EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 30, 2001
AMONG
INTERPORE INTERNATIONAL, INC.,
a Delaware corporation
OP SUB, INC.,
a California corporation
AMERICAN OSTEOMEDIX CORPORATION,
a Virginia corporation
AND
THE SHAREHOLDERS SET FORTH
ON THE SIGNATURE PAGES
HERETO
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS.................................................... 1
1.1 Defined Terms............................................ 1
ARTICLE II. THE MERGER..................................................... 8
2.1 The Merger............................................... 8
2.2 Closing.................................................. 8
2.3 Effective Time........................................... 8
2.4 Effects of the Merger.................................... 9
2.5 Certificate of Incorporation............................. 9
2.6 Bylaws................................................... 9
2.7 Officers and Directors of Surviving Corporation.......... 9
ARTICLE III. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES........................ 9
3.1 Effect on Capital Stock.................................. 9
3.2 Target Options and Target Restricted Stock............... 11
3.3 Escrow Cash.............................................. 11
3.4 Target Shareholder Representative........................ 12
3.5 Exchange of Certificates................................. 13
3.6 Assumed Options.......................................... 14
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF TARGET....................... 15
4.1 Organization, Standing and Power......................... 15
4.2 Capital Structure........................................ 15
4.3 Authority; No Conflicts.................................. 16
4.4 Financial Information.................................... 17
4.5 No Undisclosed Liabilities............................... 18
4.6 Compliance with Applicable Laws.......................... 18
4.7 Regulatory Matters....................................... 19
4.8 Litigation............................................... 20
4.9 Taxes.................................................... 20
4.10 Absence of Certain Changes or Events..................... 23
4.11 Vote Required............................................ 24
4.12 Material Agreements...................................... 24
4.13 Employee Benefit Plans; ERISA............................ 25
4.14 Brokers or Finders....................................... 27
4.15 Property................................................. 28
4.16 Affiliated Transactions and Certain Other Agreements..... 28
4.17 Environmental Matters.................................... 28
1.18 Proprietary Rights....................................... 29
4.19 Product Liability........................................ 30
4.20 Insurance................................................ 30
4.21 Labor Relations.......................................... 30
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4.22 Net Working Capital...................................... 30
4.23 Target Affiliates........................................ 30
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF TARGET SHAREHOLDERS........... 31
5.1 Ownership of Target Stock................................ 31
5.2 Authority; Enforceability................................ 31
5.3 Private Placement........................................ 31
5.4 Prohibitions............................................. 32
5.5 Consents and Approvals of Governmental Entities.......... 33
5.6 Voting Agreements........................................ 33
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........ 33
6.1 Organization, Standing and Power......................... 33
6.2 Capital Structure........................................ 34
6.3 Authority; No Conflicts.................................. 34
6.4 Reports and Financial Statements......................... 35
6.5 Absence of Litigation.................................... 36
6.6 Brokers or Finders....................................... 36
6.7 No Business Activities................................... 36
6.8 Proprietary Rights....................................... 36
6.9 Regulatory Matters....................................... 36
ARTICLE VII. COVENANTS RELATING TO CONDUCT OF BUSINESS...................... 37
7.1 Conduct of Business of Target Pending the Merger......... 37
7.2 Target Board Recommendation.............................. 39
7.3 Covenants of Parent and Merger Sub....................... 40
7.4 Advice of Changes; Government Filings.................... 40
7.5 Tax Matters.............................................. 41
ARTICLE VIII. ADDITIONAL AGREEMENTS.......................................... 44
8.1 Target Shareholder Approval.............................. 44
8.2 Access to Information.................................... 44
8.3 Approvals and Consents; Cooperation...................... 45
8.4 Public Announcements..................................... 46
8.5 Further Assurances....................................... 46
8.6 Cooperation; Notice; Cure................................ 46
8.7 Obtaining Consents....................................... 46
8.8 Employment and Consulting Agreements..................... 47
8.9 Fees and Expenses........................................ 47
8.10 Employee Plans and Benefit Plans Generally............... 47
8.11 Voting Agreements........................................ 47
8.12 Shareholder Approval..................................... 47
8.13 Release.................................................. 48
8.14 Insurance................................................ 49
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8.15 Nasdaq Listing............................................ 49
ARTICLE IX. CONDITIONS PRECEDENT TO MERGER.................................. 49
9.1 Conditions to Obligation of each Party to Effect the
Merger................................................... 49
9.2 Conditions to Obligations of Target to Effect the Merger.. 50
9.3 Conditions to Obligations of Parent and Merger Sub to
Effect the Merger........................................ 51
