Exhibit 10.21
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇,
HC2 ACQUISITION CORPORATION
AND
EPILLS INC.
September 28, 1999
TABLE OF CONTENTS
Page
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SCHEDULES
Company Disclosure Schedule
Buyer Disclosure Schedule
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
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entered into as of September 28, 1999, by and among ▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, a
California corporation ("Buyer"), HC2 Acquisition Corporation, a Delaware
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corporation ("Merger Sub") and wholly owned subsidiary of Buyer, and Epills
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Inc., a Delaware corporation ("Company").
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RECITALS
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A. The Boards of Directors of Company, Buyer and Merger Sub believe it
is in the best interests of their respective companies and the shareholders of
their respective companies that Company and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into Company (the
"Merger") and, in furtherance thereof, have approved the Merger.
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B. Pursuant to the Merger, among other things, all outstanding shares
of common stock of the Company shall be converted into shares of common stock
of the Buyer (the "Buyer Common Stock") at the rate specified herein.
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C. Company, Buyer and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. As a condition and inducement to Buyer's willingness to enter into
this Agreement, certain Company stockholders holding at least 80% of the
issued and outstanding capital stock of the Company have, concurrently with
the execution of this Agreement, executed and delivered a Written Consent of
Stockholders in the form attached as Exhibit A (the "Stockholder Consent"),
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pursuant to which such stockholders have, among other things, approved this
Agreement, the Merger and the transactions contemplated hereby.
E. As a condition and inducement to Buyer's willingness to enter into
this Agreement, Bergen ▇▇▇▇▇▇▇▇ Drug Company ("Bergen ▇▇▇▇▇▇▇▇") and the
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Company have, on or before the execution of this Agreement, executed and
delivered an agreement regarding OTC/HBA fulfillment in the form attached as
Exhibit B, and as amended by the Bergen Letter Agreement (the "Bergen
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Fullfillment Agreement").
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F. As a condition and inducement to Buyer's willingness to enter into
this Agreement, Bergen ▇▇▇▇▇▇▇▇ and the Company have, on or before the
execution of this Agreement, executed and delivered a Service ▇▇▇▇ License and
Access Agreement in the form attached as Exhibit F (the "Service ▇▇▇▇ License
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and Access Agreement").
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G. As a condition and inducement to Buyer's willingness to enter into
this Agreement, Bergen ▇▇▇▇▇▇▇▇ or one of its subsidiaries or affiliates shall
have on or before the execution of this Agreement completed its purchase of
shares of Company Common Stock for an aggregate cash purchase price of $1.76
million, and Medi-Mail, Inc. ("Medi-Mail") shall have on or before the
execution of this Agreement completed its purchase of shares of Company
Common Stock in accordance with the terms of the warrant held by Medi-Mail
Inc. dated August 4, 1999 (the "Medi-Mail Warrant").
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H. As a condition and inducement to Buyer's willingness to enter into
this Agreement, Bergen ▇▇▇▇▇▇▇▇, Medi-Mail, the Company and the Buyer shall
have executed and delivered the letter agreement in the form attached as
Exhibit H.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
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1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement, the
Certificate of Merger attached hereto as Exhibit 1.1 (the "Certificate of
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Merger") and the applicable provisions of the Delaware General Corporation Law
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("Delaware Law"), Merger Sub shall be merged with and into Company, the
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separate corporate existence of Merger Sub shall cease and Company shall
continue as the surviving corporation. Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
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Corporation."
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1.2 Closing; Effective Time. The closing of the transactions
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contemplated hereby (the "Closing") shall take place as soon as practicable
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after the satisfaction or waiver of each of the conditions set forth in
Article VI hereof or at such other time as the parties hereto agree (the
"Closing Date"). The Closing shall take place at the offices of Venture Law
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Group, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, or at such other location
as the parties hereto agree. In connection with the Closing, the parties
hereto shall cause the Merger to be consummated by filing the Certificate of
Merger, together with the required officers' certificates, with the Secretary
of State of the State of Delaware, in accordance with the relevant provisions
of Delaware Law (the time of such filing being the "Effective Time").
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1.3 Effect of the Merger. At the Effective Time, the effect of the
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Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Company and Merger Sub shall vest
in the Surviving Corporation, and all debts, liabilities and duties of Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Charter Documents; Bylaws.
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(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall become
the Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation;
provided, however, that Article I of the Certificate of Incorporation
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of the Surviving Corporation shall be amended to read as follows: "The name of
the corporation is e-Pills Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall become the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors of
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Merger Sub, as in effect immediately prior to the Effective Time, shall become
the directors of the Surviving Corporation, until their respective successors
are duly elected or appointed and qualified. The officers of the Merger Sub,
as in effect immediately prior to the Effective Time, shall become the
officers of the Surviving Corporation until their respective successors are
duly elected or appointed and qualified.
1.6 Effect on Capital Stock.
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(a) Merger Share Number. The aggregate number of shares of Buyer
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Common Stock (i) to be issued in exchange for all outstanding shares of common
stock of the Company ("Company Common Stock") and (ii) reserved for issuance
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pursuant to options to acquire Company Common Stock ("Company Stock Options")
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assumed in the Merger shall be 1,269,231 shares, as appropriately adjusted to
reflect the effect of any stock split, reverse stock split, stock dividend or
the like with respect to the Buyer Common Stock occurring after the date
hereof and prior to the Effective Time (the "Merger Share Number").
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(b) Conversion of Company Common Stock. Subject to the terms and
----------------------------------
conditions of this Agreement and the Certificate of Merger as of the Effective
Time, by virtue of the Merger and without any action on the part of the holder
of any shares of Company Common Stock, at the Effective Time, each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares to be canceled pursuant to Section 1.6(d)) shall be
converted into the right to receive, subject to the provisions of Section
1.6(e) and Section 1.11 that number of shares of Buyer Common Stock determined
by dividing (i) the Merger Share Number less the Excess Expense Shares (as
defined in Section 5.7), if any (ii) by the Aggregate Company Shares (the
"Common Exchange Ratio"). The "Aggregate Company Shares" means the aggregate
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number of shares of Company Common Stock outstanding or issuable upon exercise
of outstanding Company Stock Options, whether or not exercisable, immediately
prior to the Effective Time. The aggregate number of shares of Buyer Common
Stock issued to the holders of Company Common Stock in the Merger are the
"Merger Shares."
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(c) No Conversion of Warrants or Other Rights to Purchase Company
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Common Stock. Subject to Section 1.6(f), at the Effective Time, each warrant
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and other right to purchase Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be exercised (to the extent such
warrant or right is exercisable at such time) or terminated.
(d) Cancellation of Company Common Stock Owned by Company. At the
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Effective Time, all shares of Company Common Stock that are owned by Company
as treasury
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stock immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(e) Fractional Shares. No fraction of a share of Buyer Common
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Stock will be issued, but in lieu thereof each holder of shares of Company
Common Stock who would otherwise be entitled to a fraction of a share of Buyer
Common Stock (after aggregating all fractional shares of Buyer Common Stock to
be received by such holder) shall receive from Buyer such whole number of
shares of Buyer Common Stock as is equal to the precise number of shares of
Buyer Common Stock to which such person would be entitled, rounded up or down
to the nearest whole number (with a fractional interest equal to .5 rounded to
the next greater number).
(f) Company Stock Options.
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(1) At the Effective Time, all Company Stock Options then
outstanding under the ePills Inc. 1999 Stock Option Plan (the "Option Plan"),
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whether vested or unvested, shall be assumed by Buyer in accordance with this
Section 1.6(f). Each Company Stock Option so assumed by Buyer at the Effective
Time will continue to have, and be subject to, the same terms and conditions
set forth in the Option Plan immediately prior to the Effective Time
(including, without limitation, any repurchase rights), except that (i) each
Company Stock Option will be exercisable (or will become exercisable in
accordance with its terms) for that number of whole shares of Buyer Common
Stock equal to the product of the number of shares of Company Common Stock
that were underlying such Company Stock Option immediately prior to the
Effective Time multiplied by the Common Exchange Ratio, rounded up or down to
the nearest whole number of shares of Buyer Common Stock (in accordance with
Section 1.6(e)), and (ii) the per share exercise price for the shares of Buyer
Common Stock issuable upon exercise of such assumed Company Stock Option will
be equal to the quotient determined by dividing the exercise price per share
of Company Common Stock at which such Company Stock Option was exercisable
immediately prior to the Effective Time by the Common Exchange Ratio, rounded
up or down to the nearest whole cent (in accordance with Section 1.6(e),
provided however that in the case of any Company Stock Option to which Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") applies, the
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option price, the number of shares purchasable pursuant to such option and the
terms and conditions of exercise of such option shall be determined in order
to comply with Section 424(a) of the Code. In connection with the assumption
by Buyer of the Company Stock Options pursuant to this Section 1.6(f), Company
shall be deemed to have assigned to Buyer, effective at the Effective Time,
Company's right, if any, to repurchase unvested shares of Company Common Stock
issuable upon the exercise of the Company Stock Options or previously issued
upon the exercise of options granted under the Option Plan, in accordance with
the terms of the Option Plan and the related stock option agreements and stock
purchase agreements entered into under the Option Plan.
(2) As soon as practicable after the Effective Time, Company
and Buyer shall deliver to the participants in the Option Plan appropriate
notice setting forth such participants' rights pursuant thereto, that Buyer
has assumed all obligations of the Company under the Option Plan and that the
grants pursuant to the Option Plan shall continue in effect on
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the same terms and conditions (subject to the adjustments required by this
Section 1.6 after giving effect to the Merger). Buyer shall comply with the
terms of the Option Plan and the parties intend that, to the extent required
by, and subject to the provisions of, such Option Plan and Sections 422 and
424(a) of the Code, that Options which qualified as incentive stock options
prior the Effective Time continue to qualify as incentive stock options after
the Effective Time, and this provision shall be interpreted consistent with
that intent. At or prior to the Effective Time, Buyer shall provide the
Company with evidence that it has taken all corporate action necessary to
reserve for issuance sufficient shares of Buyer Common Stock for delivery upon
exercise of Company Stock Options assumed by it in accordance with this
Section 1.6. As soon as practicable following the closing of an initial public
offering of the Company's Common Stock, Buyer shall file a registration
statement on Form S-8 (or any successor form) with respect to the assumed
Company Stock Options.
1.7 Surrender of Certificates.
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(a) Buyer to Provide Merger Shares. Promptly after the Effective
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Time, Buyer shall make available for exchange in accordance with this Article I,
through such reasonable procedures as Buyer may adopt, the shares of Buyer
Common Stock issuable pursuant to Section 1.6(b) in exchange for shares of
Company Common Stock outstanding immediately prior to the Effective Time, less
such number of shares of Buyer Common Stock as are to be deposited into an
escrow fund (the "Escrow Fund") pursuant to Section 1.11. The portion of the
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Escrow Fund contributed on behalf of each holder of Company Common Stock
immediately prior to the Effective Time (a "Company Stockholder") shall be in
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proportion to the aggregate number of Merger Shares which such Company
Stockholder would otherwise be entitled to receive in the Merger by virtue of
such Company Stockholder's percentage ownership of outstanding shares of Company
Common Stock immediately prior to the Effective Time (the "Pro Rata Portion").
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(b) Exchange Procedures. The Company will deliver to Buyer at
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closing all certificates (the "Certificates") which immediately prior to the
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Effective Time represented outstanding shares of Company Common Stock, whose
shares were converted into the right to receive Merger Shares pursuant to
Section 1.6, with duly and validly executed stock powers transferring such
Certificates to Merger Sub. Upon surrender of a Certificate for cancellation
to Buyer, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of
Buyer Common Stock which such holder has the right to receive pursuant to
Section 1.6 (less the number of shares of Buyer Common Stock to be deposited
in the Escrow Fund on such holder's behalf pursuant to Section 1.11 hereof)
and the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Buyer
Common Stock into which such shares of Company Capital Stock shall have been
so converted in accordance with Section 1.6. Buyer shall be responsible for
the payment of all transfer or other taxes required by reason of the issuance
of certificates for shares of Buyer Common Stock to Company Stockholders who
are United States residents.
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(c) Transfers of Ownership. If any certificate for shares of Buyer
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Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange will have paid to Buyer any transfer or other
taxes required by reason of the issuance of a certificate for shares of Buyer
Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Buyer or any
agent designated by it that such tax has been paid or is not payable.
(d) No Liability. Notwithstanding anything to the contrary in this
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Section 1.7, none of the Buyer, the Surviving Corporation or any party hereto
shall be liable to any person for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
1.8 No Further Ownership Rights in Company Common Stock. The shares of
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Buyer Common Stock issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof (together with the Escrow
Shares) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation
of shares of Company Common Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article I.
1.9 No Change in Rights as a Result of Merger. The Company has no
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repurchase rights with regard to any shares of its capital stock outstanding.
1.10 Tax Consequences. It is intended by the parties hereto that the
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Merger shall constitute a reorganization within the meaning of Section 368 of
the Code and will be reported as such by the Company, the Buyer, the Surviving
Corporation and the Company Stockholders for all purposes.
1.11 Escrow Agreement. At the Effective Time or such later time as
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determined in accordance with Section 1.12, Buyer will, on behalf of the Company
Stockholders deposit in escrow certificates representing ten percent (10%) of
the Merger Shares. Such shares shall be held in escrow on behalf of the Company
Stockholders in accordance with each holder's Pro Rata Portion. Such shares
(collectively, the "Escrow Shares") shall be held and applied pursuant to the
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provisions of an escrow agreement (the "Escrow Agreement") to be executed
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pursuant to Sections 6.2 and 6.3. The Escrow Agreement shall terminate six
months after the Closing, provided that if a notice of claim is given in
accordance with the Escrow Agreement before the expiration of such six month
period, an amount equal to any claimed amount which has not been resolved at
such termination date shall be retained in escrow until the resolution of such
claim. All calculations to determine the number of Escrow Shares to be
delivered by each Company Stockholder into escrow as aforesaid shall be rounded
down to the nearest whole share.
1.12 Dissenting Shares.
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(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Common Stock held by a holder who has
exercised such holder's appraisal rights in accordance with Section 262 of
Delaware Law, and who, as of the Effective Time, has not effectively withdrawn
or lost such appraisal rights ("Dissenting Shares"), shall not be converted
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into or represent a right to receive Buyer Common Stock pursuant to Section
1.6, but the holder of the Dissenting Shares shall only be entitled to such
rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of Section 1.12(a), if any
Company Stockholder who demands his appraisal rights with respect to such
shares under Section 1.12(a) shall effectively withdraw or lose (through
failure to perfect or otherwise) his rights to receive payment for such shares
under Delaware Law, then, as of the later of the Effective Time or the
occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Buyer Common Stock upon
surrender of the Certificate or Certificates representing such shares;
provided that if such holder effectively withdraws or loses his right to
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receive payment for such shares after the Effective Time, then, at such time
Buyer will deposit in the escrow created pursuant to the Escrow Agreement
additional Certificates representing such holder's Pro Rata Portion of the
Escrow Shares.
