises out of, relates to, is
in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement, or violation of Applicable Law);
and (iv) Liabilities disclosed on the Disclosure Schedule.
3.7 Absence of Certain Changes. Except as set forth in the Disclosure
Schedule or as otherwise authorized by this Agreement, since the date
of the Latest Audited Balance Sheet, the Company and each Subsidiary
has owned and operated its assets, properties and businesses in the
ordinary course of business and consistent with past practice. Without
limiting the generality of the foregoing:
(a) neither Company nor any Subsidiary has experienced any change
since the date of the Latest Audited Balance Sheet which has had
a Material Adverse Effect or experienced any event or failed to
take any action which reasonably could be expected to result in a
Material Adverse Effect;
(b) neither Company nor any Subsidiary has suffered any material
loss, damage, destruction of property or assets or other casualty
to property or assets (whether or not covered by insurance);
(c) neither Company nor any Subsidiary has suffered any loss of
officers, directors, employees, dealers, distributors,
independent contractors, customers or suppliers which had or may
reasonably be expected to result in a Material Adverse Effect;
and
(d) no event has taken place which if consummated following the date
hereof would constitute a violation of Section 5.2 of this
Agreement.
24
30
3.8 Assets and Properties.
(a) The Company and each Subsidiary has good and valid right, title
and interest in and to or, in the case of leased properties or
properties held under license, good and valid leasehold or
license interests in, all of its assets and properties,
including, but not limited to, all of the machinery, equipment,
terminals, computers, vehicles, and all other assets and
properties (real, personal or mixed, tangible or intangible)
reflected in the Latest Audited Balance Sheet and all of the
assets purchased or otherwise acquired since the date of the
Latest Audited Balance Sheet, except those assets and properties
disposed of in the ordinary course of business after the date of
the Latest Audited Balance Sheet. Except as disclosed in the
Disclosure Schedule, the Company or each Subsidiary holds title
to each such property and asset free and clear of all Liens,
except Permitted Liens.
(b) Except as disclosed in the Disclosure Schedule, (i) to the
Company's knowledge, the current use and operation of all real
property is in compliance with all Applicable Laws (including
without limitation laws relating to parking, zoning and land use)
and public and private covenants and restrictions, (ii) the
Company has not received notice of non-compliance with any
Applicable Laws and (iii) to the Company's knowledge, the
utilities, access and parking, if any, for each such real
property are adequate for the current use and operation of each
such real property. Except as disclosed in the Disclosure
Schedule, there are no zoning, building code, occupancy
restriction or other land-use regulation proceedings or, to the
knowledge of the Company, any proposed change in any Applicable
Laws, which could materially detrimentally affect the use or
operation of any real property, nor has the Company received any
notice of any special assessment proceedings affecting the real
property, or applied for any change to the zoning or land use
status of the real property. The Company has obtained all
licenses, permits, approvals, easements and rights of way (and
all such items are currently in full force and effect) required
from any Governmental Authority having jurisdiction over each
real property or from private parties for the current use and
operation of each real property. Except as set forth in the
Disclosure Schedule, neither the Company, any Subsidiary nor any
Principal Stockholder is a foreign person, as the term foreign
person is defined in Section 1445(f)(3) of the Code.
3.9 Manufacturing Compliance. All products manufactured and sold by the
Company or any Subsidiary were designed, manufactured, labeled,
packaged and sold in accordance with all Applicable Laws pertaining to
medical devices including, but not limited to, the FDC Act and the
regulations promulgated thereunder, and the GMP/QSR Regulations
promulgated under the FDC Act. Except as set forth in the Disclosure
Schedule, (i) all of the manufacturing facilities of the Company and
the Subsidiaries are in compliance with all GMP/QSR Regulations and ISO
9001, 9002, EN 29001, 46001 requirements and (ii) the Company and each
Subsidiary has obtained all approvals and consents required to ▇▇▇▇ the
Company's products with the "CE" ▇▇▇▇.
3.10 Inventories. Except as set forth in the Disclosure Schedule, all
inventories of the Company and each Subsidiary reflected in the Latest
Audited Balance Sheet (i) consist of
25
31
items of merchantable quality and quantity usable and salable in the
ordinary course of business, (ii) are salable at prevailing market
prices that are not less than the book value amounts thereof or the
price customarily charged by the Company or the applicable Subsidiary
therefor, (iii) conform to the specifications established therefor, and
(iv) have been manufactured in accordance with all Applicable Laws. The
quantities of all inventories, materials and supplies of the Company
and each Subsidiary are not obsolete, damaged, slow-moving, defective
or excessive and the present quantities of all inventory, materials and
supplies of the Company and each Subsidiary are reasonable in the
present circumstances of the business of the Company, as a whole, as
currently conducted, except for items that are obsolete or below
standard quality, all of which are immaterial to the overall financial
condition of the Company, taken as a whole, and have been adequately
reserved for in the Financial Statements.
3.11 Receivables and Payables.
(a) The Disclosure Schedule contains a summary of the receivables
(including an aging schedule of accounts receivables) of the
Company and each Subsidiary and such summary is complete and
accurate as of October 31, 1999, and the listing of all of the
receivables (including an aging schedule of accounts receivables)
of the Company and each Subsidiary as of September 30, 1999
previously provided to the Parent is complete and accurate as of
such date. The Disclosure Schedule will be supplemented pursuant
to Section 5.9 to contain a list of all of the receivables
(including an aging schedule of accounts receivables) of the
Company and each Subsidiary as of the last day of the month
preceding the Closing. Except as set forth in the Disclosure
Schedule, (i) the Company and each Subsidiary has good right,
title and interest in and to all its accounts receivables of any
kind or nature whatsoever whether reflected on the Latest Audited
Balance Sheet or acquired or generated since the date of the
Latest Audited Balance Sheet (except those paid since the date of
the Latest Audited Balance Sheet), (ii) none of such receivables
is subject to any Lien (whether or not of record), except
Permitted Liens, (iii) all of the receivables owing to the
Company and each Subsidiary constitute valid and enforceable
claims arising from bona fide transactions in the ordinary course
of business, and neither the Company nor any Subsidiary has
received any written or oral claims or refusals to pay (as
opposed to ability to pay), or granted any rights of set-off,
against any thereof, (iv) to the knowledge of the Company there
is no reason why any receivable will not be collected in
accordance with its terms, other than for receivables which are
not in excess of the reserves established therefor and reflected
in the Latest Audited Balance Sheet; and (v) no account or note
debtor is delinquent in payment by more than 60 days.
(b) The Disclosure Schedule contains a listing of Loans and all
outstanding and unpaid accounts payable that are as of September
30, 1999 more than 60 days past due or that relate to services
that were performed more than 90 days prior to September 30,
1999. The Disclosure Schedule will be supplemented pursuant to
Section 5.9 to contain a listing of Loans and all such
outstanding and unpaid accounts payable that are as of five (5)
Business Days prior to the Closing Date more than 60 days past
due or that relate to services that were performed more
26
32
than 90 days prior to the Closing Date. All such payables arose
from bona fide transactions in the ordinary course of the
Company's business.
3.12 Litigation. Except as set forth in the Disclosure Schedule, (i) there
are no actions, suits, claims, hearings, arbitrations, proceedings
(public or private) or governmental investigations that have been
brought by or against any Governmental Authority or any other Person
(collectively, "Proceedings"), nor any investigations or reviews by any
Governmental Authority against or affecting the Company or any
Subsidiary, pending or, to the knowledge of the Company, threatened,
against or by the Company or any Subsidiary or any of their assets or
which seek to enjoin or rescind the transactions contemplated by this
Agreement; and (ii) to the knowledge of the Company or any Subsidiary,
there are no existing orders, judgments or decrees of any Governmental
Authority naming the Company or any Subsidiary as an affected party or
otherwise affecting any of the assets or the business of the Company or
any Subsidiary.
3.13 Contracts.
(a) The Disclosure Schedule sets forth a complete list of all
existing Contracts of the Company and the Subsidiaries, including
without limitation the following (collectively, the "Scheduled
Contracts"):
(i) Each Contract relating to all real property in which the
Company or any Subsidiary has a leasehold or other interest
or which is used by Company or any Subsidiary in connection
with the operation of their respective businesses, together
with a description of each lease, sublease, license, or any
other instrument under which the Company or such Subsidiary
claims or holds such leasehold or other interest or right to
the use thereof or pursuant to which the Company or such
Subsidiary has assigned, sublet or granted any rights
therein, such description to be limited to identifying the
parties thereto, the rental or other payment terms,
expiration date and cancellation and renewal terms thereof.
(ii) Each Contract relating to all machinery, tools, equipment,
motor vehicles, rolling stock and other tangible personal
property (other than inventory and supplies) owned, leased
or used by the Company or a Subsidiary, except for items
having a value of less than $10,000 which do not, in the
aggregate, have a total value of more than $25,000, setting
forth with respect to all such listed property a summary
description of all leases, Liens, restrictions, covenants
and conditions relating thereto, identifying the parties
thereto, the rental or other payment terms, expiration date
and cancellation and renewal terms thereof.
(iii) Each Contract to which the Company or any Subsidiary is a
party that could reasonably be expected to involve payments
by or to the Company or any Subsidiary in excess of $25,000,
or would have a Material Adverse Effect, or that was not
made in the ordinary course of business.
27
33
(iv) All Contracts relating to, or evidences of, or guarantees
of, or providing security for, indebtedness or the deferred
purchase price of property (whether incurred, assumed,
guaranteed or secured by any asset).
(v) Every independent sales representative, buy-sell, letter of
credit, OEM, supply, sales, distribution, commission,
manufacturers' representative, dealer, agency, lease,
licensing, franchise, marketing, technical assistance or
similar agreements relating to or providing for the
marketing and/or sale of the products or services,
development, joint development, research and development or
similar Contracts.
(vi) All acquisition, partnership, joint venture, teaming
arrangements or other similar Contracts.
(vii) Each Contract restricting or otherwise affecting the
ability of the Company or any Subsidiary to conduct its
business.
(viii) All Benefit Plans.
(ix) All Contracts with any "disqualified individual" (as defined
in Section 280G(c) of the Code) which contains any severance
or termination pay liabilities which would result in a
disallowance of the deduction for any "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code)
under Section 280G of the Code.
(x) Every Contract between the Company or any Subsidiary and any
of the Company's officers, directors or more than 5%
stockholders, or any entity in which any of the Company's
officers, directors or more than 5% stockholders has a
greater than 2% equity interest.
(xi) All Contract with surgeons, inventors, trainers,
consultants, educators, advisory and clinical agents who
performed or are performing any services related to the
products of the Company and the Subsidiaries, excluding any
such Contracts that are limited to non-disclosure of
confidential information.
(b) The Company has delivered to Parent true and correct copies (or
summaries, in the case of any oral Contracts) of all such
Scheduled Contracts. Except as otherwise specified in the
Disclosure Schedule, none of the Scheduled Contracts contain a
provision requiring the consent of any party with respect to the
consummation of the transaction contemplated herein. No notice of
material default arising under any Scheduled Contract has been
delivered to or by the Company or the Subsidiaries. Each
Scheduled Contract is a legal, valid and binding obligation of
the Company or a Subsidiary, as applicable, and each other party
thereto, enforceable against each such party thereto in
accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally
28
34
and subject to general principles of equity, and neither the
Company, the Subsidiaries or the other party thereto is in
breach, violation or default thereunder.
3.14 Permits. The Disclosure Schedule sets forth all approvals,
authorizations, certificates, consents, licenses, orders and permits
and other similar authorizations of all Governmental Authorities (and
all other Persons) materially necessary for the Company and each
Subsidiary to conduct their respective businesses and own and operate
their respective properties (the "Permits"). Except as set forth in the
Disclosure Schedule, each Permit is valid and in full force and effect
and none of the Permits will be terminated, revoked, modified or become
terminable or impaired in any respect for any reason, except as would
not have a Material Adverse Effect. The Company and each Subsidiary has
conducted its business in compliance with all material terms and
conditions of the Permits.
3.15 Compliance with Applicable Laws. Except as set forth in the Disclosure
Schedule, neither the Company nor any Subsidiary has violated or
infringed, nor is it in violation or infringement of, any Applicable
Law or any order, writ, injunction or decree of any Governmental
Authority in connection with its activities and the activities of each
of its Subsidiaries, except for such violations or infringements which
would not have a Material Adverse Effect. The Company and each
Subsidiary, and each of their respective officers, directors, agents
and employees have complied with all Applicable Laws, including, but
not limited to, Applicable Laws of Israel relating to the design,
development, manufacture, marketing or sale of the products of the
Company except where such failure to comply would not have a Material
Adverse Effect. No claims have been filed against the Company or any
Subsidiary alleging a violation of any Applicable Law.
3.16 Benefit Plans. Except as set forth in the Disclosure Schedule:
(a) Neither the Company nor any Subsidiary sponsors, maintains or
contributes to, or has at any time ever sponsored, maintained,
contributed to or been required to contribute to any Pension
Plan, including, without limitation, solely for purposes of this
subsection, a plan excluded from coverage by Section 4 of ERISA
and, including without limitation any such Pension Plan which is
a "Multiemployer Plan" within the meaning of Section 4001(a)(3)
of ERISA. Each such Pension Plan is in compliance in all material
respects with the applicable provisions of ERISA for which
deadlines for compliance have passed, the applicable provisions
of the Code for which deadlines of compliance have passed and all
other Applicable Law. No Pension Plan is subject to Title IV of
ERISA or to Section 412 of the Code.