ARTICLE X. INDEMNIFICATION................................................. 53
10.1 General Indemnification................................... 53
10.2 Limitations on Indemnity.................................. 56
10.3 Special Limitation........................................ 58
10.4 Tax Indemnification....................................... 58
10.5 Schedule Updates.......................................... 58
ARTICLE XI. TERMINATION AND AMENDMENT....................................... 59
11.1 Termination............................................... 59
11.2 Effect of Termination..................................... 60
11.3 Amendment................................................. 61
11.4 Extension; Waiver......................................... 61
ARTICLE XII. GENERAL PROVISIONS.............................................. 62
12.1 Survival of Representations and Warranties................ 62
12.2 Notices................................................... 62
12.3 Interpretation............................................ 63
12.4 Counterparts.............................................. 63
12.5 Entire Agreement; No Third Party Beneficiaries............ 63
12.6 Governing Law............................................. 64
12.7 Severability.............................................. 64
12.8 Assignment................................................ 64
12.9 Enforcement............................................... 64
12.10 Attorneys' Fees........................................... 64
Schedule I List of Cash/Stock Recipients
Schedule II List of Stock Recipients
Exhibit A Form of Limited Acknowledgement Signature Page
Exhibit B Form of Escrow Agreement
Exhibit C Form of Voting Agreement
Exhibit D Form of Employment Agreement
Exhibit E Form of Consulting Agreement
Exhibit F Form of Consulting Agreement
Exhibit G Form of Contingent Consideration Agreement
Exhibit H Form of Opinion of Counsel
Exhibit I Form of Assignment of Inventions Agreement
Exhibit J Form of Registration Rights Agreement
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GLOSSARY OF DEFINED TERMS
Location of
Definition Defined Term
2000 Financials...................................................Section 4.4(b)
510(k)............................................................Section 4.7(c)
Agreement...............................................................Preamble
Agreement of Merger..................................................Section 2.3
Appointed Director................................................Section 9.2(f)
Articles of Merger...................................................Section 2.3
Assumed Options......................................................Section 3.6
Assumed Option Exchange Ratio........................................Section 3.6
Audited Financials................................................Section 4.4(d)
Balance Sheet.....................................................Section 4.4(b)
Cash/Stock Recipient Shares....................................Section 3.1(b)(i)
CCC....................................................................Recital C
Claim Notice.....................................................Section 10.1(b)
Closing..............................................................Section 2.2
Closing Date.........................................................Section 2.2
COBRA............................................................Section 4.13(e)
Confidentiality Agreement............................................Section 7.2
Consulting Agreements................................................Section 8.9
Contingent Consideration Agreement................................Section 9.2(e)
Damages.......................................................Section 10.1(a)(i)
Effective Time.......................................................Section 2.3
Employment Agreement.................................................Section 8.8
ERISA............................................................Section 4.13(a)
ERISA Affiliate..................................................Section 4.13(a)
Escrow............................................................Section 3.3(a)
Escrow Agent......................................................Section 3.3(a)
Escrow Agreement..................................................Section 3.3(a)
Escrow Period.....................................................Section 3.3(a)
Executing Shareholders..................................................Preamble
Forms 483s........................................................Section 4.7(g)
GAAP..............................................................Section 4.4(a)
Governmental Approvals............................................Section 8.4(a)
Governmental Entity...............................................Section 4.3(c)
Gross Parent Share Equivalent........................................Section 3.6
Indemnified Party.............................................Section 10.1(a)(i)
IDE...............................................................Section 4.7(d)
Indemnity Threshold..............................................Section 10.2(b)
March 2001 Financials.............................................Section 4.4(c)
Material Agreement...............................................Section 4.12(a)
Maximum Indemnification Amount...................................Section 10.2(a)
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Merger.................................................................Recital C
Merger Sub..............................................................Preamble
Notifying Party...................................................Section 8.3(a)
Outstanding Kostuik Options..........................................Section 3.6
Parent..................................................................Preamble
Parent Stock...........................................................Recital A
Parent Disclosure Schedule............................................Article VI
Parent Indemnity Claims.....................................Section 10.1(a)(iii)
Parent SEC Reports...................................................Section 6.4