(c) The Company shall give Buyer (i) prompt notice of any written
demands for payment with respect to any shares of capital stock of the Company
pursuant to the appraisal rights under Delaware Law, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law and
received by the Company and (ii) the opportunity to participate at its own
expense in all negotiations and proceedings with respect to demands for
appraisal rights under Delaware Law. The Company shall not, except with the
prior written consent of Buyer, voluntarily make any payment with respect to
any demands for appraisal rights with respect to Company Common Stock or offer
to settle or compromise any such demands.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
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The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule attached hereto (the "Company Disclosure Schedule"). The
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Company Disclosure Schedule shall be arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article II, and the
disclosures in any paragraph of the Company Disclosure Schedule shall qualify
any other paragraph in this Article II where such disclosure would be
appropriate to the extent that it is clear from such disclosure that it
relates to such other paragraph.
2.1 Organization, Qualification and Corporate Power. The Company is a
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corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the state of its incorporation. The Company is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect. The Company has all requisite corporate power
and
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authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. The Company has furnished to the
Buyer true and complete copies of its Certificate of Incorporation and By-
laws, each as amended and as in effect on the date hereof. The Company is not
in default under or in violation of any provision of its Certificate of
Incorporation or By-laws.
2.2 Capitalization. The authorized capital stock of the Company
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consists of 1,250,000 shares of Company Common Stock, of which 893,868 shares
are issued and outstanding and no shares are held in the treasury of the
Company. The Company has reserved an aggregate of 240,000 shares of Company
Common Stock for issuance pursuant to the Option Plan, of which no shares have
been exercised, 131,000 shares are subject to outstanding options, and 109,000
shares are available for issuance. Section 2.2 of the Company Disclosure
Schedule sets forth a complete and accurate list of (i) all shareholders of
the Company, indicating the number of shares of Company Common Stock held by
each shareholder, and (ii) all holders of options and warrants, indicating the
number of shares of Company Common Stock subject to each option and warrant
and the vesting schedule and vesting commencement date for such option. All of
the issued and outstanding shares of Company Common Stock are, and all shares
of Company Common Stock that may be issued upon exercise of options and
warrants will be, when issued in accordance with their terms, duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive rights.
There are no outstanding or authorized options, warrants, rights, agreements
or commitments to which the Company is a party or which are binding upon the
Company providing for the issuance, disposition or acquisition of any of its
capital stock, other than the options and warrants listed in Section 2.2 of
the Company Disclosure Schedule. Except as set forth in Section 2.2 of the
Company Disclosure Schedule, there are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Company.
There are no agreements, voting trusts, proxies, or understandings with
respect to the voting, or registration under the Securities Act of 1933, as
amended (the "Securities Act"), of any shares of Company Common Stock. All of
the issued and outstanding shares of Company Common Stock were issued in
compliance with applicable federal and state securities laws.
2.3 Authorization of Transaction. The Company has all requisite
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corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and under each of the other agreements and
instruments to be executed and delivered by some or all of the parties hereto
in connection with the consummation of the transactions contemplated hereby
(the "Transaction Documents") to which Company is a party. All corporate
---------------------
action on the part of the Company, its officers, directors and stockholders
necessary for the authorization, execution and delivery of this Agreement ,
the Transaction Documents and the performance of all obligations of the
Company hereunder and thereunder has been taken or will be taken prior to the
Closing, and this Agreement constitutes, and each of the Transaction Documents
to which Company will be a party, will constitute, a valid and legally binding
obligation of the Company, enforceable in accordance with its respective
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
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2.4 Compliance with Laws and Other Instruments. The Company is not in
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violation or default of any provision of its Certificate of Incorporation or
Bylaws, or, to the best of its knowledge, of any instrument, judgment, order,
writ, decree, lease, license, permit, contract or other arrangement to which
it is a party or by which it is bound except as set forth in Section 2.4 of
the Company Disclosure Schedule,, or, to the best of its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to
the Company. The execution, delivery and performance of this Agreement, and
the consummation of the transactions contemplated hereby, will not result in
any such violation or default, or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree, lease, license,
permit, contract or other arrangement or an event that results in the creation
of any lien, charge or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any permit,
license, authorization, or approval applicable to the Company, its business or
operations or any of its assets or properties, or result in the acceleration
of, or create in any party the right to accelerate, terminate, modify or
cancel, or require any notice, consent or waiver under, any contract, lease,
license, permit or other arrangement to which the Company is a party or by
which the Company is bound or to which its assets are subject. For purposes of
this Agreement, a "Material Adverse Effect" means, with respect to a party,
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any material adverse effect on the assets, business, financial condition or
the results of operations of such party and its subsidiaries, if any, taken as
a whole.
2.5 Subsidiaries. The Company does not have and has never had any
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subsidiaries or entities which it controls (as defined under federal
securities laws) and does not otherwise own and has never otherwise owned any
shares of stock or any interest in, or control of, directly or indirectly, any
other corporation, partnership, association, joint venture or entity.
2.6 Company Financial Statements. The Company has attached hereto as
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Section 2.6 to the Company Disclosure Schedule the unaudited balance sheet and
statements of income, changes in shareholders' equity and cash flows for the
period from the Company's incorporation through September 15, 1999 for the
Company (the "Company's Most Recent Balance Sheet Date"). Such financial
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statements (collectively, the "Company Financial Statements") have been
----------------------------
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
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covered thereby, fairly present the financial condition, results of operations
and cash flows of the Company as of the respective dates thereof and for the
periods referred to therein and are consistent with the books and records of
the Company; provided, however, that the Company Financial Statements are
subject to normal recurring year-end adjustments (which will not be material)
and do not include footnotes.
2.7 Absence of Certain Changes. Since the Company's Most Recent Balance
--------------------------
Sheet Date and except as set forth in Section 2.7 of the Company Disclosure
Schedule, there has not been any material adverse change in the assets,
business, financial condition or results of operations of the Company, nor has
there occurred any event or development which could reasonably be foreseen to
result in such a material adverse change in the future.
2.8 Undisclosed Liabilities. The Company has no liability (whether
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known or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or
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to become due), and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a
liability, except for (a) liabilities shown on the September 15, 1999 (the
"Company's Most Recent Balance Sheet Date") balance sheet (the "Company's Most
---------------------------------------- --------------
Recent Balance Sheet"), (b) liabilities which have arisen since the Company's
--------------------
Most Recent Balance Sheet Date in the ordinary course of business consistent
with past custom and practice (including with respect to frequency and amount)
("Ordinary Course of Business") (c) contractual liabilities incurred in the
---------------------------
Ordinary Course of Business which are not required by GAAP to be reflected on
a balance sheet, (d) legal and investment banking fees and expenses incurred
by the Company since the Company's Most Recent Balance Sheet Date of
approximately $205,000 and (e) liabilities which arose prior to the Company's
Most Recent Balance Sheet Date in the Ordinary Course of Business, which have
not yet been invoiced or billed to the Company, which relate to engineering
contractors and which do not exceed $70,000 in the aggregate.
2.9 Tax Matters.
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(a) Except as set forth in Section 2.9 of the Company Disclosure
Schedule, the Company has filed all Tax Returns (as defined below) that it was
required to file and all such Tax Returns were correct and complete in all
material respects. The Company has paid all Taxes (as defined below) owed in
respect of the periods covered by such Tax Returns. The unpaid Taxes of the
Company for tax periods through the date of the Company's Most Recent Balance
Sheet do not exceed the accruals and reserves for Taxes set forth on the
Company's Most Recent Balance Sheet. The Company has no actual or potential
liability for any Tax obligation of any taxpayer (including without limitation
any affiliated group of corporations or other entities that included the
Company during a prior period) other than the Company and its subsidiaries.
Except as set forth in Section 2.9 of the Company Disclosure Schedule, all
Taxes that the Company is or was required by law to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Entity (as defined below). For purposes of this
Agreement, "Taxes" means all taxes, charges, fees, levies or other similar
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assessments or liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll and franchise
taxes imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the
United States or any such government, and any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any tax or any contest or dispute thereof. For purposes of
this Agreement, "Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a taxing authority
in connection with Taxes. For purposes of this Agreement, "Governmental
Entity" means any government, municipality or political subdivision thereof,
whether federal, state, local or foreign, or any governmental or quasi-
governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, or any court, arbitrator, administrative
tribunal or public utility.
(b) The Company has delivered to the Buyer correct and complete
copies of all federal income Tax Returns, examination reports and statements
of deficiencies assessed against or agreed to by the Company since the
Company's inception. No Tax Returns of the Company have been audited by any
Governmental Entity. No examination or audit of any Tax
-10-
Returns of the Company by any Governmental Entity is currently in progress or,
to the knowledge of the Company, threatened or contemplated. The Company has
not waived any statute of limitations with respect to taxes or agreed to an
extension of time with respect to a tax assessment or deficiency.
(c) The Company is not a "consenting corporation" within the
meaning of Section 341(f) of the Code and none of the assets of the Company
are subject to an election under Section 341(f) of the Code. The Company has
not been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(l)(A)(ii) of the Code. The Company is not a party to any Tax
allocation or sharing agreement.
(d) The Company is not and has never been a member of an
"affiliated group" of corporations (within the meaning of Section 1504 of the
Code). The Company has not made an election under Treasury Reg. Section 1.1502-
20(g). The Company is not and has not been required to make a basis reduction
pursuant to Treasury Reg. Section 1.1502-20(b) or Treasury Reg. Section
1.337(d)-2T(b).
(e) As of the date of this Agreement, the Company has not taken any
action that could reasonably be expected to cause the Merger to fail to
qualify as a reorganization within the meaning of Section 368(a) of the Code.
2.10 Assets. Company has good and valid title to all properties,
------
interests in properties and assets, real and personal, necessary for the
conduct of its business as presently conducted and as presently proposed to be
conducted, all of which are reflected in the Company's Most Recent Balance
Sheet (except properties, interests in properties and assets sold or otherwise
disposed of since the Company's Most Recent Balance Sheet Date in the ordinary
course of business) or acquired after the Most Recent Balance Sheet Date, or
with respect to leased properties and assets, valid leasehold interests in,
free and clear of all mortgages, liens, pledges, charges or encumbrances of
any kind or character, except (i) as set forth in Section 2.10 of Company
Disclosure Schedule and (ii) the lien of current taxes not yet due and
payable. The plants, property and equipment of Company that are used in the
operations of its business are in good operating condition and repair subject
to ordinary wear and tear and to requirements for periodic maintenance. All
properties used in the operations of Company, except for those acquired after
the Most Recent Balance Sheet Date, are reflected in the Company's Most Recent
Balance Sheet to the extent required by GAAP. Section 2.10 of the Company
Disclosure Schedule identifies each parcel of real property leased by Company,
and lists each real property lease, and all personal property leases. Except
as set forth in Section 2.10 of the Company Disclosure Schedule, no asset of
the Company (tangible or intangible) is subject to any Security Interest. For
purposes of this Agreement, "Security Interest" means any mortgage, pledge,
-----------------
security interest, encumbrance, charge, or other lien (whether arising by
contract or by operation of law), other than (i) mechanic's, materialmen's,
and similar liens, (ii) liens arising under worker's compensation,
unemployment insurance, social security, retirement, and similar legislation,
(iii) liens on goods in transit incurred pursuant to documentary letters of
credit, and (iv) liens for Taxes not yet due and payable, in each case arising
in the Ordinary Course of Business of the Company and not material to the
Company. The Company does not own any real property.
-11-
2.11 Intellectual Property.
---------------------
(a) Except as set forth in Section 2.11(a) of the Company
Disclosure Schedule, the Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names,
service marks, Internet domain names, copyrights, and any applications for
such patents, trademarks, trade names, service marks, Internet domain names
and copyrights, schematics, technology, trade secrets, know-how, computer
software programs or applications, processes and other tangible or intangible
proprietary information or material that are used to conduct its business as
currently conducted, or currently planned to be conducted, including without
limitation the technology, information, databases, data lists, data
compilations, and all proprietary rights developed or discovered or used in
connection with or contained in all versions and implementations of any World
Wide Web sites, free and clear of all liens, claims and encumbrances
(including without limitation licensing and distribution rights) all of which
are "Intellectual Property." Section 2.11 of the Company Disclosure Schedule
---------------------
contains an accurate and complete (i) description of all patents and patent
applications and all trademarks (indicating registered and unregistered
trademarks) and applications therefor, registered copyrights, trade names,
service marks and Internet domain names owned or licensed by the Company,
including the jurisdictions in which each such Intellectual Property right has
been issued or registered or in which any such application for such issuance
or registration has been filed, (ii) list of all written licenses, sublicenses
and other agreements to which the Company is a party and pursuant to which any
person is authorized to use any Intellectual Property rights of the Company,
and (iii) list of all written licenses, sublicenses and other agreements as to
which the Company is a party and pursuant to which the Company is authorized
to use any third party Intellectual Property ("Company Third Party
-------------------
Intellectual Property Rights"). The Company is not a party to any oral
----------------------------
license, sublicense or agreement which, if reduced to written form, would be
required to be listed in Section 2.11 of the Company Disclosure Schedule under
the terms of this Section 2.11(a).
(b) All of the Company's patents, copyrights, trademarks, trade
names or Internet domain name registrations related to its current or
currently proposed business are valid and in full force and effect and will
not be altered or impaired by the consummation of the transactions
contemplated hereby. The Company is not, and will not be as a result of the
execution and delivery of this Agreement or the performance of the Company's
obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the Company's Intellectual Property or Company
Third Party Intellectual Property Rights.
(c) Except as set forth in Section 2.11(c) of the Company
Disclosure Schedule, neither the Company nor, to the Company's knowledge, any
of the Company's employees has received a claim, or is aware of a reasonable
basis for a claim, of infringement or violation of any Intellectual Property
right of any third party. The manufacturing, marketing, licensing or sale of
the products or performance of the service offerings of the Company do not
infringe or violate any Intellectual Property right of any third party; and,
to the knowledge of the Company, the Intellectual Property rights of the
Company are not being infringed or violated by activities, products or
services of any third party.