(b) Neither the Company nor any Subsidiary has ceased operations at
any facility or withdrawn from any Pension Plan or otherwise
acted or omitted to act in a manner which could subject it to
liability under Section 4062, Section 4063, Section 4064 or
Section 4069 of ERISA and there are no facts of circumstances
which present a material risk of giving rise to any liability of
the Company or any Subsidiary to the Pension Benefit Guaranty
Corporation ("PBGC") under Title IV of ERISA or
29
35
which could reasonably be anticipated to result in any claims
being made against Parent, a Subsidiary or the Company by the
PBGC. Neither the Company nor any Subsidiary has incurred any
withdrawal liability (including without limitation any contingent
or secondary withdrawal liability) within the meaning of Section
4201 and Section 4204 of ERISA to any Multiemployer Plan. Neither
the Company nor any Subsidiary has, with respect to any Pension
Plan which is a Multiemployer Plan, suffered or otherwise caused
a "complete withdrawal" or a "partial withdrawal," as such terms
are defined respectively in Sections 4201, 4203, 4204 and 4205 of
ERISA. The Company and the Subsidiaries, collectively and
individually, had no liability to any such Multiemployer Plan in
the event of a complete or partial withdrawal therefrom as of the
close of the most recent fiscal year of any such Multi-employer
Plan ended prior to the date hereof.
(c) Neither the Company nor any Subsidiary sponsors, maintains,
contributes to, or has at any time ever sponsored, maintained,
contributed to, or been required to contribute to any Welfare
Plan, whether insured or otherwise, and any such Welfare Plan
maintained by the Company is in compliance in all material
respects with the provisions of ERISA and all other Applicable
Laws, including without limitation Code Section 4980B. Neither
the Company nor any Subsidiary has established or contributed to
any "voluntary employees' beneficiary association" within the
meaning of Section 501(c)(9) of the Code.
(d) Except as set forth on the Disclosure Schedule, neither the
Company nor any Subsidiary maintains or contributes to any
Benefit Plans.
(e) Neither any Benefit Plan nor any trust created or insurance
contract issued thereunder nor any trustee or administrator
thereof nor any officer, director or employee of the Company or
any Subsidiary, custodian or any other "disqualified person"
within the meaning of Section 4975(e)(2) of the Code, or "party
in interest" within the meaning of Section 3(14) of ERISA, with
respect to any such Benefit Plans or any such trust or insurance
contract or any trustee, custodian or administrator thereof, or
any disqualified person, party in interest or person or entity
dealing with such Benefit Plans or any such trust, insurance
contract or any trustee has engaged in any conduct that could
reasonably be expected to subject the Company or any Subsidiary
to a tax or penalty on prohibited transactions imposed by Section
4975 of the Code or to a civil penalty imposed by Section 502 of
ERISA. There are no facts or circumstances which could subject
the Company or any Subsidiary to any excise tax under Section
4972 or Sections 4976 through 4980, both inclusive, of the Code.
The Company has complied in all material respects with the
requirements of COBRA with respect to each Welfare Plan which is
a Group Health Plan and there are no facts or circumstances which
could subject the Company or any Subsidiary to any excise tax
under Section 4980B of the Code.
(f) Full payment has been made of all amounts which the Company or
any Subsidiary is required, under Applicable Law, with respect to
any Benefit Plan, or any agreement relating to any Benefit Plan,
to have paid as a contribution thereto.
30
36
No accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any Pension Plan. Neither the Company nor any
Subsidiary sponsors, maintains or contributes to, or has ever
sponsored, maintained or contributed to or been required to
contribute to, any Pension Plan subject to Part 3 of Title I of
ERISA or Section 412(n) of the Code. The Company and each
Subsidiary has made adequate provisions for reserves, to the
extent required by GAAP, to meet contributions which have not
been made because they are not yet due under the terms of any
Benefit Plan or related agreements. All Pension Plans which the
Company or a Subsidiary operates as plans that are qualified
under the provisions of Section 401(a) of the Code satisfy in all
material respects the requirements of Section 401(a) and all
other sections of the Code incorporated therein, including
without limitation Section 401(k) of the Code; and the IRS has
issued favorable determination letters with respect to all
Pension Plans and, to the Company's knowledge, nothing has
occurred since the issuance of any such letters that present a
material risk of adversely affecting such favorable
determination. There will be no change on or before Closing in
the operation of any Benefit Plan or any documents with respect
thereto which will result in a material increase in the benefit
liabilities under such plans, except as may be required by
Applicable Law or the terms of the Benefits Plan.
(g) The Company and each Subsidiary has complied with the reporting
and disclosure obligations with respect to the Benefit Plans
imposed by Title I of ERISA or other Applicable Law.
(h) There are no pending or, to the Company's knowledge, threatened
claims, suits or other proceedings against the Company or any
Subsidiary or any other party by present or former employees of
the Company or any Subsidiary, plan participants, beneficiaries
or spouses of any of the above, including without limitation
claims against the assets of any trust, involving any Benefit
Plan, or any rights or benefits thereunder, other than the
ordinary and usual claims for benefits by participants or
beneficiaries.
(i) The transactions contemplated by this Agreement do not, by
themselves, result in, and are not a condition to, the
acceleration or accrual, vesting, funding or payment of any
contribution or benefit under any Benefit Plan.
(j) No action or omission of the Company or any Subsidiary or any
director, officer, employee, or agent thereof in any way
restricts, impairs or prohibits Parent or the Company or any
Subsidiary or any successor from amending, merging, or
terminating any Benefit Plan in accordance with the express terms
of any such plan and Applicable Law.
(k) The Disclosure Schedule lists, and the Company has delivered to
Parent, true and complete copies of: (i) all Benefit Plans and
related trust agreements or other agreements or contracts
evidencing any funding vehicle with respect thereto; (ii) the
most recent annual reports on Treasury Form 5500, including all
schedules
31
37
and attachments thereto, with respect to any Benefit Plan for
which such a report is required; (iii) the most recent actuarial
reports with respect to any Pension Plan that is a "defined
benefit plan" within the meaning of Section 414(j) of the Code;
(iv) the form of summary plan description, including any summary
of material modifications thereto or other modifications
communicated to participants, currently in effect with respect to
each Benefit Plan; (v) the most recent determination letter with
respect to each Pension Plan intended to qualify under Section
401(a) of the Code and the full and complete application therefor
submitted to the IRS; and (vi) all professional opinions,
material internal memoranda, material correspondence with
regulatory authorities and administrative policies, manuals,
interpretations and the like with respect to each Benefit Plan.
3.17 Labor and Employment Matters.
(a) The Disclosure Schedule sets forth a list of the current
employees, officers and directors of the Company and IMT
Subsidiary, separated by entity, and identifies for each such
employee, officer and director all compensation and benefits paid
or payable by the Company or IMT Subsidiary, as applicable, and
the terms and conditions of employment for such employees and
officers of the Company and IMT Subsidiary. The Disclosure
Schedule identifies all employees who are currently on leave for
any reason or receiving disability or workers' compensation or
any other similar type of benefit from the Company or IMT
Subsidiary.
(b) Except as set forth in the Disclosure Schedule, the Company and
each Subsidiary is and has been in compliance in all material
respects with all Applicable Laws respecting employment and
employment practices, terms and conditions of employment and
wages and hours, including without limitation any such Applicable
Laws respecting employment discrimination and occupational safety
and health requirements, and has not and is not engaged in any
unfair labor practice. There is no unfair labor practice
complaint against the Company or any Subsidiary pending or, to
Company's knowledge, threatened before the National Labor
Relations Board or any other comparable Governmental Authority.
There is no labor strike, dispute, slowdown or stoppage actually
pending or, to the Company's knowledge, threatened against or
directly affecting the Company or any Subsidiary. No labor
representation question exists respecting the employees of the
Company or any Subsidiary and there is not pending or, to the
Company's knowledge, threatened any activity intended or likely
to result in a labor representation vote respecting the employees
of the Company or any Subsidiary. No grievance or any arbitration
proceeding arising out of or under collective bargaining
agreements is pending and no claims therefor exist or, to the
Company's knowledge, have been threatened. No collective
bargaining agreement is binding and in force against the Company
or any Subsidiary or currently being negotiated by the Company or
any Subsidiary. The Company and its Subsidiaries have not
experienced any significant work stoppage or other significant
labor difficult. The Company and its Subsidiaries are not
delinquent in payments to any persons for any wages, salaries,
commissions, bonuses or other
32
38
direct or indirect compensation for any services performed by
them or amounts required to be reimbursed to such persons,
including without limitation any amounts due under any Benefit
Plan. Upon termination of the employment of any person, neither
the Company, any Subsidiary, Parent or any subsidiary of Parent
will, by reason of any agreement or understanding to which the
Company or any Subsidiary is a party, be liable to any of such
persons for so-called "severance pay" or any other payments,
except as may be set forth in the Disclosure Schedule. Within the
twelve-month period prior to the date hereof there has not been
any expression of intention to the Company or any Subsidiary by
any officer or key employee to terminate such employment.
(c) All individuals who are performing or have performed services for
the Company or any of its Affiliates and who are or were
classified by the Company or any of its Affiliates as
"independent contractors" qualify for such classification under
Section 530 of the Revenue Act of 1978 or Section 1706 of the Tax
Reform Act of 1986, as applicable, except for such instances
which would not, in the aggregate, have a Material Adverse
Effect, and such individuals are not entitled to any benefits
under the Benefit Plans maintained by the Company or any
Subsidiary.
3.18 Israeli Labor Matters.
(a) All the personal employment agreements of the employees of each
of the IMT Subsidiary are substantially in the form attached to
the Disclosure Schedule. Other than as listed in Disclosure
Schedule, there is no person or entity (including, without
limitation, "agents", "distributors", "independent contractors",
"consultants" or employees of manpower companies or other service
providers) that may be deemed to be an employee of the IMT
Subsidiary.
(b) The IMT Subsidiary is not a party to any collective labor
agreement and does not have any other agreement or arrangement
with any trade union or other body representing any of its
employees. The IMT Subsidiary has not recognized or received a
demand for recognition from any collective bargaining
representative with respect to any of its or their employees.
Other than as set forth in the Disclosure Schedule, or pursuant
to applicable employment laws and regulations and extension
orders ("zavei harhav"), the IMT Subsidiary is not subject to,
nor do employees of any such corporation benefit from any
agreement, arrangement, understanding or custom with respect to
employment. Other than as expressly set forth in the Disclosure
Schedule, the IMT Subsidiary does not have any custom with
respect to termination of employment.
(c) Except for the employment agreements listed on the Disclosure
Schedule hereto, there are no agreements between the IMT
Subsidiary and any of its directors, officers, executives or
employees which cannot be terminated by the IMT Subsidiary on
three months notice or less without giving rise to a claim for
damages or compensation (except for statutory severance pay or
other statutory payments).
33
39
(d) Other than as set forth in the Disclosure Schedule, there is no
outstanding claim or complaint (including, without limitation,
any claim resulting from a bonus arrangement), against the IMT
Subsidiary by any person who is now or has been an officer or
employee of the IMT Subsidiary. Without limiting the generality
of the above, there are no unfair labor practice claims or
charges pending, or to the knowledge of the IMT Subsidiary,
threatened against the IMT Subsidiary. With respect to the
employees of the IMT Subsidiary, individually and in the
aggregate, no event has occurred and, to the best knowledge of
the Company, there exists no condition or set of circumstances,
in connection with which the IMT Subsidiary could be subject to
any liability that is reasonably likely to have a Material
Adverse Effect.
(e) The severance pay due to the employees of the IMT Subsidiary is
fully funded or provided for in accordance with GAAP,
consistently applied, all liabilities of the IMT Subsidiary in
connection with its respective employees (excluding illness pay)
were adequately accrued in the Financial Statements (in
accordance with GAAP), and the Company is not aware of any
circumstance whereby any employee of the IMT Subsidiary might
demand (whether legally entitled to or not) any claim for
compensation on termination of employment beyond the statutory
severance pay or other statutory payments to which such employee
is entitled.
(f) All amounts which the IMT Subsidiary is legally or contractually
required to deduct from its employees' salaries and/or transfer
to such employees' pension or provident, life insurance,
incapacity insurance, continuing education fund or otherwise have
been duly paid into the appropriate fund or funds, and the IMT
Subsidiary does not have any outstanding obligation to make any
such transfer or provision.
(g) Except as disclosed in Disclosure Schedule, the consummation of
the Merger and the other transactions contemplated by this
Agreement will not, either alone or in connection with an
employee's termination of employment or other event, result in an
increase in the amount of compensation or benefits or accelerate
the vesting or timing of payment of any benefits or compensation
payable to or in respect of any employee of the IMT Subsidiary.
3.19 Intellectual Property. Except as set forth in the Disclosure Schedule:
(a) The Company and each Subsidiary of the Company owns or has the
unrestricted right to use all intellectual property rights,
including without limitation the patents, patent applications,
patent rights, registered and unregistered trademarks, trademark
applications, trade names, service marks, service ▇▇▇▇
applications, copyrights, brand ▇▇▇▇ or brand name or any pending
application related thereto, computer programs and other computer
software, inventions, know-how, trade secrets, technology,
proprietary processes and formulae used in connection with the
business of the Company and its Subsidiaries or for the design,
development, manufacture, marketing, importing, offering for
sale, sale or other disposition of
34
40
the Company's products (collectively, "Intellectual Property
Rights"), free and clear of all Liens, except Permitted Liens.
(b) All of the Intellectual Property Rights owned or used by the
Company or its Subsidiaries are subsisting, unexpired, have not
been abandoned and have been properly and validly filed,
submitted or maintained to the applicable government agency if
such filing, submission or maintenance is necessary in order to
perfect such rights. Neither the Company nor any of its
Subsidiaries has knowingly misappropriated the trade secrets,
technology, know-how, inventions or the like of any third party.
No judgment, decree, injunction, rule or order, directly or
indirectly relating to the Company's or its Subsidiaries' rights
in and to the Intellectual Property Rights has been rendered by
any governmental entity which would limit, cancel or question the
validity of or their respective rights in and to, any of the
Intellectual Property Rights. Neither the Company nor any of its
Subsidiaries has received written notice, and do not otherwise
have knowledge, of any pending or threatened suit, action or
proceeding that either does or would limit, cancel or question
the validity of, or the Company's or its Subsidiaries' rights in
and to, any of the Intellectual Property Rights. Neither the
Company nor any of its Subsidiaries has received notice, and do
not otherwise have knowledge, of any allegations, assertions or
other indications that the manufacturing, marketing or selling of
any of the products of the Company or its Subsidiaries infringe
the intellectual property rights of a third party.