Plan.............................................................Section 4.13(a)
PMA...............................................................Section 4.7(c)
Post-Closing Partial Period.......................................Section 7.5(c)
Pre-Closing Partial Period........................................Section 7.5(c)
Pre-Closing Tax Returns...........................................Section 7.5(b)
Proceeding.........................................................Section 12.11
Purchase Price Allocation Table...................................Section 3.1(c)
Reference Balance Sheet...........................................Section 4.4(c)
Released Parties....................................................Section 8.13
Representation Letters.......................................Section 7.5(i)(iii)
Required Target Vote................................................Section 4.11
Remaining Cash................................................ Section 3.1(b)(i)
Special Indemnifying Shareholder Maximum Indemnification Amount..Section 10.2(a)
Special Indemnifying Target Shareholder..........................Section 10.1(d)
Straddle Period...................................................Section 7.5(c)
Subsequent Sale Transaction......................................Section 11.2(b)
Subsequent Sale Fee..............................................Section 11.2(b)
Surviving Corporation................................................Section 2.1
Target..................................................................Preamble
Target Affiliates...................................................Section 4.23
Target Board.........................................................Section 7.2
Target Stock...........................................................Recital A
Target Disclosure Schedule............................................Article IV
Target Insurance Policies...........................................Section 4.20
Target Leased Property...........................................Section 4.15(c)
Target Permits.......................................................Section 4.6
Target Shareholders Disclosure Schedule................................Article V
Target Voting Debt................................................Section 4.2(c)
Tax Opinion...................................................Section 7.5(i)(ii)
Terminating Target Breach........................................Section 11.1(c)
Terminating Parent Breach........................................Section 11.1(d)
Third Party Claim.............................................Section 10.1(b)(i)
VSCA...................................................................Recital C
Violation.........................................................Section 4.3(b)
Virginia Commission..................................................Section 2.3
Voting Agreement.....................................................Section 5.6
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This AGREEMENT AND PLAN OF MERGER, dated as of May 30, 2001 (this
"Agreement"), by and among Interpore International, Inc., a Delaware corporation
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("Parent"), OP Sub, Inc., a California corporation and a wholly owned subsidiary
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of Parent ("Merger Sub"), American OsteoMedix Corporation, a Virginia
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corporation ("Target"), and the shareholders of Target listed on the signature
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pages hereto (the "Executing Shareholders").
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R E C I T A L S
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A. The respective Boards of Directors of Parent, Merger Sub and
Target have each determined that the Merger (as defined below) is in the best
interests of their respective shareholders and have approved the Merger upon the
terms and subject to the conditions set forth in this Agreement, which include
that each issued and outstanding share of common stock, par value $.01 per
share, of Target ("Target Stock"), will be converted into the right to receive a
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combination of common stock, no par value, of Parent (the "Parent Stock") and
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cash, as further described herein. The Target Shareholders will also have the
right to receive certain additional contingent consideration pursuant to the
terms of a Contingent Consideration Agreement (as defined below).
B. Certain shareholders of Target have entered into voting agreements
regarding their approval of the Merger and this Agreement;
C. In order to effectuate the foregoing, Target, upon the terms and
subject to the conditions of this Agreement and, in accordance with the Virginia
Stock Corporation Act (the "VSCA") and the California Corporations Code (the
----
"CCC"), will merge with and into the Merger Sub in a transaction intended to
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qualify as a reorganization pursuant to Section 368(a)(1)(A) and 368(a)(2)(D) of
the Code (the "Merger"); and
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D. Parent, Merger Sub, Target and the Executing Shareholders desire
to make certain representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various conditions to the
Merger.
A G R E E M E N T
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NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
other valuable consideration, the sufficiency and receipt of which is hereby
acknowledged, and intending to be legally bound hereby, the parties hereto agree
as follows:
ARTICLE I.
DEFINITIONS
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1.1 Defined Terms. As used in this Agreement, the terms below shall have
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the meanings set forth in this Section 1.1. Any of such terms, unless the
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context requires otherwise, may be used in singular or plural, depending upon
the reference.