-12-
2.12 Contracts. Section 2.12 of the Company Disclosure Schedule lists
---------
all material written agreements to which the Company is a party (other than
those referred to in Sections 2.11, 2.14 and 2.20 and other than those
referred to in Section 6.3 or otherwise executed in connection with this
Agreement), including but not limited to:
(a) any written arrangement for the provision of products or
services to customers or other third parties;
(b) any written arrangement for the purchase of raw materials,
commodities, supplies, products or other personal property or for the receipt
of consulting or other services;
(c) any written arrangement establishing a partnership, joint
venture development, marketing or distribution arrangement;
(d) any written arrangement under which it has created, incurred,
assumed, or guaranteed (or may create, incur, assume, or guarantee)
indebtedness (including capitalized lease obligations) or under which it has
imposed (or may impose) a Security Interest on any of its assets, tangible or
intangible;
(e) any written arrangement concerning confidentiality or
noncompetition (other than standard confidentiality agreements between the
Company and any of its employees in the Ordinary Course of Business);
(f) any agreement, contract or commitment that calls for fixed
and/or contingent payments or expenditures by or to the Company (including
without limitation any advertising or revenue sharing arrangement).
(g) any outstanding sales or advertising contract, commitment or
proposal (including, without limitation, insertion orders, slotting agreements
or other agreements under which Company has allowed third parties to advertise
on or otherwise be included in Company's World Wide Web sites)
(h) any agreements, contracts or commitments with officers,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by Company "at will" and
without liability, penalty or premium.
(i) any employment, independent contractor or similar agreement,
contract or commitment that is not terminable on thirty (30) days' notice or
less without penalty, liability or premium of any type, including, without
limitation, severance or termination pay.
(j) any written arrangement involving any of the Company
Stockholders or their affiliates ("Affiliates"), as defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company is not a party to any oral contract, agreement or other
arrangement which, if reduced to written form, would be required to be listed
in Section 2.12 of the Company
-13-
Disclosure Schedule. All of the agreements referenced in the Company
Disclosure Schedule to which the Company is a party are valid, binding, in
full force and effect and enforceable by the Company in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy and other similar laws affecting the enforcement of creditors'
rights generally and except that the availability of equitable remedies is
subject to the discretion of the court before which any proceeding therefor
may be brought (whether at law or in equity). Except as disclosed in Schedule
2.12 or 2.11 of the Company Disclosure Schedule, no such contract contains any
liquidated damages, penalty or similar provision, To the Company's knowledge,
no party to any such contract intends to cancel, withdraw, modify or amend
such contract, agreement or arrangement. The Company is not in default under
or in breach or violation of, nor, to the Company's knowledge, is there any
valid basis for any claim of default by the Company under, or breach or
violation by the Company of, any material provision of any contract listed on
the Company Disclosure Schedule. To Company's knowledge, no other party is in
default under or in breach or violation of, nor is there any valid basis for
any claim of default by any other party under or any breach or violation by
any other party of, any such contract.
2.13 Accounts Receivable. As of the Company's Most Recent Balance Sheet
-------------------
Date, the Company had no accounts receivable. Since the Company's Most Recent
Balance Sheet Date, the Company has accounts receivable in the amount of not
more than $500.
2.14 Insurance. Section 2.14 of the Company Disclosure Schedule sets
---------
forth a true, correct and complete list of all insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
software errors and omissions, employees, officers and directors of the
Company and all claims made under any insurance policy since the date of the
Company's inception. There is no claim by the Company pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and the Company is
otherwise in compliance in all material respects with the terms of such
policies and bonds. Such policies of insurance and bonds are of the type and
in amounts customarily carried by persons conducting businesses similar to
those of the Company. The Company has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
2.15 Litigation. Section 2.15 of the Company Disclosure Schedule
----------
identifies, and contains a brief description of, (a) any unsatisfied judgment,
order, decree, stipulation or injunction, (b) any written claim, demand,
complaint, action, suit, proceeding, or hearing or, to the Company's knowledge
any investigation of or in, any Governmental Entity or before any arbitrator
to which the Company or is a party or, to the knowledge of the Company, is
threatened to be made a party, and (c) any written or oral claims by third
persons of which the Company is aware and any reasonable basis for any third
party claims. Except as set forth in Section 2.15 of the Company Disclosure
Schedule, none of the demands, claims, complaints, actions, suits,
proceedings, hearings, and investigations set forth in Section 2.15 of the
Company Disclosure Schedule could reasonably be expected to have a Material
Adverse Effect.
2.16 Employees and Consultants. Section 2.16 of the Company Disclosure
-------------------------
Schedule contains a list of all current and former employees and consultants
of the Company, along with
-14-
the position and the annual rate or other rate as specified of compensation of
each such person. Except as set forth on Section 2.16 of the Company
Disclosure Schedule, each current and former employee and consultant to the
Company has entered into a confidentiality and assignment of inventions
agreement with the Company, a copy of each of which has previously been
delivered to the Buyer. Except as set forth in Section 2.16 of the Company
Disclosure Schedule, and to the knowledge of the Company, no key employee or
consultant or group of employees or consultants has any plans to terminate
employment or the provision of consulting services with the Company. The
Company is not a party to or bound by any collective bargaining agreement, nor
has it experienced any strikes, grievances, claims of unfair labor practices
or other collective bargaining disputes. The Company has no knowledge of any
organizational effort made or threatened, either currently or since its
inception, by or on behalf of any labor union with respect to employees of the
Company. The Company has no oral agreements with any employees or consultants
other than as described in Section 2.16 of the Company Disclosure Schedule.
2.17 Employee Benefits.
-----------------
(a) Section 2.17 of the Company Disclosure Schedule contains a
complete and accurate list of all Company Employee Benefit Plans (as defined
below) maintained, or contributed to, by the Company, or any Company ERISA
Affiliate (as defined below). For purposes of this Agreement, "Company
Employee Benefit Plan" means any "employee pension benefit plan" (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), any "employee welfare benefit plan" (as defined in Section
-----
3(1) of ERISA), and any other written or oral plan, agreement or arrangement
involving direct or indirect compensation, including without limitation
insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation maintained, or contributed to, by the Company or any Company
ERISA Affiliate. For purposes of this Agreement, "Company ERISA Affiliate"
means any entity which is a member of (i) a controlled group of corporations
(as defined in Section 414(b) of the Code), (ii) a group of trades or
businesses under common control (as defined in Section 414(c) of the Code), or
(iii) an affiliated service group (as defined under Section 414(m) of the Code
or the regulations under Section 414(o) of the Code), any of which includes
the Company. Complete and accurate copies of (i) all Company Employee Benefit
Plans which have been reduced to writing, (ii) written summaries, if any, of
all unwritten Company Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, if any, and
(iv) all annual reports filed, if any, on IRS Form 5500, 5500C or 5500R since
the Company's inception for each Company Employee Benefit Plan, have been
delivered to the Buyer. Each Company Employee Benefit Plan has been
administered in all material respects in accordance with its terms, and each
of the Company, and the Company ERISA Affiliates has in all material respects
met its obligations with respect to such Company Employee Benefit Plan and has
made all contributions thereto which are required to be made prior to the date
hereof. To the knowledge of the Company, the Company and all Company Employee
Benefit Plans are in compliance in all material respects with the currently
applicable provisions of ERISA and the Code and the regulations thereunder.
-15-
(b) There are no termination proceedings or other claims (except
claims for benefits payable in the normal operation of the Company Employee
Benefit Plans and proceedings with respect to qualified domestic relations
orders) suits or proceedings and, to the Company's knowledge, there are no
investigations by any Governmental Entity, against or involving any Company
Employee Benefit Plan or asserting any rights or claims to benefits under any
Company Employee Benefit Plan that could give rise to any material liability.
(c) All the Company Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Company Employee
Benefit Plans are qualified and the plans and the trusts related thereto are
exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, no such determination letter has been revoked and,
revocation has not been threatened, and no such Company Employee Benefit Plan
has been amended since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has occurred, that
would adversely affect its qualification or materially increase its cost.
(d) Neither the Company nor any Company ERISA Affiliate has ever
maintained an Company Employee Benefit Plan subject to Section 412 of the Code
or Title IV of ERISA.
(e) At no time has the Company nor any Company ERISA Affiliate been
obligated to contribute to any "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA).
(f) Except as set forth in Section 2.17 of the Company Disclosure
Schedule, there are no unfunded obligations under any Company Employee Benefit
Plan providing benefits after termination of employment to any employee of the
Company or any Company ERISA Affiliate (or to any beneficiary of any such
employee), including but not limited to retiree health coverage and deferred
compensation, but excluding continuation of health coverage required to be
continued under Section 4980B of the Code and insurance conversion privileges
under state law.
(g) To the knowledge of the Company, no act or omission has
occurred and no condition exists with respect to any Company Employee Benefit
Plan that would subject the Company, or any Company ERISA Affiliate to any
material fine, ▇▇▇▇ lty, tax or fiduciary liability imposed under ERISA or the
Code.
(h) No Company Employee Benefit Plan is funded by, associated with,
or related to a "voluntary employee's beneficiary association" within the
meaning of Section 501(c)(9) of the Code.
(i) Except as set forth in Section 2.17 of the Company Disclosure
Schedule, no Company Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally
to employees by its terms prohibits the Company or any Company ERISA Affiliate
from amending or terminating any such Company Employee Benefit Plan.
-16-
(j) Sections 2.17 or 2.12 of the Company Disclosure Schedule
discloses each: (i) written, and, to the Company's knowledge, oral, agreement
with any director, officer or other employee of the Company and affiliates (A)
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Company or its
affiliates of the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation guarantee or
(C) providing severance benefits or other benefits after the termination of
employment of such director, officer or employee; (ii) agreement, plan or
arrangement under which any person may receive payments from the Company or
its affiliates that may be subject to the tax imposed by Section 4999 of the
Code or included in the determination of such person's "parachute payment"
under Section 280G of the Code; and (iii) agreement or plan binding the
Company or its affiliates, including without limitation any stock option plan,
stock appreciation right plan, restricted stock plan, stock purchase plan,
severance benefit plan, or any Company Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
2.18 Environmental and OSHA.
----------------------
(a) Hazardous Material. No material amount of any substance that
------------------
is regulated by any Governmental Entity or that has been designated by any
Governmental Entity to be radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without limitation, PCBs, asbestos,
urea-formaldehyde and all substances listed pursuant to the United States
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended from time to time, and the United States Resource Recovery and
Conservation Act of 1976, as amended from time to time, and the regulations
and publications promulgated pursuant to said laws (a "Hazardous Material"),
------------------
is, to the knowledge of the Company, present as a result of the actions of the
Company (or, to the knowledge of the Company, as a result of any actions of
any third party or otherwise) in violation of any law in effect on or before
the Closing Date, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased (collectively, "Company
-------
Property").
--------
(b) Hazardous Materials Activities. The Company has not
------------------------------
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect
on or before the Closing Date, nor has the Company disposed of, transferred,
sold or manufactured any product containing a Hazardous Material (collectively
"Hazardous Materials Activities") in violation of the Comprehensive
------------------------------
Environmental Response, Compensation and Liability Act of 1980, as amended,
the Resource Recovery and Conservation Act of 1976, the Toxic Substances
Control Act of 1976, and other applicable state or federal acts (including the
rules and regulations thereunder) (collectively, "Environmental Laws") as in
effect on or before the Closing Date.
(c) Permits. The Company currently holds no environmental
-------
approvals, permits, licenses, clearances and consents and none are necessary
for the conduct of the
-17-
Company's Hazardous Material Activities, if any, and other business activities
of the Company as such activities are currently being conducted.
2.19 Permits. Section 2.19 of the Company Disclosure Schedule sets forth
-------
a list of all permits, licenses, registrations, certificates, orders or
approvals from any Governmental Entity (including without limitation those
issued or required under Environmental Laws and those relating to the
occupancy or use of owned or leased real property) ("Permits") issued to or
held by the Company that are material to the operation of its business. Such
listed Permits are the only Permits that are required for the Company to
conduct its business as presently conducted or as currently proposed to be
conducted, except for those the absence of which could not reasonably be
expected to have any Material Adverse Effect. Each such Permit is in full
force and effect.
2.20 Certain Business Relationships With Affiliates. Except as set forth
----------------------------------------------
in Section 2.20 of the Company Disclosure Schedule, no Affiliate of the
Company (a) owns any property or right, tangible or intangible, which is used
in the business of the Company, (b) has any claim or cause of action against
the Company, (c) owes any money to the Company, or (d) has loaned any money to
the Company. Section 2.20 of the Company Disclosure Schedule describes any
transactions or relationships between the Company and any Affiliate thereof.
2.21 Brokers' Fees. The Company has no liability or obligation to pay
-------------
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement other than Cruttenden ▇▇▇▇
Incorporated.
2.22 Minute Books. The minute books and other similar records of the
------------
Company contain true and complete records of all actions taken at any meetings
of the Company's shareholders, Board of Directors or any committee thereof and
of all written consents executed in lieu of the holding of any such meeting,
and all charter and bylaw documents and amendments thereto. All of these
documents have been delivered to counsel for the Buyer.
2.23 Customers and Suppliers. No material licensor to or supplier of the
-----------------------
Company has indicated to an officer of the Company since the Company's
inception that it will stop, or decrease the rate of, licensing intellectual
property or supplying materials, products or services to the Company (and no
officer of the Company is aware of any such indication) and no material
customer of the Company has indicated to an officer of the Company since the
Company's inception that it will stop, or decrease the rate of, buying,
leasing or licensing materials, products or services from the Company (and no
officer of the Company is aware of any such indication). Section 2.23 of the
Company Disclosure Schedule sets forth a list of each supplier that is the
sole supplier of any significant product, component or service to the Company.
2.24 Corporate Approvals. The Board of Directors of Company has (i)
-------------------
approved this Agreement and the Merger and (ii) determined that the Merger is
in the best interests of the shareholders of the Company and is on terms that
are fair to such stockholders. The written consent of the Company Stockholders
listed on Section 2.2 of the Company Disclosure Schedule, which is being
delivered to the Buyer concurrently with signing this Agreement, is the only
vote of the holders of any of the shares of Company Common Stock necessary to
approve this
-18-
Agreement and the transactions contemplated hereby. Except as set forth in
Section 2.24 of the Company Disclosure Schedule, there will be no stockholders
or persons entitled to receive appraisal rights (as such term is defined in
the Delaware Law) related to the transactions contemplated hereby.
2.25 Third Party Consents. Except as set forth in Section 2.25 of the
--------------------
Company Disclosure Schedule, no consent or approval is needed from any third
party in order to effect the Merger, this Agreement or any of the transactions
contemplated hereby.
2.26 Disclosure. No representation or warranty by the Company contained
----------
in this Agreement, and no statement contained in the final Company Disclosure
Schedule or in the final form of any other Transaction Document delivered to
or to be delivered by the Company pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was
or will be made, in order to make the statements herein or therein not
misleading.