(c) The Company and its Subsidiaries have taken all reasonable
measures to maintain the confidentiality of all of the
Intellectual Property Rights the value of which is contingent, in
whole or in part, upon maintenance of the confidentiality
thereof. Except as described in the Disclosure Schedule, neither
the Company nor its Subsidiaries (i) own or use any Intellectual
Property Rights pursuant to any written license agreement; and
(ii) has granted any person or entity any rights, pursuant to
written license agreement or otherwise, to use the Intellectual
Property Rights.
(d) Neither the Company nor any of its Subsidiaries has entered into
any agreements or understandings, written or oral, with any third
party permitting the sale or distribution of any of their
products anywhere in the world, except for such agreements and
understanding that have been validly terminated. The Company and
each Subsidiary has the sole exclusive right to market and sell
their products anywhere in the world and no third party has any
rights or claims to prevent such activities of the Company and
the Subsidiaries.
(e) The Disclosure Schedule sets forth a complete and correct list of
all patents, patent applications, trademarks, trademark
applications and licenses (other than licenses for commercially
available software) that are a part of the Intellectual Property
Rights of the Company and each Subsidiary.
3.20 Environmental Compliance. Except as set forth in the Disclosure
Schedule:
35
41
(a) Neither the Company or any Subsidiary, nor any previous owner,
tenant, occupant or user of any property owned or leased by or
to the Company or a Subsidiary (the "Properties") engaged in
or permitted, direct or indirect, operations or activities
upon, or any use or occupancy of the Properties, or any
portion thereof, for the purpose of or in any way involving
the handling, manufacture, treatment, storage, use,
generation, emission, release, discharge, refining, dumping or
disposal of any Environmentally Regulated Materials (whether
legal or illegal, accidental or intentional, direct or
indirect) on, under, in or about the Properties, or
transported any Environmentally Regulated Materials to, from
or across the Properties, nor are any Environmentally
Regulated Materials presently constructed, deposited, stored,
placed or otherwise located on, under, in or about the
Properties, nor have any Environmentally Regulated Materials
migrated from the Properties upon or beneath other properties,
nor have any Environmentally Regulated Materials migrated or
threatened to migrate from other properties upon, about or
beneath the Properties. The Properties do not contain any: (i)
underground or aboveground storage tanks; (ii) asbestos; (iii)
equipment containing polychlorinated biphenyls ("PCBs"); (iv)
underground injection ▇▇▇▇▇; or (v) septic tanks in which
process waste water or any Environmentally Regulated Materials
have been disposed.
(b) No violation or noncompliance with any Environmental Law has
occurred with respect to the Properties or to the operations
conducted on the Properties by the Company or any Subsidiary;
the Company and each Subsidiary has obtained all required
Permits, and the Company, the Subsidiaries, and the Properties
are in compliance with all Environmental, Safety and Health
Laws including, without limitation, all applicable
restrictions, conditions, standards, limitations,
prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental, Safety and Health
Laws or contained in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder.
(c) No enforcement, investigation, cleanup, removal, remediation
or response or other governmental or regulatory actions have
been, asserted or threatened with respect to operations
conducted on the Properties by the Company or any Subsidiary
or against the Company or the Subsidiaries with respect to or
in any way regarding the Properties pursuant to any
Environmental Law;
(d) There are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or
in any way affecting the Company or any Subsidiary or their
business or assets that violate, or may violate after the
Closing, any Environmental Law, or that may give rise to any
Environmental Liability, or otherwise form the basis of any
claim, action, demand, suit, Proceeding, hearing, study or
investigation (i) under any Environmental Law, (ii) based on
or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the
emission, discharge, release or threatened release of any
Environmentally Regulated Material, (iii) resulting exposure
to workplace hazards or (iv) resulting
36
42
from any alleged exposure of any kind to any Environmentally
Regulated Material and/or relating to any warning or asserted
failure to warn of any exposure or potential exposure to any
Environmentally Regulated Material.
(e) With regard to the Company, the Subsidiaries and the
Properties, there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or
plans which may interfere with or prevent compliance or
continued compliance with Environmental, Safety and Health
Laws.
(f) All machinery, tools, devices and equipment of any kind
operated by the Company or any Subsidiary on the Properties
have been operated in compliance with all Environmental,
Safety and Health Laws, and all such equipment currently is
operational, nondefective and in the condition required that
will allow for continued operation in compliance with all
Environmental, Safety and Health Laws.
(g) The Company has delivered to Parent all environmental
documents, studies and reports in its possession or under its
control relating to: (i) any facilities or real property ever
owned, operated or leased by the Company; or (ii) any actual
or potential Environmental Liability of the Company or any
Subsidiary.
3.21 Insurance. The Disclosure Schedule contains an accurate and complete
list of all insurance policies owned or held by the Company and the
Subsidiaries, including, but not limited to, fire and other casualty,
general liability, theft, life, workers' compensation, health,
directors and officers, business interruption and other forms of
insurance owned or held by the Company and the Subsidiaries, specifying
the insurer the policy number, and the term of the coverage. All
present policies are in full force and effect and all premiums with
respect thereto have been paid. The Company has not been denied any
form of insurance and no policy of insurance has been revoked or
rescinded during the past five years, except as described on the
Disclosure Schedule.
3.22 Tax Matters.
(a) Except as set forth in the Disclosure Schedule, the Company
and each Subsidiary, combined or unitary group of which the
Company or any Subsidiary is or was a member of, has prepared
and timely filed all Tax Returns it is required to have filed
on or prior to the Closing Date. As of the time of filing,
such Tax Returns were accurate and correct in all respects and
did not contain a disclosure statement under Section 6662 of
the Code (or any predecessor provision or comparable provision
of state, local or foreign law). Any Tax Returns filed after
the date hereof, but on or before the Closing Date, will
conform with the provisions of this Section 3.22.
(b) The Company and each Subsidiary has paid or adequately
provided for (on its Latest Audited Balance Sheet in
accordance with GAAP) all Taxes (whether or not shown on any
Tax Return) they are required to have paid or to pay with
37
43
respect to all taxable periods (or portions thereof ) ending
on or before the Closing Date.
(c) Except as set forth in the Disclosure Schedule, no claim for
assessment or collection of Taxes is presently being asserted
against the Company or any Subsidiary, and neither the Company
nor any Subsidiary is a party to any pending action,
proceeding, or investigation by any governmental taxing
authority, nor does the Company have knowledge of any such
threatened action, proceeding or investigation. No claim has
been made in any jurisdiction where the Company and the
Subsidiaries do not file Tax Returns that the Company or
Subsidiaries may be subject to Tax by that jurisdiction
(d) Except as set forth in the Disclosure Schedule, neither the
Company, nor any Subsidiary is a party to any agreement,
contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in connection with
this Agreement or any change of control of the Company or any
Subsidiary, in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code.
(e) All deficiencies and assessments of Taxes of the Company and a
Subsidiary resulting from an examination of any Tax Returns by
any Governmental Authority have been paid and there are no
pending examinations currently being made by any Governmental
Authority nor has there been any written or oral notification
to the Company or any Subsidiary of any intention to make an
examination of any Taxes by any Governmental Authority. There
are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any Tax Return
for any period.
(f) For purposes of computing Taxes and the filing of Tax Returns,
neither the Company nor any Subsidiary of the Company has
failed to treat as "employees" any individual providing
services to the Company or a Subsidiary who would be
classified as an "employee" under the applicable rules or
regulations of any Governmental Authority with respect to such
classification.
(g) The Company and each Subsidiary complied with all Applicable
Laws relating to the withholding of Taxes and the payment
thereof (including, without limitation, withholding of Taxes
under Sections 1441 and 1442 of the Code, or similar
provisions under any foreign laws), and timely and properly
withheld from individual employee wages and paid over to the
proper Governmental Authority all amounts required to be so
withheld and paid over under all Applicable Laws.
(h) Neither the Company nor any Subsidiary is a party to any Tax
allocation or sharing agreement.
(i) Except as set forth in the Disclosure Schedule, neither the
Company nor any Subsidiary has requested any extension of time
within which to file any Tax Return, which Tax Return has not
since been filed.
38
44
(j) No property of the Company or any Subsidiary is property that
the Company or any Subsidiary is required to treat as being
owned by another person under the provisions of Section
168(f)(8) of the Code (as in effect prior to amendment by the
Tax Reform Act of 1986) or is "tax-exempt use property" within
the meaning of Section 168 of the Code.
(k) Neither the Company nor any Subsidiary is required to include
in income any adjustment under Section 481(a) of the Code by
reason of a voluntary change in accounting method initiated by
the Company or any Subsidiary.
(l) Neither the Company nor any Subsidiary made an election under
Section 341(f) of the Code for any taxable years not yet
closed for statute of limitation purposes.
(m) The Company and the Subsidiaries are, and at all times have
been, corporations or associations taxable as corporations for
United States income tax purposes.
(n) Neither the Company nor any Subsidiary is, or has been at any
time, a United States real property holding company within the
meaning of Section 897(c) of the Code.
(o) The Disclosure Schedule lists each tax incentive to which the
IMT Subsidiary is entitled under the laws of the State of
Israel, and the nature of such tax incentive. The IMT
Subsidiary has complied with all requirements of Israeli law
necessary to be entitled to claim the tax incentive. Except as
disclosed in the Disclosure Schedule no consent or approval of
any governmental authority is required prior to consummation
of the Merger in order to preserve the entitlement of the IMT
Subsidiary to any such incentive.
3.23 Grants, Incentives and Subsidies. The Disclosure Schedule sets forth a
complete list of all pending and outstanding grants, incentives and
subsidies (collectively, "Grants") from the Government of the State of
Israel or any agency thereof, or from any foreign governmental or
administrative agency, to the Company or any Subsidiary including,
without limitation, (i) Approved Enterprise Status from the Investment
Center of the Israeli Ministry of Industry and Trade and (ii) grants
from the Office of Chief Scientist of the Israeli Ministry of Industry
and Trade (the "OCS"). The Company has delivered to the Parent correct
copies of all applications for Grants submitted by the Company or any
Subsidiary and of all letters of approval, and supplements thereto,
granted to the Company or any Subsidiary. The Disclosure Schedule also
details all material undertakings of the Company or any Subsidiary
given in connection with the Grants, and includes the aggregate amounts
of each Grant, and the aggregate outstanding obligations thereunder of
the Company or any Subsidiary with respect to royalties, or the
outstanding amounts to be paid by the OCS to the Company or any
Subsidiary and the composition of such obligations or amount by product
or product family to which it relates. The Company and each Subsidiary
are in compliance, in all material respects, with the terms and
conditions of their respective Grants and, except as disclosed in the
Disclosure Schedule, have duly fulfilled, in all material respects, all
the undertakings relating thereto. Neither the Company nor any
Subsidiary is aware of any event or other set of
39
45
circumstances which might lead to the revocation or material
modification of any of the Grants.
3.24 Year 2000. The Company is aware of the millennium rollover event, also
known as the Year 2000 ("Y2K") issue, and its potential impact on the
Company as a whole, its products and its customers. Except as set forth
in the Disclosure Schedule, all internal computer of the Company and
the Subsidiaries are Y2K compliant or are scheduled for replacement
and/or upgrade prior to the year 2000 without any additional material
costs to the Company. The Company has delivered to each of its material
suppliers a request for confirmation that the supply of goods and
services will not be interrupted due to Y2K non-compliance, the form of
which has been previously provided to Parent, and no supplier has
responded to the effect that the supply of goods and services would be
interrupted due to Y2K non-compliance. Except as set forth in the
Disclosure Schedule, the Company has not made any representations in
contracts for services or equipment regarding Y2K compliance. The
Disclosure Schedule sets forth (i) a description of any significant
non-compliant internal computer systems, and (ii) an estimate of the
capital expenditures necessary to make such systems Y2K compliant.
3.25 Bank Accounts; Powers of Attorney. The Disclosure Schedule sets forth:
(i) the names of all financial institutions, investment banking and
brokerage houses, and other similar institutions at which the Company
or its Subsidiaries maintain accounts, deposits, safe deposit boxes of
any nature, and the names of all persons authorized to draw thereon or
make withdrawals therefrom and a description of such accounts; and (ii)
the names of all persons or entities holding general or special powers
of attorney from the Company or any of its Subsidiaries and copies
thereof.
3.26 Orders, Commitments and Returns. Except as set forth in the Disclosure
Schedule, all accepted and unfulfilled orders for the sale of products
and the performance of services entered into by the Company or any of
its Subsidiaries and all outstanding contracts or commitments for the
purchase of supplies, materials and services by or from the Company or
any of its Subsidiaries were made in bona fide transactions in the
ordinary course of business. Except as set forth in the Disclosure
Schedule, there are no material claims against the Company or any of
its Subsidiaries to return products by reason of alleged
over-shipments, defective products or otherwise, or of products in the
hands of customers, retailers or distributors under an understanding
that such products would be returnable.
3.27 Product Liability Claims. Neither the Company nor any Subsidiary has
ever received a claim, or incurred any uninsured or insured liability,
for or based upon failure to warn, Proposition 65, breach of product
warranty (other than warranty service and repair claims incurred in the
ordinary course of business and expensed as warranty expense on the
Financial Statements for the period in which incurred), strict
liability in tort, general negligence, negligent manufacture of
product, negligent provision of services or any other allegation of
liability, including or resulting in, but not limited to, product
recalls, arising from the materials, design, testing, manufacture,
packaging, labeling (including instructions for use) or sale of its
products or from the provision of services ("Product
40
46
Liability Claim"). The Company has disclosed to Parent each Product
Liability Claim received by the Company or any Subsidiary.
3.28 Warranties. All products manufactured or sold, and all services
provided, by the Company or any Subsidiary have materially complied,
and are in material compliance with all contractual requirements,
warranties or covenants, express or implied, applicable thereto, and
with all applicable governmental, trade association or regulatory
specifications therefor or applicable thereto, except to the extent
that the failure to so comply would not have a Material Adverse Effect
on the Company taken as a whole. No product or service manufactured,
sold, delivered or performed by the Company or any Subsidiary is
subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions set forth in the Disclosure
Schedule. The terms of all standard and all material non-standard
product and service warranties and product return, sales credit,
discount, warehouse allowance, advertising allowance, demo sales and
credit policies of the Company and each Subsidiary are specifically set
forth in the Disclosure Schedule. The Company has delivered to Parent
prior to the date hereof complete and accurate copies of all such
warranties and policies.