(a) "Accredited Investor" has the meaning set forth in Regulation D
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promulgated under the Securities Act.
(b) "Affiliate" means, with respect to any Person, any Person that
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directly, or indirectly through one or more intermediaries, controls or is
controlled by or under common control with such Person.
(c) "Assets" means, with respect to any Person, the right, title and
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interest of such Person, in their properties, assets and rights of any kind,
whether tangible or intangible, real or personal, including without limitation
the right, title and interest in the following:
(i) all contracts;
(ii) all Fixtures and Equipment;
(iii) all inventory;
(iv) all Books and Records;
(v) all Proprietary Rights;
(vi) all permits and regulatory filings, including any filings
with the United States Federal Food and Drug Administration;
(vii) all return and other rights under or pursuant to all
warranties, representations and guarantees made by suppliers and other third
parties in connection with the Assets or services furnished to such Person;
(viii) all cash, accounts receivable, deposits and prepaid
expenses; and
(ix) all goodwill.
(d) "Board of Directors" means the Board of Directors of any
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specified Person and any properly serving and acting committees thereof.
(e) "Books and Records" means, with respect to any Person, (a) all
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product, business and marketing plans, sales and promotional literature and
artwork relating to the Assets or the business of such Person, (b) all books,
records, lists, ledgers, financial data, tax records, files, reports, product
and design manuals, plans, drawings, technical manuals, and operating records of
every kind relating to the Assets or the business of such Person (including
records and lists of customers, distributors, suppliers and personnel) and (c)
all telephone and fax numbers used in the business of such Person, in each case
whether maintained as hard copy or stored in computer memory and whether owned
by such Person, or any of their Affiliates.
(f) "Business Day" means each day other than Saturdays, Sundays and
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days when commercial banks are authorized to be closed for business in Los
Angeles, California.
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(g) "Cash/Stock Recipients" means those Persons listed on Schedule I
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hereto, and all Persons listed on Schedule II hereto who do not elect to become
Stock Recipients; provided that the designation of a Person as a "Cash/Stock
Recipient" or a "Stock Recipient" applies only with respect to the shares of
Target Stock set forth opposite such Person's name on the relevant schedule. It
is acknowledged that the same Person may appear on both Schedule I and Schedule
II; provided, however, that the aggregate number of shares of Target Stock
listed on both Schedule I and Schedule II shall not exceed the total number of
shares of Target Stock outstanding immediately prior to the Closing.
(h) "CCC" has the meaning set forth in the Recitals hereto.
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(i) "Certificate" means a certificate that immediately prior to the
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Effective Time represented outstanding shares of Target Stock, other than shares
to be canceled or retired in accordance with Section 3.1(c).
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(j) "Code" means the Internal Revenue Code of 1986, as amended, or
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any successor law.
(k) "Contingent Consideration" means any and all amounts payable to
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the Target Shareholders pursuant to the Contingent Consideration Agreement.
(l) "Delivered Option Proceeds" means all cash received by Target
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pursuant to the exercise of Target Options on or after the date of this
Agreement, to the extent that such cash is (i) kept by Target in a segregated
bank account, and (ii) delivered by Target to the Surviving Corporation at
Closing.
(m) "Dissenting Shares" means shares of Target Stock held by a Target
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Shareholder that dissents from the Merger in accordance with Section 13.1-730 of
the VSCA.
(n) "Encumbrances" means any claim, lien, pledge, option, right of
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first refusal, charge, easement, security interest, deed of trust, mortgage,
right-of-way, covenant, condition, restriction, encumbrance or other rights of
third parties.
(o) "Environmental Law" means any federal, state, local or foreign
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law, statute, ordinance, regulation, judgment, order, decree, arbitration award,
agency requirement, license, permit, authorization or common law, relating to
the protection, investigation or restoration of the environment, health and
safety, or natural resources.
(p) "Excess Expenses" means the amount of any Expenses in excess of
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$112,500 incurred by Target in connection with this Agreement or the
transactions contemplated hereby.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
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amended.
(r) "Executing Shareholder" has the meaning set forth in the Recitals
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hereto.