2.27 Disclosure With Respect to the ePills Description in the IPO Form S-1.
---------------------------------------------------------------------
The description of the business of the Company and the online pharmacy business
and the risks related thereto (the "ePills Description") contained under the
------------------
headings listed on Exhibit 2.27A hereto and contained in the S-1 Registration
-------------
Statement that is currently being drafted by Buyer (the "IPO Form S-1"), a
form of which is attached as Exhibit 2.27B, on the date it will be filed with
-------------
the Securities and Exchange Commission, will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.28 Year 2000 Compliance. Section 2.28 of the Company Disclosure Schedule
--------------------
summarizes the Company's reasonable judgment as to its exposure, if any, to
the Year 2000 problem, including (1) the Company's assessment of its exposure
to the Year 2000 problem and the steps heretofore conducted by the Company in
assessing such exposure; (2) the Company's state of readiness for the Year
2000 (including with respect to its information technology and non-information
technology systems); (3) a description of the Company's Year 2000 issues
relating to third parties with whom the Company has a material relationship;
(4) the Company's reasonable judgment as to the costs of fixing the Year 2000
issues faced by it (whether by modification or replacement); (5) the risks of
the Company's Year 2000 Issues, including a reasonable description of the
Company's most reasonably likely worst case Year 2000 scenarios; and (6) a
description of how the Company is preparing to handle the most reasonably
likely worst case scenarios.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND MERGER SUB
----------------------------------------------------------
The Buyer and Merger Sub, jointly and severally, represent and warrant to
the Company that the statements contained in this Article III are true and
correct, except as set forth in the disclosure schedule attached hereto (the
"Buyer Disclosure Schedule"). The Buyer Disclosure Schedule shall be arranged
-------------------------
in paragraphs corresponding to the numbered and lettered paragraphs contained
in this Article III, and the disclosures in any paragraph of the Buyer
Disclosure
-19-
Schedule shall qualify any other paragraph in this Article III where such
disclosure would be appropriate to the extent that it is clear from such
disclosure that it relates to such other paragraph.
3.1 Organization, Qualification and Corporate Power. Each of Buyer and
-----------------------------------------------
Merger Sub is a corporation duly organized, validly existing and in corporate
and tax good standing under the laws of the state of its incorporation. Each
of Buyer and Merger Sub is duly qualified to conduct business and is in
corporate and tax good standing under the laws of each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect. Each of
Buyer and Merger Sub has all requisite corporate power and authority to carry
on the businesses in which it is engaged and to own and use the properties
owned and used by it. The Buyer has furnished to the Company true and complete
copies of the charter documents and By-laws of Buyer and Merger Sub, each as
amended and as in effect on the date hereof. Each of Buyer and Merger Sub is
not in default under or in violation of any provision of its charter documents
or By-laws.
3.2 Capitalization. The authorized capital stock of the Buyer consists
--------------
of : (i) 22,200,000 shares of Buyer Common Stock, of which 5,685,744 shares of
Buyer Common Stock are issued and outstanding and (ii) 4,700,000 shares of
Preferred Stock, of which (A) 1,208,600 shares have been designated Series A
Preferred Stock, of which 810,000 shares are issued and outstanding and
398,600 shares are issuable on exercise of warrants to purchase Series A
Preferred Stock outstanding, and (B) 3,400,000 shares have been designated
Series B Preferred Stock, of which 3,230,769 shares are issued and outstanding
and 62,051 shares are issuable on exercise of warrants to purchase Series B
Preferred Stock outstanding. Buyer has reserved an aggregate of 2,400,000
shares of Buyer Common Stock for issuance pursuant to the 1998 Stock Plan, of
which 269,113 shares have been issued directly or pursuant to option exercise
(and are included in the Common Stock outstanding number above), 1,522,127
shares are subject to outstanding options or reserved for issuance for
incoming employees (other than Company employees) and 608,760 shares are
available for issuance. Subject to the receipt of shareholder approval, the
Buyer has reserved for issuance an aggregate of 3,700,000 shares of Buyer
Common Stock for issuance pursuant to the 1999 Stock Plan, of which 200,000
shares are subject to outstanding options and 3,500,000 shares are available
for issuance. In addition, the Company has issued warrants to purchase 71,035
shares of Buyer Common Stock and commitments to issue warrants as described in
the Buyer Disclosure Schedule. Section 3.2 of the Buyer Disclosure Schedule
sets forth a complete and accurate list of (i) all shareholders of the Buyer,
indicating the number of shares of Buyer Common Stock, Series A Preferred
Stock and Series B Preferred Stock held by each shareholder, and (ii) all
holders of options and warrants, indicating the number of shares of Buyer
Common Stock or shares of Preferred Stock subject to each option and warrant
and the vesting schedule and vesting commencement date for such option. The
authorized capital stock of the Merger Sub consists of 1,000 shares of Common
Stock, of which 1,000 shares are issued and outstanding and held by Buyer as
of the date hereof. All of the issued and outstanding shares of Buyer Common
Stock and Preferred Stock and Merger Sub Common Stock are, and all shares of
Buyer Common Stock or Preferred Stock and Merger Sub Common Stock that may be
issued upon exercise of options and warrants will be, duly authorized, validly
issued, fully paid, nonassessable and free of all preemptive rights. There are
no outstanding or authorized options, warrants, rights, agreements or
commitments to which either the Buyer or Merger Sub is a party or which are
binding upon either the Buyer or Merger
-20-
Sub providing for the issuance, disposition or acquisition of any of its
capital stock, other than the options and warrants listed in Section 3.2 of
the Disclosure Schedule. There are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Buyer or
Merger Sub. There are no agreements, voting trusts, proxies, or understandings
with respect to the voting, or registration under the Securities Act, of any
shares of Buyer Common Stock or Preferred Stock or Merger Sub Common Stock.
All of the issued and outstanding shares of Buyer Common Stock and Merger Sub
Common Stock were issued in compliance with applicable federal and state
securities laws.
3.3 Authorization of Transaction. Each of Buyer and Merger Sub has all
----------------------------
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and under each of the Transaction
Documents to which either of Buyer or Merger Sub is a party. All corporate
action on the part of the Buyer and Merger Sub, or either of their respective
officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Transaction Documents and the
performance of all obligations of the Buyer and Merger Sub hereunder and
thereunder has been taken or will be taken prior to the Closing, and this
Agreement constitutes, and each of the Transaction Documents to which either
Buyer or Merger Sub will be a party, will constitute, a valid and legally
binding obligation of the Buyer and Merger Sub, enforceable in accordance with
its respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief,
or other equitable remedies.
3.4 Compliance with Laws and Other Instruments. Each of Buyer and
------------------------------------------
Merger Sub is not in violation or default of any provision of its charter
documents or Bylaws, or, to the best of its knowledge, of any instrument,
judgment, order, writ, decree, lease, license, permit, contract or other
arrangement to which it is a party or by which it is bound, or, to the best of
its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Buyer or Merger Sub. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in any such violation or default, or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree, lease, license, permit, contract or other arrangement or
an event that results in the creation of any lien, charge or encumbrance upon
any assets of the Buyer or Merger Sub or its subsidiaries or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any permit, license,
authorization, or approval applicable to the Buyer or Merger Sub or its
subsidiaries, its business or operations or any of its assets or properties,
or result in the acceleration of, or create in any party the right to
accelerate, terminate modify or cancel, or require any notice, consent or
waiver under, any contract, lease, license, permit or other arrangement to
which the Buyer or Merger Sub is a party or by which the Buyer or Merger Sub
is bound or to which its assets are subject.
3.5 Subsidiaries. Except as set forth in Section 3.5 of the Buyer
------------
Disclosure Schedule, the Buyer does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of stock or any interest in, or control of,
directly or indirectly, any other corporation, partnership, association, joint
venture or entity. Merger Sub was organized solely in contemplation of the
transactions set forth in this
-21-
Agreement. Merger Sub is not currently, and has never been, engaged in any
business other than the transactions contemplated herein.
3.6 Buyer Financial Statements. The Buyer has attached hereto as
--------------------------
Section 3.6 to the Buyer Disclosure Schedule (a) the audited consolidated
balance sheets and statements of income, changes in shareholders' equity and
cash flows for each of 1997 and 1998 for the Buyer and its subsidiaries; and
(b) the unaudited consolidated balance sheet as of August 31, 1999 (the
"Buyer's Most Recent Balance Sheet") and statements of income, changes in
---------------------------------
shareholders' equity and cash flows for the eight month period ending August
31, 1999 (the "Buyer's Most Recent Balance Sheet Date") Such financial
--------------------------------------
statements (the "Buyer Financial Statements") have been prepared in accordance
--------------------------
with GAAP applied on a consistent basis throughout the periods covered
thereby, fairly present the financial condition, results of operations and
cash flows of the Buyer and its subsidiaries as of the respective dates
thereof and for the periods referred to therein and are consistent with the
books and records of the Buyer and its subsidiaries; provided, however, that
--------
the Buyer Financial Statements referred to in clause (b) above are subject to
normal recurring year-end adjustments (which will not be material) and do not
include footnotes.
3.7 Absence of Certain Changes. Since the Most Recent Balance Sheet,
--------------------------
there has not been any material adverse change in the assets, business,
financial condition or results of operations of the Buyer or any subsidiary,
nor has there occurred any event or development which could reasonably be
foreseen to result in such a material adverse change in the future.
3.8 Undisclosed Liabilities. None of the Buyer and its subsidiaries has
-----------------------
any liability (whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated and whether due or to become due), and
there is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, except for (a)
liabilities shown on the Buyer's Most Recent Balance Sheet, (b) liabilities
which have arisen since the Buyer's Most Recent Balance Sheet Date in the
Ordinary Course of Business, (c) contractual liabilities incurred in the
Ordinary Course of Business which are not required by GAAP to be reflected on
a balance sheet and (d) liabilities for accounting, investment banking and
legal fees incurred in connection with the Merger and the transactions
contemplated thereby and the IPO Form S-1 and transaction contemplated
thereby.
3.9 Tax Matters.
-----------
(a) Each of the Buyer and its subsidiaries has filed all Tax
Returns that it was required to file and all such Tax Returns were correct and
complete in all material respects. Each of the Buyer and its subsidiaries has
paid all Taxes owed in respect of the periods covered by such Tax Returns. The
unpaid Taxes of the Buyer and its subsidiaries for tax periods through the
date of the Buyer's Most Recent Balance Sheet do not exceed the accruals and
reserves for Taxes set forth on the Buyer's Most Recent Balance Sheet. Neither
the Buyer nor any subsidiary has any actual or potential liability for any Tax
obligation of any taxpayer (including without limitation any affiliated group
of corporations or other entities that included the Buyer or any subsidiary
during a prior period) other than the Buyer and its subsidiaries. All Taxes
that the Buyer or any subsidiary is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity.
-22-
(b) No Tax Returns of the Buyer nor any subsidiary has been audited
by the Internal Revenue Service. No examination or audit of any Tax Returns of
the Buyer or any subsidiary by any Governmental Entity is currently in
progress or, to the knowledge of the Buyer and its subsidiaries, threatened or
contemplated. Neither the Buyer nor any subsidiary has waived any statute of
limitations with respect to taxes or agreed to an extension of time with
respect to a tax assessment or deficiency.
(c) Neither the Buyer nor any subsidiary is a "consenting
corporation" within the meaning of Section 341(f) of the Code and none of the
assets of the Buyer or its subsidiaries are subject to an election under
Section 341(f) of the Code. Neither the Buyer nor any subsidiary has been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(l)(A)(ii) of the Code. Neither the Buyer nor any subsidiary is a party
to any Tax allocation or sharing agreement.
(d) Neither the Buyer nor any subsidiary is or has ever been a
member of an "affiliated group" of corporations (within the meaning of Section
1504 of the Code), other than a group of which only the Buyer and the
subsidiaries are members. Neither the Buyer nor any subsidiary has made an
election under Treasury Reg. Section 1.1502-20(g). Neither the Buyer nor any
subsidiary is or has been required to make a basis reduction pursuant to
Treasury Reg. Section 1.1502-20(b) or Treasury Reg. Section 1.337(d)-2T(b).
(e) As of the date of this Agreement, neither Buyer or Merger Sub
has taken any action that could reasonably be expected to cause the Merger to
fail to qualify as a reorganization within the meaning of Section 368(a) of
the Code.
3.10 Title to Property. Each of Buyer and its subsidiaries has good and
-----------------
valid title to all properties, interests in properties and assets, real and
personal, necessary for the conduct of its business as presently conducted and
as presently proposed to be conducted, all of which are reflected in the
Buyer's Most Recent Balance Sheet (except properties, interests in properties
and assets sold or otherwise disposed of since the Buyer's Most Recent Balance
Sheet Date in the ordinary course of business) or acquired after the Buyer's
Most Recent Balance Sheet Date, or with respect to leased properties and
assets, valid leasehold interests in, free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except the lien of
current taxes not yet due and payable. The plants, property and equipment of
Buyer and its subsidiaries that are used in the operations of their businesses
are in good operating condition and repair subject to ordinary wear and tear
and to requirements for periodic maintenance. All properties used in the
operations of Buyer, except for those acquired after the Most Recent Balance
Sheet Date, are reflected in the Buyer's Most Recent Balance Sheet to the
extent required by GAAP. No asset of the Buyer (tangible or intangible) is
subject to any Security Interest. Neither the Buyer nor any of its
subsidiaries owns any real property.
-23-
3.11 Intellectual Property.
---------------------
(a) Each of the Buyer and its subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use, all Intellectual
Property that is used to conduct its business as currently conducted or
currently planned to be conducted.
(b) All of the Buyer's patents, copyrights, trademarks, trade names
or Internet domain name registrations related to its current or currently
proposed business are valid and in full force and effect and will not be
altered or impaired by the consummation of the transactions contemplated
hereby. Neither the Buyer nor any of its subsidiaries is, nor will any of them
be as a result of the execution and delivery of this Agreement or the
performance of the Buyer's obligations under this Agreement, in breach of any
license, sublicense or other agreement relating to the Buyer's Intellectual
Property or any written licenses, sublicenses and other agreements to which
either Buyer or its subsidiary is a party and pursuant to which Buyer or its
subsidiary is authorized to use any third party Intellectual Property (the
"Buyer Third Party Intellectual Property Rights").
----------------------------------------------
(c) Neither the Buyer nor any of its subsidiaries (nor, to the
Buyer's knowledge, any of the Buyer's employees) has received a claim, or is
aware of a reasonable basis for a claim, of infringement or violation of any
Intellectual Property right of any third party. The manufacturing, marketing,
licensing or sale of the products or performance of the service offerings of
the Buyer and its subsidiaries do not infringe or violate any Intellectual
Property right of any third party; and, to the knowledge of the Buyer and its
subsidiaries, the Intellectual Property rights of the Buyer and its
subsidiaries are not being infringed or violated by activities, products or
services of any third party.