3.29 Relations with Suppliers and Customers. No material current supplier of
the Company or any Subsidiary has canceled any contract or order for
provision of, and, to the knowledge of the Company, there has been no
threat by any such supplier not to provide, raw materials, products,
supplies or services to the businesses of the Company and its
Subsidiaries either prior to or following the Effective Time. Except as
specifically set forth in the Disclosure Schedule, neither the Company
nor any Subsidiary has, to the knowledge of the Company, received any
information from any customer that accounted for more than 5% of the
consolidated revenues of the Company and its Subsidiaries during the
last full fiscal year to the effect that such customer intends to
materially decrease the amount of business it does with the businesses
of the Company and its Subsidiaries either prior to or following the
Effective Time. The Disclosure Schedule lists each supplier to the
Company or any Subsidiary that is the sole source of a particular raw
material, product, supply or service with respect to which locating and
qualifying a replacement source would involve significant cost or
delay.
3.30 Absence of Certain Business Practices. Neither the Company, the
Subsidiaries nor any director, officer, employee or agent of the
Company or the Subsidiaries, nor any other person acting on behalf of
the Company or the Subsidiaries, has, directly or indirectly, within
the past five (5) years given or agreed to give any gift or similar
benefit or agreed to make or made any payment to any customer,
supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of the Company, taken as a
whole (or assist it in connection with any actual or proposed
transaction) which (i) might subject the Company, the Subsidiaries,
Parent or Merger Subsidiary to any damage or penalty in any civil,
criminal or governmental litigation proceeding, (ii) if not given in
the past, might have had a Material Adverse Effect on the assets,
business or operations of the Company, taken as a whole, as reflected
in the Financial Statements, (iii) if not continued in the future,
might adversely affect the assets, business, operations or prospects of
the Company and the Subsidiaries or which might subject the Company,
the Subsidiaries, Parent or Merger Subsidiary to suit or penalty in any
private or
41
47
governmental litigation or proceeding or (iv) materially violated or
violates any Applicable Law.
3.31 Brokers. Except as set forth in the Disclosure Schedule, neither the
Company nor its Subsidiaries, nor any of their directors, officers or
employees has employed any broker, finder, or financial advisor or
incurred any liability for any brokerage fee or commission, finder's
fee or financial advisory fee, in connection with the transactions
contemplated hereby, nor is there any basis known to Company for any
such fee or commission to be claimed by any person or entity. Any such
fees and expenses shall be paid by the Stockholders pursuant to Section
11.3 and the Escrow Agreement.
3.32 Minute Books. The minute books of the Company and each Subsidiary, as
previously made available to Parent and its representatives, contain,
in all material respects, complete and accurate records of all meetings
of and corporate actions or written consents by the stockholders,
Boards of Directors, and committees of the Boards of Directors of the
Company and each Subsidiary.
3.33 Business Generally. To Company's knowledge, except as set forth in the
Disclosure Schedule, there has been no event, transaction or
information which has come to the attention of the Company which, as it
relates directly to the businesses of Company and the Subsidiaries,
could, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on the Company taken as a whole.
3.34 Irrevocable Proxies. Concurrently with the execution and delivery of
this Agreement, the Company has delivered to Parent irrevocable proxies
(in substantially the form attached hereto as Exhibit D) (the
"Irrevocable Proxies") from Stockholders holding a number of shares of
Company Common Stock sufficient to adopt and approve this Agreement and
the Merger under the DGCL as of the record date established for holders
of Company Common Stock entitled to consider and vote on the adoption
and approval of this Agreement and the Merger (the "Record Date"), and
the Irrevocable Proxies ▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇ ("▇▇▇▇"), ▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇ the right to vote such shares of Company Common Stock (i) in
favor of approval of this Agreement and the Merger, (ii) against
approval of any proposal made in opposition to or competition with the
consummation of the Merger and (iii) against, or to abstain with regard
to, any merger, consolidation, sale of assets, reorganization or
recapitalization of the Company with any party other than Parent or its
Affiliates.
3.35 Voting Agreement. Concurrently with the execution and delivery of this
Agreement, the Company, Pell, Beyar and ▇▇▇▇▇▇▇▇▇ have delivered to
Parent a voting agreement (in substantially the form of Exhibit E)
agreeing to vote all Irrevocable Proxies, as well as any shares of
Company Common Stock owned (of record or beneficially) by the Company,
Pell, Beyar and ▇▇▇▇▇▇▇▇▇, as set forth in the Irrevocable Proxies (the
"Voting Agreement").
42
48
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUBSIDIARY
As an inducement to the Company and the Principal Stockholders to enter
into this Agreement and to consummate the transactions contemplated herein,
Parent and Merger Subsidiary hereby represent and warrant, as of the date of
this Agreement and as of the Closing Date, to the Company and the Principal
Stockholders that:
4.1 Corporate Existence and Power. Parent and Merger Subsidiary are
corporations duly organized, validly existing and in good standing
under the laws of their respective states of incorporation and each has
all requisite corporate power and authority to own, operate and lease
their respective properties and to carry on their respective businesses
as now being conducted and are duly qualified or licensed to do
business and are in good standing in each jurisdiction in which their
ownership or leasing of property or the conduct of their business
require such licensing or qualification, except where the failure to be
so qualified could not reasonably be expected to have a Material
Adverse Effect on Parent or Merger Subsidiary. Merger Subsidiary is a
recently-formed Delaware corporation that has not conducted, and prior
to the Effective Time will not conduct, any activities other than those
incident to its formation and in connection with the consummation of
the Merger.
4.2 Authorization. Parent and Merger Subsidiary have the requisite
corporate power and authority to enter into this Agreement and to carry
out their respective obligations hereunder. The execution and delivery
by Parent and Merger Subsidiary of this Agreement and the performance
by each of them of their respective obligations hereunder and the
consummation by each of them of the transactions contemplated hereby
are within their respective corporate powers and have been duly
authorized by their respective Boards of Directors and by Parent, as
the sole shareholder of Merger Subsidiary, and no other corporate
proceeding on their part is necessary for the execution and delivery of
this Agreement, and the performance of their respective obligations
hereunder, and the consummation by each of them of the transactions
contemplated hereby. This Agreement has been duly and validly executed
and delivered by each of them and it is a legal, valid and binding
obligation of Parent and Merger Subsidiary enforceable against each of
them in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally
and rules of law governing specific performance, injunctive relief or
other equitable remedies.
4.3 Consents and Approvals. No Consent by any individual or entity,
including without limitation any Governmental Authority or Person, is
required in connection with the execution, delivery or performance of
this Agreement by Parent and Merger Subsidiary or the consummation by
Parent and Merger Subsidiary of the transactions contemplated herein,
other than (i) requirements of the DGCL for filing of appropriate
documents to effect the Merger, or (ii) where the failure to make any
such filing, or to obtain such permit, authorization, consent or
approval, would not prevent or delay consummation of
43
49
the Merger or would not otherwise prevent Parent or Merger Subsidiary
from performing their obligations under this Agreement.
4.4 Acquisition of Company Common Stock for Investment.
(a) The Company Common Stock being purchased by the Parent
pursuant to Article 2 is being acquired for investment only
and not with a view to any public distribution thereof.
Without limiting, modifying, qualifying or in any other manner
affecting the representations and warranties of the Company
set forth in Article 3, the Parent acknowledges that the
Parent has had access to all documentation and information
referenced in the Disclosure Schedule and has had the
opportunity to interview and discuss such documentation and
information with employees of the Company and its
Subsidiaries. The Parent is an "Accredited Investor" within
the meaning of Rule 501 of Regulation D under the Securities
Act.
(b) The Parent understands that the Company Common Stock being
purchased by the Parent pursuant to Article 2 constitute
"restricted securities" under the Securities Act and have not
been registered under the Securities Act or the laws of any
other jurisdiction requiring any filing, listing or
registration, satisfaction of any prospectus or similar
document, information, or delivery requirement in connection
with any offer or sale of securities.
4.5 Available Capital Resources. The Parent has existing cash reserves,
borrowing capacity under existing credit facilities and commitments
from existing shareholders necessary to pay the Merger Consideration
and satisfy the obligations of Parent and Merger Subsidiary hereunder.
4.6 No Additional Representations or Warranties. The Parent acknowledges
that neither the Company nor any other Person has made any
representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding the Company and its
Subsidiaries, except as expressly set forth in this Agreement or the
Disclosure Schedule. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
EXPRESSLY SET FORTH IN ARTICLE 3, THE COMPANY AND THE PRINCIPAL
STOCKHOLDERS MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT
LAW OR IN EQUITY, IN RESPECT OF THE COMPANY AND ITS SUBSIDIARIES OR ANY
OF THEIR RESPECTIVE ASSETS, LIABILITIES OR OPERATIONS, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED REPRESENTATION OR WARRANTY AS TO THE
CONDITION, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, AND THE COMPANY AND THE PRINCIPAL STOCKHOLDERS DISCLAIM ANY
SUCH REPRESENTATION OR WARRANTY.
4.7 Disclosure. No representation or warranty by Parent or Merger
Subsidiary in this Agreement and no statement contained or to be
contained in any document, certificate or other writing furnished or to
be furnished by either Parent or Merger Subsidiary to the Company,
contains or will contain any untrue statement of a material fact or
omits or will
44
50
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
4.8 Non-Contravention. The execution, delivery and performance by Parent
and Merger Subsidiary of this Agreement does not and will not (i)
contravene or conflict with the respective Certificate of Incorporation
or Bylaws of Parent and Merger Subsidiary; or (ii) contravene or
conflict with or constitute a violation of any provision of any
Applicable Law binding upon or applicable to Parent or Merger
Subsidiary.
4.9 Brokers. Except for the engagement of US Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇, whose
fees and expenses shall be paid by Parent pursuant to Section 11.3,
neither Parent nor Merger Subsidiary, nor any of their directors,
officers or employees has employed any broker, finder, or financial
advisor or incurred any liability for any brokerage fee or commission,
finder's fee or financial advisory fee, in connection with the
transactions contemplated hereby, nor is there any basis known to
Parent or Merger Subsidiary for any such fee or commission to be
claimed by any person or entity.
ARTICLE 5
COVENANTS
5.1 Conduct of the Business. The Company shall maintain and cause each
Subsidiary to maintain its assets and properties and carry on its
businesses and operations only in ordinary course in substantially the
same manner as planned and previously operated; and the Company shall
use and cause each Subsidiary to use its best efforts to preserve
intact its business organizations, existing business relationships
(including without limitation its relationships with officers,
employees, dealers, distributors, independent contractors, customers
and suppliers), good will and going concern value. The Company shall be
entitled to dispose of the ENT Business as contemplated by Section
5.10.
5.2 Company's Agreements as to Specified Matters. Except (i) as
specifically set forth on the Disclosure Schedule, (ii) in the ordinary
course of business and consistent with past practice, and (iii) as may
be otherwise agreed in writing by Parent, from the date hereof until
the Closing, neither the Company nor any of its Subsidiaries shall:
(a) Amend its articles or certificate of incorporation or bylaws
(or other similar governing instruments);
(b) Borrow or agree to borrow any funds other than Loans;
(c) Incur, assume, suffer or become subject to, whether directly
or by way of guarantee or otherwise, any claims, obligations,
liabilities or loss contingencies which, individually or in
the aggregate, are material to the conduct of the businesses
of Company and its Subsidiaries or have or would have a
Material Adverse Effect on the financial condition of Company
and its Subsidiaries;
(d) Pay, discharge or satisfy any claims, liabilities or
obligations other than the repayment of Loans;
45
51
(e) Permit or allow any of its properties or assets which are
material to the operation of their businesses to be subjected
to any Lien, except Permitted Liens;
(f) Write down the value of any inventory or write off as
uncollectible any notes or accounts receivable or any trade
accounts or trade notes;
(g) Cancel or amend any debts, waive any claims or rights or sell,
transfer or otherwise dispose of any properties or assets,
other than for such debts, claims, rights, properties or
assets which, individually or in the aggregate, are not
material to the conduct of their businesses;
(h) License, sell, transfer, pledge, modify, disclose, dispose of
or permit to lapse any right to the use of any Intellectual
Property Rights other than for such Intellectual Property
Rights which, individually or in the aggregate, are not
material to the conduct of their businesses, except as
contemplated by Section 5.10;
(i) Sell, assign, lease, license, transfer or otherwise dispose
of, or mortgage, pledge or encumber (other than with Permitted
Liens), any of their respective assets except as contemplated
by Section 5.10;
(j) (A) Terminate, enter into, adopt, institute or otherwise
become subject to or amend in any material respect any
collective bargaining agreement or employment or similar
agreement or arrangement with any of its directors, officers
or employees; (B) terminate, enter into, adopt, institute or
otherwise become subject to or amend in any material respect
any Benefit Plan; (C) contribute, set aside for contribution
or authorize the contribution of any amounts for any such
Benefit Plan except as required (and not discretionary) by the
terms of such Benefit Plan; or (D) grant or become obligated
to grant any bonus or general increase in the compensation of
any directors, officers or employees (including without
limitation any such increase pursuant to any Benefit Plan);
(k) Make or enter into any commitment for capital expenditures for
additions to property, plant or equipment individually in
excess of $25,000.00;
(l) Except as contemplated by this Agreement, (A) declare, pay or
set aside for payment any dividend or other distribution in
respect of its capital stock or other securities (including
without limitation distributions in redemption or liquidation)
or redeem, purchase or otherwise acquire any shares of its
capital stock or other securities; (B) issue, grant or sell
any shares of its capital stock or equity securities of any
class, or any options, warrants, conversion or other rights to
purchase or acquire any such shares or equity securities or
any securities convertible into or exchangeable for such
shares or equity securities, except issuance of Company Common
Stock pursuant to the exercise of Company Stock Options
outstanding on the date hereof; (C) become a party to any
merger, exchange, reorganization, recapitalization,
liquidation, dissolution or other similar corporate
transaction; or (D) organize any new subsidiary, acquire any
capital
46
52
stock or other equity securities or other ownership
interest in, or assets of, any person or entity or otherwise
make any investment by purchase of stock or securities,
contributions to capital, property transfer or purchase of any
properties or assets of any person or entity;
(m) Pay, lend or advance any amounts to, or sell, transfer or
lease any properties or assets to, or enter into any agreement
or arrangement with, any director, officer, employee or
shareholder;
(n) Terminate, enter into or amend in any material respect any
Scheduled Contract, or take any action or omit to take any
action which will cause a breach, violation or default
(however defined) under any Scheduled Contract; or
(o) Agree, whether in writing or otherwise, to take any action
described in this subsection.
5.3 Full Access to Parent. The Company shall afford to Parent and its
directors, officers, employees, counsel, accountants, investment
advisors and other authorized representatives and agents at Parent's
expense, reasonable access to the facilities, properties, books and
records of the Company and its Subsidiaries in order that Parent may
have full opportunity to make such investigations as it shall desire to
make of the affairs of the Company and its Subsidiaries; provided,
however, that any such investigation shall be conducted in such a
manner as not to interfere unreasonably with business operations; and
the Company and its Subsidiaries shall furnish such additional
financial and operating data and other information as Parent shall,
from time to time, reasonably request, including without limitation
access to the working papers of their independent certified public
accountants; and, provided, further, that any such investigation shall
not affect or otherwise diminish or obviate in any respect any of the
representations and warranties of the Company or Principal Stockholders
herein.
5.4 Confidentiality. Each of the parties hereto agrees that it will not
use, or permit the use of, any of the information relating to any other
party hereto furnished to it in connection with the transactions
contemplated herein ("Information") in a manner or for a purpose
detrimental to such other party or otherwise than in connection with
the transaction, and that they will not disclose, divulge, provide or
make accessible (collectively, "Disclose"), or permit the Disclosure
of, any of the Information to any person or entity, other than their
responsible directors, officers, employees, investment advisors,
accountants, counsel and other authorized representatives and agents,
except as may be required by judicial or administrative process or, in
the opinion of such party's regular counsel, by other requirements of
Applicable Law; provided, however, that prior to any Disclosure of any
Information permitted hereunder, the disclosing party shall first
obtain the recipients' undertaking to comply with the provisions of
this subsection with respect to such information. The term
"Information" as used herein shall not include any information relating
to a party which the party disclosing such information can show: (i) to
have been in its possession prior to its receipt from another party
hereto; (ii) to be now or to later become generally available to the
public through no fault of the disclosing party; (iii) to have been
available to the public at the time of its receipt by the disclosing
party;
47
53
(iv) to have been received separately by the disclosing party in
an unrestricted manner from a person entitled to disclose such
information; or (v) to have been developed independently by the
disclosing party without regard to any information received in
connection with this transaction. Each party hereto also agrees to
promptly return to the party from whom originally received all original
and duplicate copies of written materials containing Information should
the transactions contemplated herein not occur. A party hereto shall be
deemed to have satisfied its obligations to hold the Information
confidential if it exercises the same care as it takes with respect to
its own similar information.
5.5 Filings; Consents; Removal of Objections. Subject to the terms and
conditions herein, the parties hereto shall use their best efforts to
take or cause to be taken all actions and do or cause to be done all
things necessary, proper or advisable under Applicable Laws to
consummate and make effective, as soon as reasonably practicable, the
transactions contemplated hereby, including without limitation
obtaining all Consents of any person or entity, whether private or
governmental, required in connection with the consummation of the
transactions contemplated herein. In furtherance, and not in limitation
of the foregoing, it is the intent of the parties to consummate the
transactions contemplated herein at the earliest practicable time, and
they respectively agree to exert their best efforts to that end,
including without limitation: (i) the removal or satisfaction, if
possible, of any objections to the validity or legality of the
transactions contemplated herein; and (ii) the satisfaction of the
conditions to consummation of the transactions contemplated hereby.
5.6 Further Assurances; Cooperation; Notification.
(a) Each party hereto shall, before, at and after Closing, execute
and deliver such instruments and take such other actions as
the other party or parties, as the case may be, may reasonably
require in order to carry out the intent of this Agreement
including the satisfaction of all conditions contained in
Articles 6 and 7 of this Agreement.
(b) The Company shall cooperate with Parent to promptly develop
plans for the management of the businesses after the Closing,
including without limitation plans relating to productivity,
marketing, operations and improvements, and the Company shall
further cooperate with Parent to provide for the
implementation of such plans as soon as practicable after the
Closing. Subject to Applicable Law, Company shall confer on a
regular and reasonable basis with one or more representatives
of Parent to report on material operational matters and the
general status of ongoing operations.
(c) At all times from the date hereof until the Closing, each
party shall promptly notify the other in writing of the
occurrence of any event which it reasonably believes will or
may result in a failure by such party to satisfy the
conditions specified in Article 6 and Article 7 hereof.
48
54
5.7 Approval of Stockholders. As promptly as practicable after the
execution of this Agreement, the Company will take all action necessary
in accordance with the DGCL and its Certificate of Incorporation and
Bylaws to convene a meeting of the Stockholders to consider and vote
upon or to solicit consent in writing and the adoption and approval of
this Agreement and the consummation of the transactions contemplated
hereby. The Company shall not mail proxy materials to the Stockholders
until the conditions set forth in Sections 6.16 and 6.27 have been
satisfied or waived by Parent. The Board of Directors of the Company
has on the date of this Agreement adopted a resolution recommending
that the Stockholders vote to adopt and approve the Merger and this
Agreement and the consummation of the transactions contemplated herein.
The Company will use its best efforts to have the Stockholders adopt
and approve the Merger and this Agreement and will take all other
action reasonably necessary or, in the reasonable opinion of Parent,
helpful to secure a vote in favor of the Merger and the adoption and
approval of this Agreement.
5.8 No Solicitation. The Company agrees (i) it will negotiate exclusively
with Parent and its authorized representatives regarding the
transaction contemplated hereby and will not, directly or indirectly,
encourage or solicit the submission of, entertain inquiries, proposals
or offers from, or enter into any agreement or negotiate with any
person or entity (other than Parent) for the acquisition of the Company
(whether by merger, combination, sale of assets, sale of stock or
otherwise) or other disposition of assets or technology other than in
the ordinary course of business, and (ii) it will not furnish to any
person any information with respect to any transaction prohibited by
this Section 5.8. The Company and the Principals Stockholders agree to
take the necessary steps to promptly inform any such third party of the
obligations undertaken in this Section 5.8 and this Agreement. The
Company and the Principals Stockholders agree to immediately inform
Parent of any such inquiry from any such third party, including the
terms thereof and the identity of the Person making such inquiry, and
to keep the Parent informed, on a current basis, of the status and
terms of any such proposals or offers.
5.9 Supplements to Disclosure Schedule. Prior to the Closing, the Company
shall supplement or amend the Disclosure Schedule with respect to any
event or development which is necessary to correct any information on
the Disclosure Schedule or in any representation and warranty of the
Company or Principal Stockholders which has been rendered inaccurate by
reason of such event or development. No such supplement or amendment
will be deemed to cure any inaccuracy in any representation and
warranty of the Company or Principal Stockholders for purposes of
Section 6.1. If, however, the Closing occurs, all such supplements or
amendments will cure for all purposes any inaccuracy in any
representation and warranty of the Company or Principal Stockholders
which would have existed without such amendment or supplement.
5.10 Sale of Certain Assets of ENT Business and German Subsidiary. On or
before the Closing Date, each of the Company, the IMT Subsidiary and
Discotech Medical Technologies Ltd. shall have entered into the
Purchase and Sale Agreement in the form attached as Exhibit F to this
Agreement, with an effective date of November 1, 1999, and shall have
consummated the transactions contemplated thereby and executed the
other agreements referred to therein. In connection therewith, the
Orthopaedic License
49
55
Agreement and the ENT License Agreement attached as exhibits to the
Purchase and Sale Agreement shall have been executed and delivered by
the parties thereto. Except as specifically contemplated by the
Purchase and Sale Agreement, the transactions contemplated therein
shall not create any additional Liabilities to the Company or any
Subsidiary, including, but not limited to, Liabilities for Taxes.
5.11 Public Announcements. None of the parties hereto shall make any public
announcement with respect to the transactions contemplated herein
without the prior written consent of the other parties, which consent
shall not be unreasonably withheld or delayed. The parties shall
maintain this Agreement and the terms hereof in strict confidence, and
neither party shall disclose this Agreement or any of its terms to any
third party unless specifically ordered to do so by a court of
competent jurisdiction after consulting with the other party.
Notwithstanding the foregoing, the parties may, on a confidential
basis, advise and release information regarding the existence and
content of this Agreement or the transactions contemplated hereby to
their respective Affiliates or any of their agents, accountants,
attorneys and prospective lenders or investors in connection with or
related to the transactions contemplated by this Agreement.
5.12 Preparation of Tax Returns; Tax Matters.
(a) The Company shall file at Parent's expense, on or prior to the
due date thereof, all Tax Returns required to be filed by the
Company or any Subsidiary for all Tax periods ending on or
before the Closing Date; provided, however, that the Company
shall not file any such Tax Returns, or other returns,
elections, claims for refund or information statements with
respect to any liabilities for Taxes (other than federal,
state or local sales, use, property, withholding or employment
tax returns or statements) for any Tax period without prior
written consent from Parent. Such Tax Returns shall be
prepared by Ernst & Young LLP at the direction of the
Stockholders' Representatives and shall be signed by ▇▇▇▇▇
▇▇▇▇.
(b) Parent will file (or cause to be filed) all Tax Returns of the
Company and any Subsidiary for all Tax periods ending after
the Closing Date. After the Closing Date, Parent, to the
extent permitted by Applicable Laws, shall have the right to
amend, modify or otherwise change all Tax Returns of the
Company and Subsidiaries for all Tax periods. In the event,
Parent amends, modifies or changes any Tax Returns of the
Company or any Subsidiary for any Tax period that includes a
day prior to, or including, the Closing Date, Parent shall
give written notice thereof to the Stockholders'
Representatives. In the event, such amendment, modification or
changes results in a Tax refund, Parent shall cooperate with
the Stockholders' Representatives in determining whether such
Tax Refund, or any such part, relates to the days prior to, or
including the Closing Date. In the event, it is determined
that the Tax refund or any such part is attributable to days
prior to, or including the Closing Date, the Parent shall pay
such Tax Refund to the Exchange Agent for distribution to the
Stockholders in accordance with the Escrow Agreement. Neither
Parent nor its Affiliates or representatives shall take any
action (i) inconsistent with the tax treatment of the Merger
as a sale of stock by the Stockholders or (ii) which has the
direct or
50
56
indirect effect of treating the Merger as a purchase
of assets by Parent or the Merger Subsidiary.
(c) Promptly after receipt by Parent of a written notice of a
proposed audit, claim, assessment or other dispute which would
or might give rise to a claim or the commencement (or
threatened commencement) of any action, proceeding or
investigation with respect to which indemnification is or will
be sought by Parent or its Affiliates in respect of any matter
concerning Taxes, but not including the receipt of a request
for information ("Asserted Tax Liability"), Parent shall give
written notice thereof (the "Tax Claim Notice") to the
Stockholders' Representatives.
(i) A Tax Claim Notice shall contain factual information
(to the extent known to Parent) generally describing
the Asserted Tax Liability in question and shall
include copies of any notice or other document
received from any taxing Governmental Authority in
respect of such Asserted Tax Liability. Failure by
Parent to give the Stockholders' Representatives
prompt notice of an Asserted Tax Liability shall not
reduce or otherwise affect Parent's right to seek
indemnification hereunder; provided, however, that if
such failure to give prompt notice results in a
material detriment to the Stockholders, then any
amount that Parent otherwise may be entitled to as
indemnification hereunder with respect to such
Asserted Tax Liability shall be reduced by the amount
that is solely and directly attributable to such
failure to give prompt notice.
(ii) In the event that the Stockholders' Representatives
shall have furnished Parent with an opinion of
independent tax counsel satisfactory to Parent to the
effect that there is a reasonable basis for
contesting an Asserted Tax Liability, then the
Stockholders' Representatives may elect to direct
through counsel of their own choosing, and at their
own expense, a compromise or contest, either
administratively or in the courts, of any Asserted
Tax Liability; provided, however, that the foregoing
shall apply only if the Stockholders' Representatives
have, notwithstanding any other provision hereof to
the contrary, acknowledged in writing an obligation
to indemnify Parent in accordance with this Agreement
with respect to such an Asserted Tax Liability, and
provided further that Parent, in its sole and
absolute discretion, may notify the Stockholders'
Representatives at any time that any such compromise
or contest must be immediately terminated, in which
case the foregoing obligation to make indemnity
payments hereunder with respect to such Asserted Tax
Liability shall thereupon terminate.
(iii) If, in accordance with the foregoing, the
Stockholders' Representatives elect to direct the
compromise or contest of any Asserted Tax Liability,
they shall, within 30 calendar days after receiving
the Tax Claim Notice with respect to such Asserted
Tax Liability (or sooner if the nature of the
Asserted Tax Liability so requires) notify Parent of
their intent to do so,
51
57
and Parent shall cooperate, at the Stockholders'
Representatives' sole expense, in the compromise or
contest of such Asserted Tax Liability.
(iv) The Stockholders' Representatives may enter into a
settlement agreement with respect to or otherwise
resolve any Asserted Tax Liability but only with the
prior written consent of Parent, which consent may
not unreasonably be withheld.
(v) In the event that, and in accordance with the
foregoing, the Stockholders' Representatives attempt
to compromise or contest any Asserted Tax Liability,
Parent may participate at its own expense in all
proceedings, either administratively or in the
courts. For all purposes hereof, the right to
participate in all proceedings, either
administratively or in the courts, relating to an
Asserted Tax Liability shall include the right to
attend and be kept fully informed of all such
proceedings.