3.12 Contracts. All of the agreements that are material agreements to
---------
the Buyer and its subsidiaries, when taken as a whole, will be referenced in
the IPO Form S-1, as filed with the SEC approximately concurrently with the
signing of this Agreement, or have been provided to the Company or its
counsel. All such material agreements to which the Buyer or a subsidiary is a
party are valid, binding, in full force and effect and enforceable by either
Buyer or its subsidiaries in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy and other similar
laws affecting the enforcement of creditor's rights generally and except that
the availability of equitable remedies is subject to the discretion of the
court before which any proceeding therefor may be brought (whether at law or
in equity). To the knowledge of the Buyer and Merger Sub, no party to any such
contract intends to cancel, withdraw, modify or amend such contract, agreement
or arrangement. Neither Buyer nor any of its subsidiaries is in default under
or in breach or violation of, nor, to the knowledge of the Buyer and Merger
Sub, is there any valid basis for any claim of default by Buyer or any of its
subsidiaries under, or breach or violation by Buyer or any of its subsidiaries
of, any material provision of any contract referenced in the IPO Form S-1. To
the knowledge of the Buyer and Merger Sub, no other party is in default under
or in breach or violation of, nor is there any valid basis for any claim of
default by any other party under or any breach or violation by any other party
of, any such contract.
-24-
3.13 Accounts Receivable. All accounts receivable of the Buyer and the
-------------------
subsidiaries reflected on the Buyer's Most Recent Balance Sheet are valid
receivables, and to the Buyer's knowledge are subject to no setoffs or
counterclaims and are current and collectible (within 90 days after the date
on which it first became due and payable), net of the applicable reserve for
bad debts on the Buyer's Most Recent Balance Sheet. All accounts receivable
reflected in the financial or accounting records of the Buyer that have arisen
since the Buyer's Most Recent Balance Sheet Date are valid receivables, and to
the Buyer's knowledge, subject to no setoffs or counterclaims and are
collectible, net of a reserve for bad debts in an amount proportionate to the
reserve shown on the Buyer's Most Recent Balance Sheet.
3.14 Insurance. Each of Buyer and its subsidiaries has in full force and
---------
effect all policies of insurance and bonds of the type and in amounts
customarily carried by persons conducting businesses similar to those of the
Buyer, including, but not limited to, fire and casualty insurance policies,
sufficient in amount (subject to reasonable deductibles) to allow it to
replace any of its or its subsidiaries properties that might be damaged or
destroyed. There is no claim by the Buyer or its subsidiaries pending under
any of such policies or bonds as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds. All premiums
payable under all such policies and bonds have been paid and the Buyer and its
subsidiaries are otherwise in compliance with the terms of such policies and
bonds. The Buyer and its subsidiaries have no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
3.15 Litigation. Section 3.15 of the Buyer Disclosure Schedule
----------
identifies, and contains a brief description of, (a) any unsatisfied judgment,
order, decree, stipulation or injunction, (b) any claim, demand, complaint,
action, suit, proceeding, hearing, or to the Buyer's knowledge any
investigation, of or in any Governmental Entity or before any arbitrator to
which the Buyer or any subsidiary is a party or, to the knowledge of the Buyer
and the subsidiaries, is threatened to be made a party, and (c) any written or
oral claims by third persons of which the Buyer is aware and any reasonable
basis for any third party claims. None of the demands, claims, complaints,
actions, suits, proceedings, hearings, and investigations set forth in Section
3.15 of the Buyer Disclosure Schedule could reasonably be expected to have a
Material Adverse Effect.
3.16 Employees. Each officer, current and former employee and consultant
---------
of the Buyer and its subsidiaries has entered into a confidentiality/assignment
of inventions agreement with the Buyer or a subsidiary of the Buyer, without
material amendment to the Buyer's standard form, a copy of which has been
provided to the Company. To the knowledge of the Buyer and its subsidiaries,
no key employee or consultant or group of employees or consultants has any
plans to terminate employment or the provision of consulting services with the
Buyer or any subsidiary of the Buyer. Neither the Buyer nor any subsidiary of
the Buyer is a party to or bound by any collective bargaining agreement, nor
has any of them experienced any strikes, grievances, claims of unfair labor
practices or other collective bargaining disputes. The Buyer and the
subsidiaries of the Buyer have no knowledge of any organizational effort made
or threatened, either currently or within the past two years, by or on behalf
of any labor union with respect to employees of the Buyer or any subsidiary of
the Buyer.
-25-
3.17 Employee Benefits. Section 3.17 of the Buyer Disclosure Schedule
-----------------
contains a complete and accurate list of all Buyer Employee Benefit Plans (as
defined below) maintained, or contributed to, by the Buyer, or any Buyer ERISA
Affiliate (as defined below). For purposes of this Agreement, "Buyer Employee
Benefit Plan" means any "employee pension benefit plan" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), any "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and any other written or oral plan, agreement or arrangement involving
direct or indirect compensation, including without limitation insurance
coverage, severance benefits, disability benefits, deferred compensation,
bonuses, stock options, stock purchase, phantom stock, stock appreciation or
other forms of incentive compensation or post-retirement compensation
maintained or contributed to, by the Buyer or any Buyer ERISA Affiliate. For
purposes of this Agreement, "Buyer ERISA Affiliate" means any entity which is
a member of (i) a controlled group of corporations (as defined in Section
414(b) of the Code), (ii) a group of trades or businesses under common control
(as defined in Section 414(c) of the Code), or (iii) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes Buyer. Complete and
accurate copies of (i) all Buyer Employee Benefit Plans which have been
reduced to writing, (ii) written summaries, if any, of all unwritten Buyer
Employee Benefit Plans, (iii) all related trust agreements, insurance
contracts and summary plan descriptions, if any, and (iv) all annual reports
filed, if any, on IRS Form 5500, 5500C or 5500R since the Buyer's inception
and the inception of any of its subsidiaries for each Buyer Employee Benefit
Plan, have been delivered to the Company. Each Buyer Employee Benefit Plan has
been administered in all material respects in accordance with its terms, and
each of the Buyer and the Buyer ERISA Affiliates has in all material respects
met its obligations with respect to such Buyer Employee Benefit Plan and has
made all contributions thereto which are required to be made prior to the date
hereof. To the knowledge of the Buyer and Merger Sub, Buyer and all Buyer
Employee Benefit Plans are in compliance in all material respects with the
currently applicable provisions of ERISA and the Code and the regulations
thereunder.
(a) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Buyer Employee Benefit Plans and proceedings with
respect to qualified domestic relations orders) suits or proceedings against
or involving any Buyer Employee Benefit Plan or asserting any rights or claims
to benefits under any Buyer Employee Benefit Plan that could give rise to any
material liability.
(b) All the Buyer Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Buyer Employee
Benefit Plans are qualified and the plans and the trusts related thereto are
exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, no such determination letter has been revoked, and
revocation has not been threatened, and no such Buyer Employee Benefit Plan
has been amended since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has occurred, that
would adversely affect its qualification or materially increase its cost.
(c) Neither Buyer nor any Buyer ERISA Affiliate has ever maintained
a Buyer Employee Benefit Plan subject to Section 412 of the Code or Title IV
of ERISA.
-26-
(d) At no time has Buyer or any Buyer ERISA Affiliate been
obligated to contribute to any "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA).
(e) Except as set forth in Section 3.17 of the Buyer Disclosure
Schedule, there are no unfunded obligations under any Buyer Employee Benefit
Plan providing benefits after termination of employment to any employee of
Buyer or any Buyer ERISA Affiliate (or to any beneficiary of any such
employee), including but not limited to retiree health coverage and deferred
compensation, but excluding continuation of health coverage required to be
continued under Section 4980B of the Code and insurance conversion privileges
under state law.
(f) To the knowledge of the Buyer and Merger Sub, no act or
omission has occurred and no condition exists with respect to any Buyer
Employee Benefit Plan that would subject Buyer or any Buyer ERISA Affiliate to
any material fine, penalty, tax or fiduciary liability imposed under ERISA or
the Code.
(g) No Buyer Employee Benefit Plan is funded by, associated with, or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(h) No Buyer Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written communication distributed
generally to employees by its terms prohibits Buyer or any Buyer ERISA
Affiliate from amending or terminating any such Buyer Employee Benefit Plan.
(i) Section 3.17 of the Buyer Disclosure Schedule discloses each:
(i) written and, to the Buyer's knowledge, oral agreement with any director,
officer or other employee of Buyer or any of its subsidiaries and affiliates
(A) the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Buyer or any of
its subsidiaries or its affiliates of the nature of any of the transactions
contemplated by this Agreement, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other benefits
after the termination of employment of such director, officer or employee;
(ii) agreement, plan or arrangement under which any person may receive
payments from the Buyer or any of its subsidiaries or its affiliates that may
be subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Buyer or any of its subsidiaries
or its affiliates, including without limitation any stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan, or any Buyer Employee Benefit Plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement.
3.18 Environmental and OSHA.
----------------------
(a) Hazardous Material. No Hazardous Material is, to the knowledge
------------------
of the Buyer and Merger Sub, present as a result of the actions of the Buyer
or any of its subsidiaries
-27-
(or, to the knowledge of the Buyer and Merger Sub, as a result of any actions
of any third party or otherwise) in violation of any law in effect on or
before the Closing Date, in, on or under any property, including the land and
the improvements, ground water and surface water thereof, that the Buyer or
any of its subsidiaries has at any time owned, operated, occupied or leased
(collectively, "Buyer Property").
--------------
(b) Hazardous Materials Activities. Neither the Buyer nor any of its
------------------------------
subsidiaries has transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in
violation of any law in effect on or before the Closing Date, nor has the
Buyer nor any of its subsidiaries conducted any Hazardous Materials Activities
in violation of any Environmental Law as in effect on or before the Closing
Date.
(c) Permits. Neither the Buyer nor any of its subsidiaries
-------
currently holds any environmental approvals, permits, licenses, clearances and
consents and none are necessary for the conduct of the Buyer's or any of its
subsidiary's Hazardous Material Activities, if any, and other business
activities of the Buyer or any of its subsidiaries as such activities are
currently being conducted.
3.19 Permits. The Buyer or its subsidiaries hold all Permits that are
-------
required for the operation of its business as presently conducted or as
proposed to be conducted, except for those the absence of which could not
reasonably be expected to have any Material Adverse Effect. Each such Permit
is in full force and effect.
3.20 Certain Business Relationships With Affiliates. No Affiliate of the
----------------------------------------------
Buyer or of any subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Buyer or any subsidiary, (b)
has any claim or cause of action against the Buyer or any subsidiary, (c) owes
any money to the Buyer or any subsidiary, or (d) has loaned any money to the
Buyer or Merger Sub.
3.21 Brokers' Fees. Neither the Buyer nor any subsidiary has any
-------------
liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement.
3.22 Minute Books. The minute books and other similar records of the
------------
Buyer and each subsidiary contain true and complete records of all actions
taken at any meetings of the Buyer's or such subsidiary's shareholders, Board
of Directors or any committee thereof and of all written consents executed in
lieu of the holding of any such meeting.
3.23 Customers and Suppliers. No material licensor to or supplier of
-----------------------
the Buyer or any subsidiary has indicated to an officer of the Buyer within
the past year that it will stop, or decrease the rate of, licensing
intellectual property or supplying materials, products or services to them
(and no officer of the Buyer is aware of any such indication) and no material
customer of the Buyer or any Subsidiary has indicated to an officer of the
Buyer within the past year that it will stop, or decrease the rate of, buying,
leasing or licensing materials, products or services from them (and no officer
of the Buyer is aware of any such indication).
-28-
3.24 Corporate Approvals. The Board of Directors of each of Buyer and
-------------------
Merger Sub (and the sole shareholder of Merger Sub) have (i) approved this
Agreement and the Merger, and (ii) determined that the Merger is in the best
interests of the shareholders of Buyer and Merger Sub and is on terms that are
fair to such shareholders.
3.25 Third Party Consents. No consent or approval is needed from any
--------------------
third party in order to effect the Merger, this Agreement or any of the
transactions contemplated hereby.
3.26 Disclosure. No representation or warranty by the Buyer or Merger
----------
Sub contained in this Agreement, and no statement contained in the final Buyer
Disclosure Schedule or in the final form of any other Transaction Document
delivered to or to be delivered by the Buyer or Merger Sub pursuant to this
Agreement, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
3.27 Disclosure With Respect to IPO Form S-1. The IPO Form S-1 (except
---------------------------------------
for the ePills Description), on the date it will be filed with the Securities
and Exchange Commission, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.28 Year 2000 Compliance. The IPO Form S-1 summarizes the Buyer's
--------------------
reasonable judgment as to its exposure to the Year 2000 problem, including (1)
the Buyer's assessment of its exposure to the Year 2000 problem and the steps
heretofore conducted by the Buyer in assessing such exposure; (2) the Buyer's
state of readiness for the Year 2000 (including with respect to its information
technology and non-information technology systems); (3) a description of the
Buyer's Year 2000 issues relating to third parties with whom the Buyer has a
material relationship; (4) the Buyer's reasonable judgment as to the costs of
fixing the Year 2000 issues faced by it (whether by modification or
replacement); (5) the risks of the Buyer's Year 2000 Issues, including a
reasonable description of the Buyer's most reasonably likely worst case Year
2000 scenarios; and (6) a description of how the Buyer is preparing to handle
the most reasonably likely worst case scenarios.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Company and Buyer. During the period from
----------------------------------------
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, each of Company and Buyer agrees
(except to the extent expressly contemplated by this Agreement or as otherwise
consented to in writing by the other) to carry on its and its subsidiaries'
business in the usual, regular and ordinary course, to pay debts and perform
obligations when due, and to use all reasonable efforts consistent with past
practice and policies to preserve intact its and its subsidiaries' present
business organization, keep available the
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services of its and its subsidiaries' key employees and preserve its and its
subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Each of Company and
Buyer agrees not to take, and not to agree in writing or otherwise to take,
any action which would make any of its representations or warranties contained
in this Agreement untrue or incorrect or prevent it from performing or cause
it not to perform its covenants hereunder.
4.2 No Solicitation.
----------------
(a) Company and the officers, directors, employees, affiliates or
other agents of Company will not, directly or indirectly, (i) take any action
to solicit, initiate, entertain or encourage any Takeover Proposal (defined
below) or (ii) participate in any negotiations regarding, or furnish to any
person any nonpublic information relating to Company to further, or afford
access to the properties, books or records of Company to further, or otherwise
cooperate with, facilitate or encourage any person that has advised Company
that it may be considering making, or that has made, a Takeover Proposal.