(vi) Parent and Stockholders' Representatives shall
cooperate with each other and with each other's
agents, in connection with compromise or contests of
any Asserted Tax Liability. Any information or
documents provided by the parties shall be kept
confidential by the party receiving such information
or documents, except as may otherwise be necessary in
connection with administrative or judicial
proceedings relating to Taxes.
(vii) The procedures set forth in this Section with respect
to matters concerning Taxes shall apply in the event
of any conflict between the provisions of this
Section and those of Article 9.
(viii) Following the Merger, Parent and the Company shall,
upon reasonable request, afford to the Stockholders'
Representatives and their authorized representatives
reasonable access during normal business hours to the
books, records and other data of or relating to the
Company and Subsidiaries, and permit the
Stockholders' Representatives and their authorized
representatives to make copies thereof at their own
expense, with respect to periods or portions thereof
ending prior to the Merger, to the extent that such
access may be reasonably required to prepare federal,
state, local and foreign tax returns referred to in
Section 5.12(a) or by the Stockholders'
Representatives to defend an Asserted Tax Liability.
(ix) The Company and Parent agree to retain all books and
records with respect to Tax matters pertinent to the
Company and its Subsidiaries until 90 days after the
expiration of the relevant statute of limitations
(and any extensions thereof) of the respective
taxable periods or portions thereof ending on or
prior to the Closing Date, and to abide by all record
retention agreements entered into with any taxing
authority.
(x) Notwithstanding any provision in this Section 5.12 to
the contrary, the terms and conditions of Sections
9.3, 9.4, 9.5 and 9.6 (to the extent not
52
58
inconsistent with this Section 5.12) shall apply to
any indemnification obligation of the Shares with
respect to the Tax matters described in this Section
5.12.
5.13 Severance Benefits. Parent will provide to all employees of the Company
based in its San Francisco, California office (a) whose employment is
terminated by the Company within six (6) months after the Closing Date
due to elimination of positions or the closing of the Company's San
Francisco office, (b) who do not have a contractual right to receive
severance benefits, and (c) who sign a release reasonably acceptable to
Parent, cash severance equal to four (4) weeks base pay if such
employee does not terminate his or her employment within thirty (30)
days after the Closing Date and an additional four (4) weeks base pay
if such employee does not terminate his or her employment prior to
closing of the Company's San Francisco office.
5.14 Exchange of Stock. Prior to mailing proxy materials to the
Stockholders, as contemplated by Section 5.7, Parent and Beyar shall
have reached agreement in principle regarding the terms and conditions
under which Beyar shall retain following the Merger up to 340,000
shares of the Company Common Stock owned by Beyar, and Parent or Beyar
would have the right to require under specified circumstances that such
shares of Company Common Stock be exchanged for shares of capital stock
of Parent. Notwithstanding any other provision of this Agreement, this
Section 5.14 shall not be a condition to Closing for any party.
ARTICLE 6
CONDITIONS TO PARENT'S AND
MERGER SUBSIDIARY'S OBLIGATIONS
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of Parent and Merger Subsidiary to effect the transactions
contemplated herein shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions:
6.1 Representations and Warranties True. The representations and warranties
of the Company and the Principal Stockholders contained in this
Agreement, including without limitation in the Disclosure Schedule
initially delivered to Parent (and not including any changes or
additions delivered to Parent pursuant to Section 5.9), shall be in all
material respects true and correct as of the date when made and at and
as of the Closing as though such representations and warranties were
made at and as of such time, except for changes specifically permitted
or contemplated by this Agreement, and except insofar as the
representations and warranties relate expressly and solely to a
particular date or period, in which case they shall be true and correct
in all material respects at the Closing with respect to such date or
period.
6.2 Performance. The Company and Principal Stockholders shall have
performed and complied in all material respects with all agreements,
covenants, obligations and conditions required by this Agreement to be
performed or complied with by the Company and the Principal
Stockholders on or prior to the Closing.
53
59
6.3 Required Approvals and Consents.
(a) All action required by law and otherwise to be taken by the
Board of Directors of the Company and the Stockholders to
authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken.
(b) All Consents of or from all Governmental Authorities required
hereunder to consummate the transactions contemplated herein,
and all Consents of or from all persons and entities other
than Governmental Authorities that are identified in the
Disclosure Schedule shall have been delivered, made or
obtained, and Parent shall have received copies thereof.
6.4 No Proceeding or Litigation. No suit, action, investigation, inquiry or
other proceeding by any Governmental Authority or other person or
entity shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby or which
is reasonably expected either individually or in the aggregate, to have
a Material Adverse Effect on the Company and its Subsidiaries taken as
a whole.
6.5 Legislation. No Applicable Law shall have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated
hereby or any of the conditions to the consummation of such
transaction.
6.6 Certificates. Parent shall have received such certificates of the
Company's officers and of the Principal Stockholders, in a form and
substance reasonably satisfactory to Parent, dated the Closing Date, to
evidence compliance with the conditions set forth in this Article 6 and
such other matters as may be reasonably requested by Parent.
6.7 Opinions of Company Counsel. Parent shall have received an opinion from
▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to the Company and the Principal Stockholders
dated the Closing Date, in form and substance reasonably satisfactory
to Parent. Parent shall have received an opinion from ▇. ▇▇▇▇▇▇▇▇,
counsel to the IMT Subsidiary, dated the Closing Date, in form and
substance reasonably satisfactory to Parent.
6.8 Escrow Agreement. The parties thereto shall have executed and delivered
the Escrow Agreement.
6.9 Employment Agreements. Parent shall have received executed Employment
Agreements in substantially the form of Exhibit G from Beyar and
▇▇▇▇▇▇▇▇▇.
6.10 ▇▇▇▇ Consulting Agreement. Parent shall have received an executed
Consulting Agreement in substantially the form of Exhibit H from ▇▇▇▇.
6.11 ▇▇▇▇▇▇ Consulting Agreement. Parent shall have received an executed
Consulting Agreement in substantially the form of Exhibit I from
▇▇▇▇▇▇.
54
60
6.12 Sale of ENT Business and German Subsidiary. The Company shall have
completed the sale of the ENT Business pursuant to Section 5.10, on
terms reasonably acceptable to Parent.
6.13 Dissenting Shares. Not more than five percent (5.0%) of the issued and
outstanding shares of Company Common Stock as of the Closing Date shall
be Dissenting Shares.
6.14 Resignation and Release. Parent shall have received Letters of
Resignation and Release of Claims, dated effective as of the Effective
Time, in substantially the form of Exhibit J from the officers and
directors of the Company and its Subsidiaries.
6.15 Voting Agreement. Parent shall have received the Voting Agreement
executed by Pell, Beyar and ▇▇▇▇▇▇▇▇▇.
6.16 J & J Agreements. The J & J Agreements shall have been terminated and
the Company and the IMT Subsidiary shall have been released from any
claims or further obligations thereunder.
6.17 Cancellation of Options. All Company Stock Options shall have been
cancelled or exercised in accordance with Section 2.9(c).
6.18 1998 and 1999 Financial Statements. Parent shall have received the 1998
and 1999 Financial Statements, including an unqualified opinion of
Ernst & Young LLP, with the exception of footnote disclosure regarding
stock options.
6.19 Interim Financial Statements. Parent shall have received the Interim
Financial Statements reflecting that the Company revenues, excluding
revenues generated by the ENT Business, for the third quarter of 1999
were at least $2.7 million, operating expenses for the third quarter of
1999 were not more than $3.3 million, total assets did not decrease by
more than five percent (5.0%) from June 30, 1999 and total liabilities
did not increase by more than five percent (5.0%) from June 30, 1999,
excluding from the June 30, 1999 balance sheet and the September
30,1999 balance sheet all Loans and expenses incurred in connection
with the transactions contemplated hereby.
6.20 Jessco Agreement. The Consulting Agreement, dated April 1, 1996,
between the Company and Jessco Medical Supply shall have been
terminated and the Company shall have been released from any claims or
further obligations thereunder.
6.21 Yozma Agreement. The Agreement, dated September 8, 1999, among Yozma
Venture Capital Ltd., the Company and the IMT Subsidiary shall have
been terminated and the Company and IMT Subsidiary shall have been
released from any claims or further obligations thereunder.
6.22 SLP Agreement. The Investment and Share Purchase Agreement, dated April
18, 1999, between SLP Scientific Laboratory Products Ltd. ("SLP") and
the Company shall have been assigned with the written consent of SLP,
and the Company shall have been released from any claims or further
obligations thereunder including any contingent
55
61
obligation to issue any shares of capital stock or options to purchase
shares of capital stock.
6.23 Service Agreements. The Service Agreement, dated March 1, 1998, between
the IMT Subsidiary and Discotech Medical Technologies Ltd. shall have
been terminated and the parties thereto shall have entered into a
replacement service agreement on terms reasonably satisfactory to
Parent. The Service Agreement, dated December 1, 1998, between the IMT
Subsidiary and Bypass Ltd. shall have been terminated and the parties
thereto shall have entered into a replacement service agreement on
terms reasonably satisfactory to Parent.
6.24 Employee Loan. The loan from the IMT Subsidiary to ▇▇▇ ▇▇▇▇▇▇ in the
amount of NIS 515,000 shall have been repaid.
6.25 1998 Tax Return. The Company shall have filed with the Internal Revenue
Service its tax return for 1998 and paid all taxes, interest and
penalties due therewith.
6.26 Transfer of IMT Subsidiary Stock. Beyar shall have entered into a
letter agreement, in form and content reasonably satisfactory to
Parent, pursuant to which Beyar agrees to transfer to Parent or its
designee, upon Parent's request, the one (1) share of stock of the IMT
Subsidiary held by Beyar as nominee.
6.27 Intellectual Property Transfer Agreement. Parent and S. ▇▇▇▇▇▇ ▇▇▇▇▇,
M.D. ("▇▇▇▇▇") shall have entered into definitive agreements which
shall contain substantially the terms and conditions set forth in the
term sheet executed on November 8, 1999 between Parent and ▇▇▇▇▇,
pursuant to which ▇▇▇▇▇ shall transfer all of his right, title and
interest in certain intellectual property rights involving sling
products and technology for treating urinary incontinence to Parent.
ARTICLE 7
CONDITIONS TO COMPANY'S AND
PRINCIPAL STOCKHOLDERS OBLIGATIONS
Notwithstanding anything in this Agreement to the contrary, the
obligation of the Company and the Principal Stockholders to effect the
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions:
7.1 Representations and Warranties True. The representations and warranties
of Parent and Merger Subsidiary contained in this Agreement shall be in
all material respects true and correct as of the date when made and at
and as of the Closing, as though such representations and warranties
were made at and as of such time, except for changes permitted or
contemplated in this Agreement, and except insofar as the
representations and warranties relate expressly and solely to a
particular date or period, in which case they shall be true and correct
in all material respects at the Closing with respect to such date or
period.
56
62
7.2 Performance. Parent shall have performed and complied in all material
respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Parent
at or prior to the Closing.
7.3 Corporate Approvals. The Board of Directors of the Company and Merger
Subsidiary shall have approved the transactions contemplated hereby.
All action required to be taken by Parent to authorize the execution,
delivery and performance of this Agreement by Parent and the
consummation of the transactions contemplated hereby shall have been
duly and validly taken.
7.4 No Proceeding or Litigation. No suit, action, investigation, inquiry or
other proceeding by any Authority or other person or entity shall have
been instituted or threatened which questions the validity or legality
of the transactions contemplated hereby.
7.5 Legislation. No Applicable Law shall have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated
hereby or any of the conditions to the consummation of such
transaction.
7.6 Certificates. Parent shall have furnished the Company and the Principal
Stockholders with such certificates of Company officers, in a form and
substance reasonably acceptable to Company and Principal Stockholders,
dated the Closing Date, to evidence compliance with the conditions set
forth in this Article 7 and such other matters as may be reasonably
requested by the Company.
7.7 Opinion of Parent Counsel. Parent shall have delivered to Company an
opinion from ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, counsel to Parent, dated
the Closing Date, in form and substance reasonably satisfactory to the
Company.
7.8 Escrow Agreement. The parties thereto shall have executed and delivered
the Escrow Agreement and the appropriate funding obligations with
respect thereto shall have been satisfied.
7.9 Dissenting Shares. Not more than five percent (5.0%) of the issued and
outstanding shares of Company Common Stock as of the Closing Date shall
be Dissenting Shares.
7.10 OEM Agreement. IMT Subsidiary and Influ-ENT Ltd. shall have entered
into an OEM agreement, pursuant to which IMT agrees to manufacture and
sell to Influ-ENT Ltd. the Company's Repose product on terms and
conditions that are reasonably satisfactory to Parent and Influ-ENT
Ltd.
7.11 1998 and 1999 Financial Statements. The Company shall have received the
1998 and 1999 Financial Statements, including an unqualified opinion of
Ernst & Young LLP, with the exception of footnote disclosure regarding
stock options.
57
63
ARTICLE 8
TERMINATION
8.1 Methods of Termination. Subject to the other provisions of this Article
8, this Agreement may be terminated and the transactions contemplated
herein may be abandoned at any time notwithstanding approval thereof by
the Stockholders, but not later than the Termination Date:
(a) By mutual written consent of Parent, Merger Subsidiary, the
Company and the Principal Stockholders; or
(b) By Parent and Merger Subsidiary on or after the Termination
Date, or such later date as may be established pursuant to
Section 2.3, if any of the conditions provided for in Article
6 of this Agreement have not been satisfied or waived in
writing by Parent prior to such date; or
(c) By the Company and the Principal Stockholders on or after the
Termination Date, or such later date as may be established
pursuant to Section 2.3, if any of the conditions provided for
in Article 7 of this Agreement have not been satisfied or
waived in writing by the Company and the Principal
Stockholders prior to such date; or
(d) By the Parent and Merger Subsidiary if there has been a
material breach of any representation, warranty, covenant or
agreement on the part of Company, any Subsidiary or Principal
Stockholder set forth in this Agreement; or
(e) By Company and the Principal Stockholders if there has been a
material breach of any representation, warranty, covenant or
agreement on the part of Parent or Merger Subsidiary set forth
in this Agreement; or
(f) By either party if any court of competent jurisdiction or any
other governmental body has issued an order, decree or ruling
or taken any other action permanently enjoining, restraining
or otherwise prohibiting the transactions contemplated hereby
and such order, decree, ruling or other action has become
final and nonappealable; or
(g) By Parent, Merger Subsidiary, the Company or the Principal
Stockholders if the condition set forth in Section 6.27 has
not been satisfied or waived on or before November 24, 1999.