Company will promptly notify Buyer after receipt of any Takeover Proposal or
any notice that any person is considering making a Takeover Proposal or any
request for nonpublic information relating to Company or for access to the
properties, books or records of Company by any person that has advised Company
that it may be considering making, or that has made, a Takeover Proposal. For
purposes of this Agreement, "Takeover Proposal" means any offer or proposal
-----------------
for, or any indication of interest in, a merger, consolidation, or other
business combination involving Company or the acquisition of any significant
equity interest in, or a significant portion of the assets of, Company other
than the transactions contemplated by this Agreement.
(b) Neither Buyer nor any of its subsidiaries, nor any of their
respective officers, directors, employees, affiliates or other agents will,
directly or indirectly, (i) take any action to solicit, initiate, entertain or
encourage any proposal regarding Buyer's or any of its subsidiary's possible
acquisition of a significant portion of the equity or assets of an online
drugstore/pharmacy company other than the Company or (ii) participate in any
negotiations regarding, or furnish to any person any non public information
relating to Buyer or any of its subsidiaries to further, or afford access to
the properties, books or recodrs of Buyer or any of its subsidiaries to
further, or otherwise cooperate with, facilitate or encourage any person that
has advised Buyer or any of its subsidiaries that it may be considering such a
transaction.
4.3 Reorganization Treatment. Neither party will take any action that
------------------------
could reasonably be expected to cause the Merger to fail to qualify as a
reorganization under Section 368(a).
4.4 Restrictions on Company's Actions. Without limiting the generality of
---------------------------------
Section 4.1, prior to the Closing, the Company shall not, without the written
consent of the Buyer:
(a) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) or authorize the issuance, sale
or delivery of (except issuances pursuant to
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the exercise of outstanding options), or redeem or repurchase (except
repurchases of Common Stock on the termination of services of employees or
consultants pursuant to Common Stock Purchase Agreements), any stock of any
class or any other securities or any rights, warrants or options to acquire
any such stock or other securities (except pursuant to the conversion or
exercise of convertible securities or options outstanding on the date hereof),
or amend any of the terms of any such convertible securities or options or
exercise any discretionary right in respect thereof;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) (except repurchases of Common
Stock on the termination of services of employees or consultants pursuant to
Common Stock Purchase Agreements) in respect of its capital stock;
(c) create, incur or assume any debt not currently outstanding
(including obligations in respect of capital leases); assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or entity;
or make any loans, advances or capital contributions to, or investments in,
any other person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan (except as
required under ERISA or the Code with respect to any Employee Benefit Plan
qualified under Code section 401(a)) or any employment or severance agreement
or arrangement of the type described in Section 2.17(j) or increase in any
manner the compensation or fringe benefits of, or materially modify the
employment terms of, its directors, officers or employees, generally or
individually, or pay any benefit not required by the terms in effect on the
date hereof of any existing Employee Benefit Plan;
(e) acquire, sell, lease, license, encumber or dispose of any
assets or property in excess of $15,000 for any single such transaction or
series of related transactions or in excess of $50,000 in the aggregate
(including without limitation any shares or other equity interests in or
securities of any subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases, sales
and licenses of assets in the Ordinary Course of Business;
(f) amend its charter or By-laws;
(g) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(h) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets or subject any
such assets to any Security Interest;
-31-
(j) sell, assign, transfer or license any Intellectual Property,
other than in the Ordinary Course of Business;
(k) enter into, amend, terminate, take or omit to take any action
that would constitute a material violation of or default under, or waive any
material rights under, any material contract or agreement;
(l) make or commit to make any capital expenditure in excess of
$15,000 per item or $50,000 in the aggregate;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming materially untrue or (ii) any of the
conditions to the Closing not being satisfied; or
(n) agree in writing or otherwise to take any of the foregoing
actions.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 Access to Information.
---------------------
(a) Each party shall afford the other party and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of such party's
and its subsidiaries properties, books, contracts, commitments and records,
and (ii) all other information concerning the business, properties and
personnel of such party and its subsidiaries as the requesting party may
reasonably request. Each party agrees to provide to the other party and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.
(b) No information or knowledge obtained in any investigation
pursuant to this Section 5.1 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.2 Confidentiality. The parties acknowledge that Buyer and Company
---------------
have executed a non-disclosure agreement dated August 12, 1999 (the
"Confidentiality Agreement"), which Confidentiality Agreement shall continue
-------------------------
in full force and effect in accordance with its terms.
5.3 Public Disclosure. Unless otherwise permitted by this Agreement,
Buyer and Company shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public
(or non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which
approval shall not be unreasonably withheld),
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except as may be required by law. The parties acknowledge and agree that this
agreement shall be filed as a material agreement to the IPO Form S-1 in
connection with Buyer's initial public offering, and the relationship between
the parties shall be described in the IPO Form S-1.
5.4 Consents; Cooperation.
---------------------
(a) Consents. Each of Buyer and Company shall promptly apply for
--------
or otherwise seek, and use its commercially reasonable efforts to obtain, all
consents, approvals, authorizations, and filings required to be obtained by it
from any Governmental Entity or other third person or entity for the
consummation of the Merger, and each party shall use its commercially
reasonable efforts and shall cooperate with the other party to obtain all
necessary consents, approvals, authorizations, and filings in connection with
the Merger, including as needed in connection with any material contracts of
Company or Buyer or otherwise.
(b) The IPO Form S-1. The Company and its officers, employees and
----------------
counsel shall use all reasonable, best efforts to cooperate with Buyer in the
drafting, reviewing and filing of the IPO Form S-1 and the exhibits thereto,
and the preparation of any amendments to the IPO Form S-1, with the intent
that the ePills Description contained in the IPO Form S-1 on and as of the
effective date of such initial public offering, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.5 FIRPTA. Company shall, prior to the Closing Date, provide Buyer
------
with a properly executed Foreign Investment and Real Property Tax Act of 1980
("FIRPTA") Notification Letter, substantially in the form of Exhibit 5.5A
------ ------------
attached hereto, which states that shares of capital stock of Company do not
constitute "United States real property interests" under Section 897(c) of the
Code, for purposes of satisfying Buyer's obligations under Treasury Regulation
Section 1.1445 2(c)(3).). In addition, simultaneously with delivery of such
Notification Letter, Company shall have provided to Buyer, as agent for
Company, a form of notice to the Internal Revenue Service in accordance with
the requirements of Treasury Regulation Section 1.897-2(h)(2) and
substantially in the form of Exhibit 5.5B attached hereto along with written
authorization for Buyer to deliver such notice form to the Internal Revenue
Service on behalf of Company upon the Closing of the Merger.
5.6 Securities Laws. Buyer shall take such steps as may be necessary to
---------------
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Buyer Common Stock in connection with the
Merger. Company shall use its commercially reasonable efforts to assist Buyer
as may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of Buyer
Common Stock in connection with the Merger. The Merger Shares will be issued
under a Section 4(2) "private placement" exemption from the registration
requirements of federal securities laws.
5.7 Expenses. Whether or not the Merger is consummated, all costs and
--------
expenses incurred in connection with this Agreement, the Certificate of Merger
and the transactions contemplated hereby and thereby shall be paid by the
party incurring such expense; provided,
--------
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however, that any transaction fees, including but not limited to legal,
-------
accounting, banking and other advisory fees (the "Transaction Fees") in excess
----------------
of $100,000 in investment banking fees and $35,000 in legal fees (including
but not limited to all filing fees and other non-fee disbursements and
expenses (such as copy, fax and word processing charges) incurred in
connection with the consummation in this Agreement) on behalf of the Company
(other than those that are paid directly by the Company Stockholders or any of
their affiliates or are reimbursed to the Company by the Company Stockholders
or any of their affiliates) shall be reimbursed to the Buyer at the Closing
through a closing adjustment in the number of shares to be issued to the
Company Stockholders. The aggregate number of shares of Buyer Common Stock to
be issued to the Company Stockholders shall be reduced by the Excess Expense
Shares. The "Excess Expense Shares" means the quotient of: (i) the dollar
---------------------
amount of Transaction Fees incurred by the Company in connection with the
transactions contemplated hereby in excess of the stated maximums above,
divided by (ii) $19.50.
5.8 Good Faith Efforts and Further Assurances. Each of the parties to
-----------------------------------------
this Agreement shall use its good faith efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.9 Registration of Merger Shares issued to Company Shareholders.
------------------------------------------------------------
(a) Filing and Effectiveness. If, at any time after the date that
------------------------
is 180 days after the closing of an initial public offering of Buyer, Buyer
shall receive from any Company Stockholder or Company Stockholders (including
any additional shareholder who may receive shares of Buyer Common Stock as a
result of the release of shares from the Escrow Fund) (for the purpose of this
Section 5.9 a "Holder") owning in the aggregate at least twenty five percent
------
(25%) of the Merger Shares less the Escrow Shares a written request or
requests (the "Demand Notice") that the Buyer effect a registration on Form S-
-------------
1 (the "Resale S1 Registration Statement") and any related qualification or
--------------------------------
compliance for the purpose of offering for resale the Merger Shares less the
Escrow Shares issued to the Company Shareholders in the Merger, the Buyer
will:
(1) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holder(s) and any
other Buyer stockholders who would have the right to sell shares in such an
offering; and
(2) as promptly as practicable, but in any event within thirty
(30) business days after the date that Buyer receives the Demand Notice, file
with the Securities and Exchange Commission (the "SEC") under the Securities
---
Act a Registration Statement on Form S-1 (the "Resale S-1 Registration
-----------------------
Statement") for the purpose of offering for resale (i) the Merger Shares less
---------
the Escrow Shares and (ii) any other shares of Buyer Common Stock held by
Buyer stockholders who have the right to and elect to sell shares in such an
offering (the "Registrable Securities"), provided, however, that the Buyer
---------------------- -------- -------
shall not be obligated to file any such
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registration statement if Buyer shall furnish to the Stockholders' Agent a
certificate signed by the Chief Executive Officer of Buyer stating that, in
the good faith judgment of the Board of Directors or Chief Executive Officer
of Buyer, it would be seriously detrimental to Buyer and its stockholders for
the Resale S-1 Registration Statement to be filed on or before the date filing
would otherwise be required, and it is therefore in the best interests of
Buyer to defer the filing of the Resale S-1 Registration Statement, in which
case Buyer may delay the filing of the Resale S-1 Registration Statement not
in excess of forty-five (45) days after the original filing deadline.
(3) as soon as practicable, effect such registration and all
such qualifications and compliances as may be reasonably so requested and as
would permit and facilitate the sale and distribution of all or such portion
of such Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder(s) and other Buyer stockholders joining in such request as
are specified in a written request given within ten (10) days after receipt of
such written notice from the Company; provided, however, that the Company
-------- -------
shall not be obligated to cause any such registration, qualification or
compliance, pursuant to this Section 5.9 to become effective:
(i) prior to the date six (6) months following the
effective date of the Buyer's initial public offering or later than the date
eleven (11) months after the Closing of the Merger.
(ii) if the Holder(s), together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities at an aggregate price to the public of
less than $1,500,000; or
(iii) if the Company has already effected one (1)
registration for the Holder(s) pursuant to this Section 5.9.
(b) Requirement to Keep Effective. The Buyer shall use its
-----------------------------
reasonable best efforts to cause the Resale S-1 Registration Statement to
remain effective until the first to occur of (i) the one year anniversary of
the Closing Date of the Merger or (ii) the date by which all Registrable
Securities are sold.
(c) Expenses of Registration. Buyer shall pay all Registration
------------------------
Expenses (as hereafter defined) in connection with any registration,
qualification or compliance pursuant to this Section 5.9, and each Holder
shall pay all Selling Expenses (as hereafter defined) and other expenses that
are not Registration Expenses relating to the Registrable Securities resold by
him or her. For purposes of this Section 5.9 "Registration Expenses" shall
---------------------
mean all expenses, except as otherwise stated below, incurred by Buyer in
complying with Sections 5.9(a), 5.9(b) and 5.9(d), including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for Buyer, blue sky
fees and expenses and the expense of any special audits incident to or
required by any such registration and the reasonable fees and expenses of one
counsel for all of the selling Holders up to a maximum of $25,000. For
purposes of this Section 5.9(c), "Selling Expenses" shall mean all selling
----------------
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discounts, commissions and stock transfer or other Taxes applicable to the
Registrable Securities and all fees and disbursements of counsel for any
Holder.
(d) Registration Procedures. In the case of any registration
-----------------------
effected by Buyer pursuant to this Section 5.9, Buyer will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. Buyer will:
(1) Promptly prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in
connection with the Registration Statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement;
(2) Furnish such number of prospectuses (including preliminary
prospectuses) and other documents incident thereto, including any amendment of
or supplement to the prospectus, as a Holder from time to time may reasonably
request;
(3) Subject to Section 5.9(h) hereof, notify each Holder of
Registrable Securities covered by the Registration Statement at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act of the happening of any event as a result of which the prospectus included
in the Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such
Holder, prepare and furnish to such Holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such shares, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(4) Cause all such Registrable Securities registered pursuant
to the Registration Statement to be listed on each securities exchange or
quotation system on which similar securities issued by Buyer are then listed
or quoted, and in connection therewith, file with the Nasdaq National Market
an application for listing of additional shares with respect to the
Registrable Securities;
(5) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to the Registration Statement and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of the Registration Statement;
(6) Use its reasonable best efforts to register or qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdiction within the United States and
Puerto Rico as shall be reasonably appropriate for the distribution of the
Registrable Securities covered by the Registration Statement; provided,
--------
however, that Buyer shall not be required in connection therewith or as a
-------
condition thereto to qualify to do business in or file a general consent to
service of process in any jurisdiction wherein it would not but for the
requirements of this paragraph be obligated to do so; and
-36-
(7) Otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act.
(e) Information by Holder. Each Holder of Registrable Securities
---------------------
shall furnish to Buyer such information regarding such Holder and the
distribution proposed by such Holder as Buyer may reasonably request in
connection with any registration, qualification or compliance referred to in
this Section 5.9, but only to the extent that such information is required in
order for Buyer to comply with its obligations under all applicable securities
and other laws and to ensure that the Registration Statement relating to such
Registrable Securities conforms to the applicable requirements of the
Securities Act and the rules and regulations thereunder. Each Holder covenants
that it will promptly notify Buyer of any changes in the information set forth
in the Registration Statement or otherwise provided by such Holder to Buyer
regarding such Holder or such Holder's plan of distribution as a result of
which the Registration Statement or any prospectus relating to the Registrable
Securities contains or would contain an untrue statement of a material fact
regarding such Holder or its intended method of distribution of such
Registrable Securities or omits to state any material fact regarding such
Holder or its intended method of distribution of such Registrable Securities
required to be stated therein or necessary to make the statements therein, not
misleading.
(f) Indemnification and Contribution.
--------------------------------
(1) Buyer agrees to indemnify and hold harmless each Holder
from and against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) to which such Holder may become subject (under
the Securities Act or otherwise) insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or
are based upon, any untrue statement, alleged untrue statement, omission or
alleged omission of a material fact in the Registration Statement, any
prospectus included in the Registration Statement, or any amendment or
supplement to the Registration Statement or any such prospectus, or any
violation or alleged violation by Buyer of the Securities Act, the Exchange
Act, any state law, rule or regulation promulgated thereunder, and Buyer will,
as incurred, reimburse such Holder for any legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however, that the indemnity contained in this
Section 5.9(f)(1) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected
without the consent of Buyer (which consent shall not be unreasonably
withheld), nor shall Buyer shall not be liable in any such case to the extent
that such loss, claim, damage or liability arises out of, or is based upon (A)
an untrue statement or alleged untrue statement made in such Registration
Statement in reliance upon and in conformity with written information
furnished to Buyer by such Holder in an instrument executed by such Holder and
specifically stated to be for use in the preparation of the Registration
Statement, (B) the failure of such Holder to comply with any of the covenants
and agreements contained in Sections 5.9(h) or 5.9(j) hereof, or (C)
-37-
any untrue statement in any prospectus that is corrected in any subsequent
prospectus that was delivered to the Holder prior to the pertinent sale or
sales by the Holder.
(2) Each Holder, severally and not jointly, agrees to
indemnify and hold harmless Buyer from and against any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) to which Buyer
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon (A) an untrue statement, alleged
untrue statement, omission or alleged omission of a material fact in the
Registration Statement, any prospectus included in the Registration Statement,
or any amendment or supplement to the Registration Statement or any such
prospectus in reliance upon and in conformity with written information
furnished to Buyer by such Holder in an instrument executed by such Holder and
specifically stated to be for use in preparation of the Registration
Statement, or any violation or alleged violation by Holder of the Securities
Act, the Exchange Act, any state law, rule or regulation promulgated
thereunder, provided, however, the indemnity contained in this Section
5.9(f)(2) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of Holder (which consent shall not be unreasonably withheld), and
provided that no Holder shall be liable in any such case for any untrue
statement included in any Prospectus which statement has been corrected in a
writing delivered to Buyer at least two business days before the sale from
which such loss arose, (B) the failure of such Holder to comply with any of
the covenants and agreements contained in Sections 5.9(h) or 5.9(j) hereof, or
(C) any untrue statement in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to the Holder prior to the pertinent sale or
sales by the Holder; and each Holder, severally and not jointly, will, as
incurred, reimburse Buyer for any legal or other expenses reasonably incurred
in investigating, defending or preparing to defend any such action, proceeding
or claim. In no event shall the amount payable by any Holder to Buyer pursuant
to this Section 5.9(f) by reason of a sale of Buyer Common Stock by such
Holder exceed the amount of the net proceeds to such Holder from the sale of
Buyer Common Stock from which such liability arose.
(3) Promptly after receipt by any indemnified person under
subsections (1) or (2) above of a notice of a claim or the beginning of any
action in respect of which indemnity is to be sought against an indemnifying
person pursuant to this Section 5.9(f), such indemnified person shall notify
the indemnifying person in writing of such claim or of the commencement of
such action (provided, however, that no failure to provide such notice shall
relieve any indemnifying person of any liability hereunder except to the
extent that such indemnifying person is prejudiced thereby), and, subject to
the provisions hereinafter stated, in case any such action shall be brought
against an indemnified person and the indemnifying person shall have been
notified thereof, the indemnifying person shall be entitled to participate
therein, and, to the extent that it shall wish, to assume the defense thereof,
with counsel reasonably satisfactory to the indemnified person. After notice
from the indemnifying person to such indemnified person of the indemnifying
person's election to assume the defense thereof, the indemnifying person shall
not be liable to such indemnified person for any legal expenses subsequently
incurred by such indemnified person in connection with the defense thereof;
provided, however, that, if the indemnifying person shall propose that the
same counsel represent it and the indemnified person, and if counsel for the
indemnified person shall reasonably have
-38-
concluded that there is an actual conflict of interest posed by the
representation proposed by the indemnifying person, the indemnified person
shall be entitled to retain its own counsel reasonably satisfactory to the
indemnifying person at the expense of such indemnifying person; provided,
however that if more than one indemnified person makes a claim against an
indemnifying person based on substantially similar facts, the indemnifying
person shall not be responsible for the fees of more than one counsel for all
indemnified persons whose claims are based on substantially similar facts.
(4) If the indemnification provided for in this Section 5.9(f)
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (1) or (2) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages
or liabilities (or actions in respect thereof), in such proportion as is
appropriate to reflect the relative fault of each such party, as well as any
other relevant equitable considerations, provided, however, that any
contribution by a Holder shall not exceed the net proceeds to such Holder for
the sale of Buyer Common Stock from which such liability arose, except in the
case of willful fraud by such Holder. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by Buyer on the one hand or a
Holder on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Buyer and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 5.9(f) were determined by any method of
allocation which does not take account of the equitable considerations
referred to above in this Section 5.9(f)(4). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, or liabilities
(or actions in respect thereof) referred to above in this Section 5.9(f)(4)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action, proceeding or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(5) The obligations of the Buyer and the Holders under this
Section 5.9(f) shall be in addition to any liability which Buyer and the
respective Holders may otherwise have and shall extend, upon the same terms
and conditions, to each director and officer of Buyer or any Holder, and to
each person, if any, who controls Buyer or any Holder within the meaning of
the Securities Act or the Exchange Act.
(g) Restrictive Legend. Each certificate representing Merger
------------------
Shares shall bear substantially the following legends (in addition to any
legends required under applicable securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE
-39-
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM.
ADDITIONALLY, THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO CERTAIN RESTRICTIONS SPECIFIED IN THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, HC2 ACQUISITION CORP., AND EPILLS INC.
DATED ___________________, 1999 (THE "AGREEMENT"), WHICH INCLUDES AN
OBLIGATION TO NOTIFY THE ISSUER PRIOR TO ANY SALE OR OTHER TRANSACTION,
AND NO TRANSFER OF SHARES SHALL BE VALID OR EFFECTIVE ABSENT COMPLIANCE
WITH SUCH RESTRICTIONS. ALL SUBSEQUENT HOLDERS OF THIS CERTIFICATE WILL
HAVE AGREED TO BE BOUND BY CERTAIN OF THE TERMS OF THE AGREEMENT,
INCLUDING SECTION 5.9 OF THE AGREEMENT. COPIES OF THE AGREEMENT MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE REGISTERED HOLDER OF
THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER.
The legend contained in this Section 5.9(g) shall be removed from a certificate
in connection with any sale in compliance with the terms of this Agreement and
pursuant to the Resale S-1 Registration Statement, or pursuant to Rule 144 (if
accompanied by any legal opinion reasonably required by the Buyer), but shall
not be removed in any other circumstance without Buyer's prior written consent
(which consent shall not be unreasonably withheld or delayed and shall be
granted if such legend is no longer appropriate).
(h) Transfer of Shares After Registration.
-------------------------------------
(1) Restriction. No Holder may make any sale of any Merger
-----------
Shares except (A) in accordance with the Resale S-1 Registration Statement, in
which case Holder must comply with the requirement of delivering a current
prospectus, (B) in accordance with Rule 144, or (C) pursuant to an exemption
from the registration requirements of the Securities Act, if accompanied by an
opinion of counsel that registration is not necessary, which opinion and
counsel shall be reasonably satisfactory to Buyer.
(2) Notice to Buyer of Proposed Sale and Right of Buyer to
------------------------------------------------------
Suspend Use of Registration Statement. If, at any time during the period after
-------------------------------------
the Registration Statement has been declared effective and on or before the
date that is one year after the Closing of the Merger, any Holder shall
propose to sell any Registrable Securities pursuant to the Resale S1
Registration Statement, it shall submit written notice to the Buyer (a "Notice
------
of Sale") by facsimile transmission of such intention which shall include the
-------
name of the Holder, the number of shares of Registrable Securities that such
holder intends to sell and the Holder's telephone and facsimile numbers. (If
the Notice of Sale is actually received on a day other than a business day, it
will be deemed received on the next business day; the date on which the Notice
of Sale is received is referred to as the "Notice Date;" the time on which the
-----------
Notice of Sale is received is
-40-
referred to as the "Notice Time".) Upon receiving a Notice of Sale from a
-----------
Holder, the Buyer will notify the Holder as soon as reasonably practicable
(but in no event later than the same time as the Notice Time on the next
business day following the Notice Date) whether (i) the Buyer believes that
the prospectus contained in the Registration Statement, as then amended or
supplemented, is available for immediate use, whereupon the Buyer shall so
notify the Holder(s) and the Holder(s) will have a period of five (5) trading
days following such notification in which to sell its Registrable Securities
or (ii) the Buyer believes that it is necessary or appropriate to file a
supplement or file a post-effective amendment to the registration statement or
the prospectus or any document incorporated therein by reference or file any
other report or document so that, as thereafter delivered to the purchasers of
the Registrable Securities, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading (a "Prospectus Update"). If the
-----------------
Buyer notifies the Holder(s) that it believes it may be necessary or
appropriate to effectuate a Prospectus Update and the Buyer is not exercising
any right it may have under Section 5.9(i) to postpone the Prospectus Update,
the Buyer will thereupon use all reasonable efforts to effectuate such
Prospectus Update as soon as reasonably possible, and not later than three (3)
business days after the Notice of Sale is received by the Buyer, except that
the Buyer will have up to an additional two (2) business days to effectuate
such Prospectus Update if, because of the particular circumstances involved,
the Buyer could not effectuate the Prospectus Update earlier, despite all
reasonable diligence. As soon as the Prospectus Update has been effectuated,
the Buyer will notify each Holder who has submitted a Notice of Sale that the
prospectus is available for use, whereupon each such Holder will have a period
of five (5) trading days in which to sell its Registrable Securities.
(i) The Buyer will be entitled to postpone, for the minimum period
provided below, the filing of any Prospectus Update otherwise required to be
prepared and filed by it pursuant hereto if, at the time it receives a Notice
of Sale, the Buyer determines in its reasonable judgment, after consultation
with counsel, that (i) the Buyer would be required to prepare and file any
financial statements (other than those it customarily prepares or before it
customarily files such financial statements), (ii) the Buyer would be required
to file an amendment to the registration statement to describe facts or events
which individually or in the aggregate represent a fundamental change in the
information contained in the registration statement within the meaning of Item
512 of Regulation S-K promulgated under the Securities Act, or (iii) the
filing would require the premature announcement of any financing, acquisition,
corporate reorganization, contract or other material corporate transaction or
development involving the Buyer such as the Buyer reasonably determines would
be materially detrimental to the interests of the Buyer and its shareholders.
The postponement will be for the minimum period reasonably required for the
Buyer to prepare and file the necessary documents, in the case of a
postponement pursuant to (i) or (ii) above, or the minimum period reasonably
required to avoid such premature disclosure, in the case of (iii) above, and
which period will not be in excess of thirty (30) days unless, because of the
unusual nature of the particular circumstances, it is necessary that the
period extend beyond thirty (30) days. The Buyer will promptly give each
Holder who has submitted a Notice of
-41-
Sale notice of any postponement exercised pursuant to this Section 5.9(i). As
soon as the Prospectus Update has been effectuated following a postponement
effected pursuant to this Section 5.9(i), the Buyer will notify each Holder
who has submitted a Notice of Sale that the prospectus is available for use,
whereupon each such Holder will have a period of five (5) trading days in
which to sell its Registrable Securities.
(j) The Holder(s) may not sell shares of Registrable Securities
under this Section 5.9 without first (i) complying with the Notice of Sale
requirements of Section 5.9(h)(2) and (ii) allowing the Buyer to prepare
Prospectus Updates (including any permitted postponements thereof) as set
forth in Sections 5.9(h)(2) and 5.9(i). A Holder will submit a Notice of Sale
only if in good faith it actually intends to sell the Registrable Securities
within such five (5) trading day period and with the understanding that a
Notice of Sale is to be made only on the occasion that the sale of Registrable
Securities is actually contemplated and not on a continual basis. A Holder
will notify the Buyer by facsimile transmission promptly after it has
completed or otherwise ceased sales following submission of a Notice of Sale.
The Holder(s) will provide to the Buyer all information in the Holder(s)'
possession or control, and will take all actions, as may be required in order
to permit the Buyer to comply with all applicable requirements of the
Securities Act and any applicable state securities laws.
(k) Notwithstanding anything herein to the contrary, Buyer shall
keep a registration statement effective and available pursuant to this Section
5.9 for a minimum of thirty (30) days (after taking into account any periods
of delay permitted under Sections 5.9(h) and (i) above), shall permit the
Holders to sell the Merger Shares covered by such registration statement for a
minimum of thirty (30) days, and under no circumstances shall the Buyer be
required to keep a registration statement effective and available pursuant to
this Section 5.9 for greater than thirty (30) days (after taking into account
any periods of delay permitted under Sections 5.9(h) and (i) above).
(l) Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Registrable Securities to the public without
registration, Buyer agrees to use its reasonable best efforts to:
(1) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the Merger;
(2) File with the SEC in a timely manner all reports and other
documents required of Buyer under the Securities Act and the Exchange Act; and
(3) So long as a Holder owns any Registrable Securities, to
furnish to that Holder forthwith upon request a written statement by Buyer as
to its compliance with the reporting requirements of said Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of Buyer, and such other reports and documents of Buyer as
such Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing such Holder to sell any such Registrable
Securities without registration.
-42-
ARTICLE VI
CONDITIONS TO THE MERGER
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, by agreement of
all the parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order or
prohibition issued by any Governmental Entity preventing the consummation of
the Merger shall be in effect. In the event an injunction or other order shall
have been issued, each party agrees to use its reasonable diligent efforts to
have such injunction or other order lifted.
(b) Governmental Approval. Buyer, Company and Merger Sub and their
---------------------
respective subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Securities Act under state blue sky laws and Delaware Law.
6.2 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be
waived, in writing, by Company:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Buyer and Merger Sub in this Agreement shall
be true and correct in all material respects (except for such representations
and warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true in all
respects) on and as of the Effective Time as though such representations and
warranties were made on and as of such time and (ii) Buyer and Merger Sub
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by them as of the Effective Time, and Company shall have
received a certificate signed on behalf of Buyer and the Merger Sub by the
Chief Executive Officer or the President and the Chief Financial Officer to
such effect.