8.2 Procedure Upon Termination. In the event of termination and abandonment
pursuant to Section 8.1, written notice thereof will forthwith be given
to the other party or parties, and the provisions of this Agreement
(except for Sections 5.4, 8.3, 8.4 11.3 and Article 10 which shall
survive termination of this Agreement) will terminate, and the
transactions contemplated herein will be abandoned, without further
action by any party hereto.
58
64
8.3 Effect of Termination. If this Agreement is terminated as provided
herein:
(a) each party will, upon request, return all documents, work
papers and other material of any other party (and all copies
thereof) relating to the transactions contemplated herein,
whether so obtained before or after the execution hereof, to
the party furnishing the same; and
(b) the confidentiality obligations of Section 5.4 will continue
to be applicable.
8.4 Reimbursement of Expenses.
(a) Reimbursement by Parent. In the event that Parent and Merger
Subsidiary fail or refuse to consummate the transactions
contemplated by this Agreement in violation of this Agreement,
or this Agreement is terminated by Company pursuant to Section
8.1(e), then, in addition to any other rights or remedies
which may be available to the Company in law or in equity,
Parent shall reimburse the Company within five (5) business
days after written request its reasonable and documented
out-of-pocket costs (including legal and accounting fees and
costs, and travel expenses) incurred by Company in connection
with this Agreement, not to exceed an aggregate of One Million
U.S. Dollars ($1,000,000).
(b) Reimbursement by Company. In the event that Company fails or
refuses to consummate the transactions contemplated by this
Agreement in violation of this Agreement, or this Agreement is
terminated by Parent pursuant to Section 8.1(d), then, in
addition to any other rights or remedies which may be
available to the Parent in law or in equity, the Company shall
reimburse Parent within five (5) business days after written
request its reasonable and documented out-of-pocket costs
(including legal and accounting fees and costs, and travel
expenses) incurred by Parent connection with this Agreement,
not to exceed an aggregate of One Million U.S. Dollars
($1,000,000).
ARTICLE 9
SURVIVAL AND INDEMNIFICATION
9.1 Survival. The representations, warranties, covenants, agreements and
obligations of each party contained in this Agreement, and all claims
in respect of any breach of any representation, warranty, covenant,
agreement or obligation of party contained in this Agreement, will
survive the Closing and shall expire eighteen (18) months after the
Closing Date, except that representations and warranties set forth in
Sections 3.16 (Benefit Plans), 3.20 (Environmental Compliance) and 3.22
(Tax Matters) shall survive until six (6) months after the expiration
of the applicable statute of limitations. The right to indemnification
or any other remedy based on representations, warranties, covenants and
obligations in this Agreement will not be affected by any investigation
conducted with respect to, or any knowledge acquired (or capable of
being acquired) at any time, whether before or after the execution and
delivery of this Agreement or the Closing Date, with respect to the
accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or obligation. The waiver of any condition based on
59
65
the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the
right to indemnification or any other remedy based on such
representations, warranties, covenants and obligations.
9.2 Indemnification by Parent. Subject to Section 9.5, Parent agrees to
indemnify, defend and hold harmless each of the Principal Stockholders
from and against any and all Damages asserted against, relating to,
imposed upon, suffered or incurred by the Principal Stockholders in
connection with enforcing their indemnification rights pursuant to this
Section 9.2 by reason of or resulting from (i) any untrue
representation of, or breach of warranty by, Parent or Merger
Subsidiary in any part of this Agreement, (ii) any nonfulfillment of
any covenant, agreement or undertaking of Parent or Merger Subsidiary
in any part of this Agreement which by its terms is to remain in effect
after the Closing and has not been specifically waived in writing at
the Closing by the party or parties hereof entitled to the benefits
thereof; (iii) any liability of the Company arising out of the
operation of the Company or the IMT Subsidiary or any of their
respective businesses after the Closing Date; (iv) any Liabilities for
Taxes of the Company, the IMT Subsidiary or any respective predecessor
in interest with respect to any tax period or part thereof beginning
after the Closing Date; and (v) any Product Liability Claim or other
third party claim relating to the Company or the IMT Subsidiary,
arising from acts, events, conditions or circumstances existing or
occurring after the Effective Time.
9.3 Indemnification by Principal Stockholders. Subject to Section 9.5, the
Principal Stockholders, jointly and severally, agree to indemnify,
defend and hold harmless Parent, its directors, officers, employees and
agents, from and against any and all Damages asserted against, relating
to, imposed upon, suffered or incurred by Parent, Merger Subsidiary,
its officers, directors, employees, agents and Affiliates, in
connection with enforcing their indemnification rights pursuant to this
Section 9.3 by reason of or resulting from (i) any untrue
representation of, or breach of warranty by, the Company, its
Subsidiaries or the Principal Stockholders in any part of this
Agreement, (ii) any nonfulfillment of any covenant, agreement or
undertaking of the Company, its Subsidiaries or the Principal
Stockholders in any part of this Agreement which by its terms is to
remain in effect after the Closing and has not been specifically waived
in writing at the Closing by the party or parties hereof entitled to
the benefits thereof, (iii) any Liabilities for Taxes of the Company,
the Subsidiaries or any respective predecessor in interest with respect
to any tax period or part thereof prior to the Closing Date in excess
of amounts accrued for Taxes on the Financial Statements, regardless of
whether such Liabilities for Taxes arise out of or constitute a breach
of any representation, warranty or covenant in this Agreement, (iv) any
Product Liability Claim or other third party claim relating to the
Company or its Subsidiaries, whether presently in existence or arising
hereafter from acts, events, conditions or circumstances existing or
occurring on or before the Effective Time, regardless of whether such
Product Liability Claim or third party claim arises out of or
constitutes a breach of any representation, warranty or covenant in
this Agreement, (v) any payments made to Dissenting Shareholders
pursuant to the DGCL in excess of the Merger Consideration per share of
Company Common Stock or Company Preferred Stock held by Dissenting
Shareholders; (vi) any liability to holders of Company Preferred Stock
arising out of the transactions contemplated by this Agreement; and
(vii) any use of the name "In-Fast" by the
60
66
Company prior to the Closing Date or by Parent or the Company during
the six (6) month period following the Closing Date (each of the above
shall be referred to herein as an "Indemnification Liability").
Notwithstanding any other provision of this Agreement, the Principal
Stockholders shall have no personal liability and the Escrow Fund shall
be Parent's sole and exclusive source of recourse for any claims made
pursuant to clauses (iii), (iv) and (v) of this Section 9.3; provided,
however, that the foregoing shall not limit the personal liability of
the Principal Stockholders for any claims made pursuant to clauses (i)
and (ii) of this Section 9.3.
9.4 Claims for Indemnification.
(a) Subject to Section 9.4(c) and Section 9.1, whenever any claim
arises for indemnification hereunder the party seeking
indemnification (the "Indemnified Party"), will promptly
notify the party from whom indemnification is sought (the
"Indemnifying Party") of the claim and, when known, the facts
constituting the basis for such claim. In the case of any such
claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings of a third
party (a "Third Party Claim"), the notice to the Indemnifying
Party will specify, if known, the amount or an estimate of the
amount of the liability arising therefrom. The Indemnifying
Party shall have the right to dispute and defend all Third
Party Claims and thereafter so defend and pay any adverse
final judgment or award or settlement amount in regard
thereto. Such defense shall be controlled by the Indemnifying
Party, and the cost of such defense shall be borne by the
Indemnifying Party, except that the Indemnified Party shall
have the right to participate in such defense at its own
expense, and provided, however that the Indemnifying Party
must first acknowledge that the claim is a bona fide
indemnification claim under this Agreement. The Indemnified
Party shall cooperate in all reasonable respects in the
defense of any such claim, including making personnel, books,
and records relevant to the claim available to the
Indemnifying Party, without charge, except for reasonable
out-of-pocket expenses. If the Indemnifying Party fails to
take action within thirty (30) days as set forth above, then
the Indemnified Party shall have the right to pay, compromise
or defend any Third Party Claim and to assert the amount of
any payment on the Third Party Claim plus the reasonable
expenses of defense or settlement as the claim. The
Indemnified Party shall also have the right, exercisable in
good faith, to take such action as may be necessary to avoid a
default prior to the assumption of the defense of the Third
Party Claim by the Indemnifying Party, and any reasonable
expenses incurred by Indemnified Party so acting shall be paid
by the Indemnifying Party. Except as otherwise provided
herein, the Indemnified Party will not settle or compromise
any Third Party Claim for which it is entitled to
indemnification hereunder without the prior written consent of
the Indemnifying Party, which will not be unreasonably
withheld. The parties intend that all indemnification claims
be made as promptly as practicable.
(b) If the Indemnifying Party is of the opinion that the
Indemnified Party is not entitled to indemnification, or is
not entitled to indemnification in the amount claimed in such
notice, the Indemnifying Party will deliver, within ten (10)
61
67
business days after the receipt of such notice, a written
objection to such claim and written specifications in
reasonable detail of the aspects or details objected to, and
the grounds for such objection. If the Indemnifying Party
filed timely written notice of objection to any claim for
indemnification, the validity and amount of such claim will be
determined by arbitration pursuant to Article 10. If timely
notice of objection is not delivered or if a claim by an
Indemnified Party is admitted in writing by an Indemnifying
Party or if an arbitration award is made in favor of an
Indemnified Party, the Indemnified Party, as a non-exclusive
remedy, will have the right to set-off the amount of such
claim or award against any amount yet owed, whether due or to
become due, by the Indemnified Party or any subsidiary thereof
to any Indemnifying Party by reason of this Agreement or any
agreement or arrangement or contract to be entered into at the
Closing.
(c) The remedies provided herein are cumulative and will not
preclude assertion by any party of any rights or the seeking
of any other remedies against any other party.
9.5 Indemnification Limits.
(a) Except as expressly provided otherwise herein, and subject to
the provisions of Section 9.4, neither of the Principal
Stockholders nor the Parent, as the case may be, will be
entitled to indemnification for any Damages under this Article
9 unless the aggregate of all Damages is more than Two Hundred
Fifty Thousand U.S. Dollars ($250,000) (the "Basket Amount").
When the aggregate amount of all such Damages hereunder equals
or exceeds the Basket Amount, the Parent or the Principal
Stockholders, as the case may be, will be entitled to full
indemnification of all claims, including the Two Hundred Fifty
Thousand U.S. Dollars ($250,000) that amounted to the Basket
Amount. The parties hereto agree that the Basket Amount is not
a deductible amount, nor that the Basket Amount will be deemed
to be a definition of "material" for any purpose in this
Agreement.
(b) Except as set forth in section 9.5(c), each Principal
Stockholder's liability under Section 9.3 shall be limited to
the portion of the Merger Consideration that such Principal
Stockholder is entitled to receive determined pursuant to the
terms of this Agreement (the "Maximum Amount").
(c) If any of the Principal Stockholders or the Company have
breached a representation, warranty, covenant or agreement,
and such breaching party had actual knowledge of the breach of
the representation, warranty, covenant or agreement herein, or
had actual knowledge of the potential or probable loss,
liability or damage (based on actual knowledge of the facts
and circumstances giving rise to such loss, liability or
damage) without disclosing such in the Disclosure Schedule on
or prior to the Closing Date, the Principal Stockholders will
jointly and severally promptly pay Parent the full
indemnification claim without regard to the Basket Amount or
the Maximum Amount set forth in this Section 9.5.
62
68
9.6 Right of Off-Set. All payments of Contingent Merger Consideration and
Holdback Merger Consideration shall be made without set-off or
deduction of any kind, except that the Parent shall be entitled to
set-off against any such amounts owing by the Parent to the
Stockholders, any amounts that have been determined by a final decision
or judgement of an arbitrator to be due and owing by the Principal
Stockholders based on a claim for indemnification by the Parent under
this Article 9. Neither the exercise of, nor the failure to exercise,
such right of set-off will constitute an election of remedies nor limit
Parent in any manner in the enforcement of any other remedies that may
be available to it.
9.7 Release of Prior Claims. The Principal Stockholders hereby release the
Parent, Merger Subsidiary and the Company and their respective
subsidiaries, officers, directors, stockholders, employees and
Affiliates (collectively, the "Released Parties") of and from any and
all claims, complaints, causes of action or demands of whatever kind,
known or unknown (collectively, the "Claims"), which any of the
Principal Stockholders has or may have against the Released Parties for
any actions, conduct, decisions, behavior or events relating to or
arising out of either of the Principal Stockholders' status or
relationship as an employee, officer, director or shareholder of the
Company, except for claims arising under this Agreement. The Principal
Stockholders understand that this release extends to, but is not
limited to, Claims for breach of contract, breach of any express or
implied promise, retaliation, breach of public policy, negligence,
intentional infliction of emotional distress, defamation or any other
tortious conduct or any Claims under the federal or state securities
laws.
9.8 Principal Stockholder's Right of Contribution. In the event that any
Principal Stockholder shall make any cash payment in respect of a claim
for indemnification by the Parent pursuant to Section 9.3, such
Principal Stockholder shall be entitled to contribution from the other
Stockholders in an amount equal to such Stockholder's Pro Rata Share of
the cash amount so paid to the Parent; provided that any contribution
obligation by a Stockholder (other than a Principal Stockholder) shall
be satisfied solely and exclusively out of the Escrow Fund and any
other amounts, if any, held by the Exchange Agent for distribution to
such contributing Stockholder.