(b) Legal Opinion. Company shall have received a legal opinion
-------------
from Buyer's legal counsel substantially in the form of Exhibit 6.2(b)
--------------
hereto.
(c) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations,
results of operations or prospects of Buyer and its subsidiaries, taken as a
whole.
-43-
(d) Third Party Consents. Company shall have been furnished with
--------------------
evidence reasonably satisfactory to it of the consent or approval of those
persons and entities whose consent or approval shall be required in order for
Buyer and Merger Sub to consummate the Merger.
(e) Intentionally omitted.
(f) Employment and Non-Competition Agreements. The Buyer shall
-----------------------------------------
have executed the Employment and Non-Competition Agreements substantially in
the form attached as Exhibit 6.2(f) (each an "Employment and Non-Competition
-------------- ------------------------------
Agreement") with ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇.
---------
(g) Escrow Agreement. The Buyer and Escrow Agent shall have
----------------
executed the Escrow Agreement substantially in the form attached Exhibit
6.2(g).
(h) ▇▇▇▇▇ Advisory Agreement. The Buyer and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ shall
------------------------
have entered into an Advisory Agreement substantially in the form attached as
Exhibit 6.2(h) (the "▇▇▇▇▇ Advisory Agreement").
(i) Assumption of Notes. Buyer will execute an Assumption Agreement
-------------------
substantially in the form attached as Exhibit 6.2(i), pursuant to which it will
assume the obligations of the Company under those certain promissory notes dated
as of January 25, 1999, as amended by letter agreement dated September __, 1999,
payable to each of ▇▇▇▇▇▇ ▇, ▇.▇., ▇▇▇▇ ▇▇▇▇ Investment Limited and CCG Canada
Inc.
6.3 Additional Conditions to the Obligations of Buyer and Merger Sub.
----------------------------------------------------------------
The obligations of Buyer and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Buyer:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Company in this Agreement shall be true and
correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true in all
respects) on and as of the Effective Time as though such representations and
warranties were made on and as of such time and (ii) Company shall have
performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time, and Buyer shall have received a
certificate signed on behalf of Company by the President and Chief Financial
Officer to such effect.
(b) Legal Opinion. Buyer shall have received a legal opinion from
-------------
Company's legal counsel, in substantially the form of Exhibit 6.3(b).
(c) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations,
results of operations or prospects of Company other than the good faith use of
cash reasonably consistent with projections previously provided to Buyer.
-44-
(d) FIRPTA Certificate. Company shall have provided Buyer with the
------------------
FIRPTA Notification Letter.
(e) Third Party Consents. Buyer shall have been furnished with
--------------------
evidence reasonably satisfactory to it of the consent or approval of those
persons and entities whose consent or approval shall be required in order for
Company to consummate the Merger or ensure the continuation of all contracts
of Company, including but not limited to AOL's consent to the Merger pursuant
to the AOL Advertising Insertion Order dated August 20, 1999.
(f) Resignation of Directors. The directors of Company in office
------------------------
immediately prior to the Effective Time shall have resigned as directors of
the Surviving Corporation effective as of the Effective Time.
(g) Employment and Non-Competition Agreements. Each of ▇▇▇▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇▇▇▇ shall have executed the Employment and
Non-Competition Agreement.
(h) Confidentiality Agreements. The employees and consultants of
--------------------------
Company listed on Exhibit 6.3(h), who constitute all of Buyer's employees and
consultants, shall have entered into Confidential Information and Invention
Assignment Agreements in the Buyer's standard form, to be effective upon the
Closing.
(i) Dissenting Stockholders. Holders of no more than 10% of
-----------------------
Company's issued and outstanding capital stock as of the Closing shall have
elected to, or continue to have contingent rights to, exercise appraisal
rights under Delaware Law as to such shares.
(j) Escrow Agreement. The Escrow Agent and Stockholders' Agent
----------------
shall have executed and delivered to Buyer the Escrow Agreement.
(k) Intentionally omitted.
(l) Bergen ▇▇▇▇▇▇▇▇ Fulfillment Agreement. The Bergen Fulfillment
-------------------------------------
Agreement executed and delivered concurrently with the execution of this
Agreement, and as amended by the Bergen Letter Agreement, shall remain in full
force and effect.
(m) IPO Lockup Agreement. Each of the Company Stockholders and
--------------------
Company option holders shall have executed Buyer's underwriters' standard form
of 180 day lockup agreement in connection with Buyer's proposed initial public
offering in the form attached as Exhibit 6.3(m).
(n) Service ▇▇▇▇ License and Access Agreement. The Service ▇▇▇▇
-----------------------------------------
License and Access Agreement executed and delivered concurrently with the
execution of this Agreement shall remain in full force and effect.
(o) Stockholder Agreement. Each Company Stockholder shall have
---------------------
executed and delivered to Buyer the Stockholder Agreement in the form attached
as Exhibit 6.3(o).
--------------
-45-
(p) Purchasers' Representative. Each of the Company Stockholders
--------------------------
who is not an accredited investor as defined in Rule 501 of the Securities Act
has appointed ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ to act as a "purchaser representative" as defined
in Rule 501 of the Securities Act.
(q) Intentionally omitted.
(r) ▇▇▇▇▇ Advisory Agreement. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ shall have executed and
------------------------
delivered the ▇▇▇▇▇ Advisory Agreement.
(s) Certificates. Each of the Company Stockholders shall have
------------
executed and delivered to the Buyer the Certificates representing all of the
shares of Company Common Stock outstanding, together with duly executed stock
powers transferring such Certificates to Merger Sub.
(t) Assignment of URLs. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ shall have executed and
------------------
delivered an application for the assignment of the URLs "▇▇▇▇▇▇.▇▇▇,"
"▇▇▇▇▇▇.▇▇▇" and "▇▇▇▇▇▇▇▇▇.▇▇▇" to the Company.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 Termination. At any time prior to the Effective Time, whether
-----------
before or after approval of the matters presented in connection with the
Merger by the shareholders of Company, this Agreement may be terminated:
(a) by mutual consent of Buyer and Company;
(b) by Company or Buyer, by giving written notice to the other
party, if the other party is in material breach of any representation,
warranty, or covenant of such other party contained in this Agreement, which
breach shall not have been cured, if subject to cure, within 15 days following
receipt by the breaching party of written notice of such breach by the other
party;
(c) by Buyer, by giving written notice to the Company, if the
Closing shall not have occurred on or before October 15, 1999 by reason of the
failure of any condition precedent under Section 6.1 or 6.3 (unless the
failure results primarily from a breach by Buyer or Merger Sub of any
representation, warranty, or covenant of Buyer or Merger Sub contained in this
Agreement or Buyer's failure to fulfill a condition precedent to closing or
other default);
(d) by Company, by giving written notice to Buyer, if the Closing
shall not have occurred on or before October 15, 1999 by reason of the failure
of any condition precedent under Section 6.1 or 6.2 (unless the failure
results primarily from a breach by the Company of any representation,
warranty, or covenant of Company contained in this Agreement or the Company's
failure to fulfill a condition precedent to closing or other default);
-46-
7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 7.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Buyer,
Merger Sub or Company or their respective officers, directors, shareholders or
affiliates, except to the extent that such termination results from the
material breach by a party hereto of any of its representations, warranties or
covenants set forth in this Agreement; provided that, the provisions of
Section 5.2 (Confidentiality) and this Section 7.2 shall remain in full force
and effect and survive any termination of this Agreement.
7.3 Amendment; Waiver. The boards of directors of the parties hereto
-----------------
may cause this Agreement to be amended at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto. At any
time prior to the Effective Time any party hereto may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE VIII
INDEMNIFICATION
---------------
8.1 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Notwithstanding any investigation conducted before or after the Closing Date,
Buyer and the Company will be entitled to rely upon the other party's
representations, warranties and covenants set forth in this Agreement. The
obligations of the Buyer and the Company with respect to its representations,
warranties, agreements and covenants will survive the Closing and continue in
full force and effect for a period of six months after the Closing, provided
that if a notice is given in accordance with the Escrow Agreement before the
expiration of such six month period, then (notwithstanding the expiration of
such time period) the representation, warranty or covenant applicable to such
claim shall survive until, but only for the purpose of, the resolution of such
claim.
8.2 Indemnity by Company Shareholders. From and after the Closing Date,
---------------------------------
and subject to the other provisions of this Article 8, each Company
Stockholder shall jointly and severally indemnify and hold harmless Buyer and
Surviving Corporation (an "Indemnified Person") against, and reimburse Buyer
------------------
and/or Surviving Corporation for, any liability, damage, loss, obligation,
demand, judgment, fine, penalty, cost or expense, including reasonable
attorneys' fees and expenses, and the costs of investigation incurred in
defending against or settling such liability, damage, loss, cost or expense or
claim therefor and any amounts paid in settlement thereof (collectively
"Damages") imposed on or reasonably incurred by Buyer as a result of: (i) any
-------
breach of any representation or warranty or failure to perform any covenant on
the part of Company under this Agreement, (ii) resulting from any claim by a
Company Stockholder or former Company stockholder based upon an ownership
right or alleged ownership right of any shares of stock of the Company, the
form of consideration payable in the Merger or any actions of the board of
directors of the Company in connection with the transactions
-47-
contemplated by this Agreement or (iii) or arising out of any facts relating
to the disclosure described in Section 2.15 in the Company Disclosure Schedule
(the "▇▇▇▇▇▇ Claims") regarding any relationship among ▇▇▇▇▇ ▇▇▇▇▇▇, CoDesign
-------------
and/or any other principals of CoDesign (the "▇▇▇▇▇▇ Group") and the Company.
------------
8.3 Method of Asserting Claims. All claims for indemnification by an
--------------------------
Indemnified Person pursuant to this Article VIII shall be made in accordance
with the provisions of the Escrow Agreement.
8.4 Limitations. Notwithstanding anything to the contrary herein,
-----------
(a) the aggregate liability of the Company Stockholders for Damages
under this Article VIII shall be limited to the Escrow Fund (or a portion
thereof, as set forth in the Escrow Agreement). Except with respect to claims
based on fraud, in the event the Merger occurs, the rights of an Indemnified
Person under this Article VIII shall be limited exclusively to the right to
receive the Escrow Shares (or a portion thereof, as set forth in the Escrow
Agreement) and such indemnification shall be the exclusive remedy of the
Indemnified Persons with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Company contained in this Agreement. No Company Stockholder
shall have any right of contribution against the Company with respect to any
breach by the Company of any of its representations, warranties, covenants or
agreements.
(b) Subject to Section 12(a) of the Escrow Agreement, the Company
Stockholders shall have no obligation to indemnify the Indemnified Person
pursuant to Section 8.2 hereof unless and until all Damages thereunder shall
exceed $50,000 in the aggregate, at which point the Company Stockholders shall
be responsible for all Damages (including the first $50,000 of such Damages)
imposed on or incurred by the Indemnified Person. As used in this Agreement,
"Damages" shall be determined after giving effect to the receipt by the
Indemnified Person of any insurance proceeds relating to such Damages.
8.5 Stockholders' Agent. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ shall be constituted and
-------------------
appointed as agent ("Stockholders' Agent") for and on behalf of the Company
-------------------
Stockholders to give and receive notices and communications, to authorize
delivery to Buyer of the Buyer Common Stock in satisfaction of claims by
Buyer, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders
of courts and awards of arbitrators with respect to such claims, and to take
all actions necessary or appropriate in the judgment of the Stockholders'
Agent for the accomplishment of the foregoing. Notices or communications to or
from the Stockholders' Agent shall constitute notice to or from each of the
Company Shareholders. A decision, act, consent or instruction of the
Stockholders' Agent shall constitute a decision of all Company Stockholders
with respect to this Section 8 and shall be final, binding and conclusive upon
each such Company Stockholder, and the Buyer may rely upon any decision, act,
consent or instruction of the Stockholders' Agent as being the decision, act,
consent or instruction of each and every such Company Stockholder.
-48-
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Buyer or Merger Sub, to:
▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
Facsimile No.:
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Venture Law Group
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Company, to:
ePills Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
-49-
with a copy to:
▇▇▇▇ Marks & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
▇▇▇▇▇▇▇, Spring, ▇▇▇▇▇▇▇▇ & Kichler
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) Each such notice or other communication shall be in writing and
shall be effective (i) if given by telecopier, when such telecopy is
transmitted to the telecopier number specified in Section 9.1 (with
confirmation of transmission); or (ii) if given by any other means, when
delivered at the address specified in Section 9.1. Any party by notice given
in accordance with this Section 9.1 to the other party may designate another
address (or telecopier number) or person for receipt of notices hereunder.
Notices by a party may be given by counsel to such party.
9.2 Interpretation. The table of contents and headings contained in
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this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. In this Agreement, any
reference to a party's "knowledge" or "to the best of its knowledge" means
such party's actual knowledge after due and diligent inquiry of officers,
directors and other employees of such party reasonably believed to have
knowledge of such matters.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
9.4 Entire Agreement; Nonassignability; Parties in Interest. This
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Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Company Disclosure Schedule and the Buyer Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof,
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except for the Confidentiality Agreement, which shall continue in full force
and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; and (b) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
9.5 Severability. In the event that any provision of this Agreement, or
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the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California. Each of the parties
hereto irrevocably consents to the exclusive jurisdiction of any court located
within the State of California, in connection with any matter based upon or
arising out of this Agreement or the matters contemplated herein, agrees that
process may be served upon them in any manner authorized by the laws of the
State of California for such persons and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction and
such process.
9.7 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.8 Resolution of Conflicts; Arbitration. Any dispute arising out of or
------------------------------------
related to this agreement, which cannot be resolved by negotiation, shall be
settled by binding arbitration conducted by a single arbitrator, selected by
mutual agreement of the Stockholder Agent and Buyer, conducted in the San
Francisco Bay Area in accordance with the rules then in effect of the American
Arbitration Association. Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. The non-prevailing party to
an arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including without limitation, attorneys' fees and costs, reasonably incurred
by the other party to the arbitration.
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IN WITNESS WHEREOF, Buyer, Company, Merger Sub and Stockholder Agent have
caused this Agreement to be executed and delivered by their respective
officers thereunto duly authorized, all as of the date first written above.
▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
By:__________________________________
Name:___________________________
Title:__________________________
E-PILLS INC.
By:__________________________________
Name:___________________________
Title:__________________________
HC2 ACQUISITION CORPORATION
By:__________________________________
Name:___________________________
Title:__________________________
STOCKHOLDER AGENT
_________________________________________
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
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