ARTICLE 10
ARBITRATION
10.1 Dispute. Except for any controversy, claim or dispute arising out of
the failure by any party to this Agreement to consummate the Merger and
the transactions contemplated by this Agreement and subject to the last
sentence of this Section 10.1, any controversy, claim or dispute of
whatever nature arising between the parties under this Agreement or in
connection with the transactions contemplated hereunder, including
those arising out of or relating to the breach, termination,
enforceability, scope or validity hereof, whether such claim existed
prior to or arises on or after the Effective Time (a "Dispute"), shall
be resolved by mediation or, failing mediation, by binding arbitration.
The agreement to mediate and arbitrate contained in this Article 10
shall continue in full force and effect despite the expiration,
rescission or termination of this Agreement. Notwithstanding the
foregoing, either party may seek injunctive relief with respect to any
controversy or claim
63
69
arising out of or relating to any provision of this Agreement in any
court of competent jurisdiction.
10.2 Mediation. No party shall commence an arbitration proceeding pursuant
to the provisions set forth below unless such party shall first give a
written notice (a "Dispute Notice") to the other parties setting forth
the nature of the Dispute. The parties shall attempt in good faith to
resolve the Dispute by mediation under the CPR Institute for Dispute
Resolution ("CPR") Model Mediation Procedure for Business Disputes (the
"CPR Procedure") in effect at the time of the Dispute. If the parties
cannot agree on the selection of a mediator within 20 days after
receipt of the Dispute Notice, the mediator will be selected in
accordance with the CPR Procedure.
10.3 Arbitration.
(a) If the Dispute has not been resolved by mediation as provided
in Sections 10.1 and 10.2 within 60 days after receipt of the
Dispute Notice or such greater period as the parties may agree
upon in writing, or if a party fails to participate in a
mediation, then the Dispute shall be determined by binding
arbitration in Minneapolis, Minnesota. The arbitration shall
be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA") in
effect on the date on which the Dispute Notice is sent,
subject to any modifications contained in this Agreement. The
Dispute shall be determined by one arbitrator, except that if
the Dispute involves an amount in excess of $250,000
(exclusive of interest and costs), three arbitrators shall be
appointed. Persons eligible to serve as arbitrators shall be
members of the AAA Large, Complex Case Panel or a CPR Panel of
Distinguished Neutrals, or persons who have professional
credentials similar to those persons listed on such AAA or CPR
panels. The arbitrator(s) shall have the right to appoint an
independent expert (including an independent accounting firm)
and the costs and expenses of such expert, together with the
costs and expenses of the arbitrator(s), shall be born
one-half by the Principal Stockholders and one-half by Parent.
The award shall be in writing and include the findings of fact
and conclusions of law upon which it is based.
(b) The arbitration shall be governed by the substantive laws of
the State of Minnesota, without regard to conflicts-of-law
rules, and by the arbitration law of the Federal Arbitration
Act (Title 9, U.S. Code). Judgment upon the award rendered may
be entered in any court having jurisdiction.
(c) Except as otherwise required by law, the parties and the
arbitrator(s) agree to keep confidential and not disclose to
third parties any information or documents obtained in
connection with the arbitration process, including the
resolution of the Dispute. If a party fails to proceed with
arbitration as provided in this Agreement, or unsuccessfully
seeks to stay the arbitration, or fails to comply with the
arbitration award, or is unsuccessful in vacating or modifying
the award pursuant to a petition or application for judicial
review, the other party or parties, as applicable, shall be
entitled to be awarded costs, including reasonable attorneys'
64
70
fees, paid or incurred in successfully compelling such
arbitration or defending against the attempt to stay, vacate
or modify such arbitration award and/or successfully defending
or enforcing the award.
ARTICLE 11
MISCELLANEOUS
11.1 Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given (i) if personally delivered, when so delivered, (ii) if mailed,
two Business Days after having been sent by registered or certified
mail, return receipt requested, postage prepaid and addressed to the
intended recipient as set forth below, (iii) if given by facsimile,
once such notice or other communication is transmitted to the facsimile
number specified below and electronic confirmation is received,
provided that such notice or other communication is promptly thereafter
mailed in accordance with the provisions of clause (ii) above or (iv)
if sent through an overnight delivery service in circumstances to which
such service guarantees next day delivery, the day following being so
sent:
If to Company prior to Closing or to the Principal Stockholders:
To: ▇▇▇▇▇ ▇. ▇▇▇▇, Chairman
Influence, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ 1002
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company after Closing
or to the Parent or Merger Subsidiary:
To: American Medical Systems, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
65
71
Plaza VII
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
11.2 Amendments; No Waivers.
(a) Subject to Applicable Law, any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver
is in writing and signed, in the case of an amendment, by all
parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No waiver by a party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional
or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of
any prior or subsequent occurrence. No failure or delay by a
party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies
provided by law.
11.3 Expenses. All costs, fees and expenses incurred in connection with the
negotiation, preparation, execution, delivery and performance of this
Agreement and in closing and carrying out the transactions contemplated
hereby shall be paid by the party incurring such cost or expense.
Without limiting the generality of the first sentence of this Section
11.3, the fees, costs and expenses of the accountants, attorneys and
other financial advisors (including, without limitation, Company's
attorneys, bankers and accountants) to the Company in connection with
the preparation or negotiation of, or consummation of the transactions
contemplated by, this Agreement shall be borne by the Stockholders and
paid in accordance with the Escrow Agreement; none of such fees, costs
or expenses shall be paid or assumed by Parent or the Company. Without
limiting the generality of the first sentence of this Section 11.3, the
fees, costs and expenses of the accountants, attorneys and other
financial advisors (including, without limitation, attorneys, bankers
and accountants) to Parent in connection with the preparation or
negotiation of, or consummation of the transactions contemplated by,
this Agreement shall be borne by Parent and none of such fees, costs or
expenses shall be paid by the Company or the
66
72
Principal Stockholders. This Section 11.3 shall survive the termination
of this Agreement.
11.4 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors
and permitted assigns. No party hereto may assign either this Agreement
or any of its rights, interests or obligations hereunder without the
prior written approval of each other party.
11.5 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the internal laws of the State of Minnesota
(regardless of the laws that might otherwise govern under applicable
principles of conflicts of law).
11.6 Counterparts; Effectiveness. This Agreement may be signed in any number
of counterparts and the signatures delivered by facsimile, each of
which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received a
counterpart hereof signed by the other parties hereto.
11.7 Entire Agreement. This Agreement (including the Disclosure Schedule,
the Side Letter and all Exhibits referred to herein which are hereby
incorporated by reference and the other agreements executed
simultaneously herewith) constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all
prior agreements, understandings and negotiations, both written and
oral, between the parties with respect to the subject matter of this
Agreement. This Agreement supersedes all prior and contemporaneous oral
and written agreements and understandings between the parties with
respect to the transaction or transactions contemplated by this
Agreement (including without limitation the letter of intent dated
September 2, 1999 between Parent and the Company and all amendments and
extensions thereof). Neither this Agreement nor any provision hereof is
intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
11.8 Captions. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
All references to an Article or Section include all subparts thereof.
11.9 Severability. If any provision of this Agreement, or the application
thereof to any Person, place or circumstance, shall be held by a court
of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other
Persons, places and circumstances shall remain in full force and effect
only if, after excluding the portion deemed to be unenforceable, the
remaining terms shall provide for the consummation of the transactions
contemplated hereby in substantially the same manner as originally set
forth at the later of the date this Agreement was executed or last
amended.
11.10 Construction. The parties hereto intend that each representation,
warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or
covenant contained herein in any respect, the fact that there
67
73
exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity)
that the party has not breached shall not detract from or mitigate the
fact that the party is in breach of the first representation, warranty
or covenant.
11.11 Cumulative Remedies. The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.
11.12 Third Party Beneficiaries. No provision of this Agreement shall create
any third party beneficiary rights in any Person, including any
employee of Parent or Merger Subsidiary or employee or former employee
of the Company or any Affiliate thereof (including any beneficiary or
dependent thereof).
11.13 Appointment of Stockholders' Representatives; Enforcement of Rights,
Benefits and Remedies.
(a) By adopting this Agreement, the Stockholders hereby
irrevocably constitute and appoint each of ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇ as the Stockholders'
Representatives (the "Stockholders' Representatives") for the
purpose of performing and consummating the transactions
contemplated by this Agreement and the Escrow Agreement. The
appointment of each of such Stockholders' Representatives is
coupled with an interest and all authority hereby conferred
shall be irrevocable and such Stockholders' Representatives is
hereby authorized and directed to perform and consummate all
of the transactions contemplated by this Agreement. Not by way
of limiting the authority of the Stockholders'
Representatives, each and all of the Stockholders, by their
adoption of this Agreement, for themselves and their
respective heirs, executors, administrators, successors and
assigns hereby authorize the Stockholders' Representatives to:
(i) effect any amendment to this Agreement or the Escrow
Agreement which the Stockholders' Representatives
deems necessary or desirable,
(ii) execute and deliver on their behalf all documents and
instruments which may be executed and delivered
pursuant to this Agreement or the Escrow Agreement,
except that all stock powers and letters of
transmittal with respect to the transfer of the
Company Common Stock or Company Preferred Stock shall
be personally executed by the Stockholders,
(iii) make and receive notices and other communications
pursuant to this Agreement or the Escrow Agreement
and service of process in any legal action or other
proceeding arising out of or related to this
Agreement or the Escrow Agreement or any of the
transactions hereunder,
(iv) settle any dispute, claim, action, suit or proceeding
arising out of or related to this Agreement or the
Escrow Agreement or any of the transactions
68
74
hereunder, including, without limitation, the
calculation of the Merger Consideration,
(v) receive and distribute the Contingent Merger
Consideration and Holdback Merger Consideration,
(vi) appoint or provide for successor agents, and
(vii) pay expenses incurred or which may be incurred by or
on behalf of the Stockholders (and to be reimbursed
by the Stockholders for their Pro Rata Share of such
expenses out of the sums held by the Exchange Agent
pursuant to the Escrow Agreement) in connection with
this Agreement and the Escrow Agreement.
In the event of the death or disability of any Stockholders'
Representative, a majority of the remaining Stockholders'
Representatives shall promptly appoint one of the other
Principal Stockholders as a replacement. No person serving as
the Stockholders' Representatives under this Agreement shall
have any personal liability to any Stockholder or its
permitted assigns in respect of any claim arising under or
based upon this Agreement or the transactions hereunder except
to the extent that such person may have liability as a
Stockholder hereunder.
(b) Any claim, action, suit, or other proceeding, whether in law
or equity, to enforce any right, benefit or remedy granted to
Stockholders under this Agreement or the Escrow Agreement
shall be asserted, brought, prosecuted or maintained only by
the Stockholders' Representatives. With respect to any matter
contemplated by this Section 11.13, the Stockholders shall be
bound by any determination in favor of or against the
Stockholders' Representatives or the terms of any settlement
or release to which the Stockholders' Representatives shall
become a party.
(c) All actions to be taken by the Stockholders' Representatives
may be taken by any two Stockholders' Representatives acting
together.
(Following Page is the Signature Page)
69
75
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
AMERICAN MEDICAL SYSTEMS, INC. INFLUENCE, INC.
a Delaware corporation a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------- -------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Name: ▇▇▇▇▇ ▇. ▇▇▇▇, M.D.
-------------------------- -----------------------------------------
Title: President and CEO Title: President and Chief Executive Officer
------------------------- ----------------------------------------
PERSUADE MERGER CORP. ▇▇▇▇▇▇▇▇▇ ENGINEERING LTD.
a Delaware corporation an Israeli company
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------- -------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------- -----------------------------------------
Title: President and CEO Title: Manager
------------------------- ----------------------------------------
UROTEK LTD.
an Israeli company
By: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D.
-----------------------------------------
Title: Director
----------------------------------------
KATSUMI ONEDA
/s/ Katsumi Oneda
----------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------------------------
70
76
GUARANTIES
American Medical Systems, Inc. hereby absolutely and unconditionally guarantees
the prompt payment and performance of all of the agreements, covenants and
indemnification obligations of Persuade Merger Corp. under the foregoing
Agreement and Plan of Merger, among American Medical Systems, Inc., Persuade
Merger Corp., Influence, Inc., ▇▇▇▇▇▇▇▇▇ Engineering Ltd., Urotek Ltd., Katsumi
Oneda and ▇▇▇▇▇ ▇. ▇▇▇▇.
AMERICAN MEDICAL SYSTEMS, INC.
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------
Title: President and CEO
--------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ hereby absolutely and unconditionally guarantees the prompt
payment and performance of all of the agreements, covenants and indemnification
obligations of ▇▇▇▇▇▇▇▇▇ Engineering Ltd. under the foregoing Agreement and Plan
of Merger, among American Medical Systems, Inc., Persuade Merger Corp.,
Influence, Inc., ▇▇▇▇▇▇▇▇▇ Engineering Ltd., Urotek Ltd., Katsumi Oneda and
▇▇▇▇▇ ▇. ▇▇▇▇.
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D. hereby absolutely and unconditionally guarantees the
prompt payment and performance of all of the agreements, covenants and
indemnification obligations of Urotek Ltd. under the foregoing Agreement and
Plan of Merger, among American Medical Systems, Inc., Persuade Merger Corp.,
Influence, Inc., ▇▇▇▇▇▇▇▇▇ Engineering Ltd., Urotek Ltd., Katsumi Oneda and
▇▇▇▇▇ ▇. ▇▇▇▇.
/s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D.
71
77
EXHIBIT INDEX
EXHIBIT A Form of Certificate of Merger
EXHIBIT B Parent Retention List
EXHIBIT C Disclosure Schedule
EXHIBIT D Form of Irrevocable Proxy
EXHIBIT E Form of Voting Agreement
EXHIBIT F Form of ENT Purchase and Sale Agreement
EXHIBIT G Form of Beyar/▇▇▇▇▇▇▇▇▇ Employment Agreement
EXHIBIT H Form of ▇▇▇▇ Consulting Agreement
EXHIBIT I Form of ▇▇▇▇▇▇ Consulting Agreement
EXHIBIT J Form of Resignation and Release