3
(s) "Expenses" includes all out-of-pocket expenses (including,
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without limitation, all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to a party hereto and its Affiliates) incurred
by a party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and consummation of this Agreement and the
transactions contemplated hereby; provided it is understood that the expenses of
Ernst & Young in connection with the audit of Target's 2000 Financials shall not
be included in Expenses of the Target.
(t) "Fixtures and Equipment" means, with respect to any Person, all
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of the furniture, fixtures, furnishings, machinery and equipment owned, leased
or licensed by such Person and located in, at or upon the facilities of such
Person.
(u) "GenSci Contract" means that certain Instrument Development and
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Supply Agreement between Target and GenSci OrthoBiologies Inc. ("GenSci") dated
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as of January 5, 2000, as supplemented by that certain Original Equipment
Manufacturer's Agreement between Target and GenSci, dated as of June 9, 2000.
(v) "Hazardous Substance" means any substance that is: (i) a
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pollutant or contaminant or a hazardous or toxic chemical, waste, substance or
material, including any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (ii) any other substance that may be the
subject of regulatory action by any Governmental Entity pursuant to any
Environmental Law.
(w) "IRS" means the Internal Revenue Service.
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(x) "Knowledge" means with respect to any Person, the actual
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knowledge of such Person after Reasonable Inquiry. Target shall be deemed to
have "Knowledge" of a particular fact or matter only if any of its directors or
officers has Knowledge of such fact or matter. "Reasonable Inquiry" means, with
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respect to any representation or warranty made by Target, making reasonable
inquiry of those employees or consultants of Target whose principal business
duties related to such representation or warranty.
(y) "Liability" or "Liabilities" means all indebtedness, obligations
--------- -----------
and other liabilities of a Person, whether absolute, accrued, contingent (or
based upon any contingency), known or unknown, fixed or otherwise, or whether
due or to become due.
(z) "Limited Acknowledgement Signature Page" means the counterpart
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signature page to this Agreement, a form of which is attached hereto as Exhibit
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A, which binds the signatories in the manner set forth therein.
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(aa) "Material Adverse Effect" means, with respect to any entity, any
-----------------------
adverse change, circumstance or effect (not proximately caused by the public
announcement of the proposed Merger) that, individually or in the aggregate with
all other adverse changes, circumstances and effects, is or is reasonably likely
to be materially adverse to the business, operations, assets, liabilities,
financial condition or results of operations of such entity and its
4
Subsidiaries taken as a whole or would prevent Target or Parent (as the case may
be) from performing its obligations under this Agreement; provided that with
respect to Parent, a change in the market price of Parent Stock shall not be a
Material Adverse Effect on Parent; provided further, that neither of the
following shall be deemed to constitute a Material Adverse Effect on any Person:
(a) any effect arising from or relating to general business or economic
conditions; and (b) any effect generally relating to or affecting the industry
in which the Target operates.
(bb) "Net Working Capital" means the difference between (i) current
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assets of Target and (ii) current liabilities of Target immediately prior to
Closing, as determined consistent with Target's accounting practices; provided
that Net Working Capital shall not include amounts, if any, received in
connection with the exercise of any Target Options subsequent to the date of
this Agreement; provided, that for purposes of determining Net Working Capital,
all outstanding balances under the Notes shall be deemed to be long-term
liabilities of Target.
(cc) "Note" or "Notes" means one or both, as the case may be, of those
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certain convertible notes issued by Target to Parent (in aggregate sum of up to
$1,000,000) pursuant to the Note Purchase Agreement.
(dd) "Note Purchase Agreement" means that certain Note Purchase
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Agreement, dated as of May 19, 2001, by and between Target and Parent.
(ee) "Ordinary Course of Business" means, with respect to any Person,
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the ordinary course of business consistent with past custom and practice
(including with respect to quantity and frequency) but in all events consistent
with prudent business practice for the long-term operation of such Person.
(ff) "Organizational Documents" means, with respect to any entity, the
------------------------
certificate or articles of incorporation, bylaws or other governing documents of
such entity.
(gg) "Parent Stock" has the meaning set forth in the Recitals hereto.
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(hh) "Parent Stock Value" means the average of the last trading prices
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for the Parent Stock as listed on the Nasdaq Stock Market for the ten (10)
trading days ending on the third day prior to the Closing Date, rounded to the
nearest ($.01).
(ii) "PBGC" means the Pension Benefit Guarantee Corporation.
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(jj) "Permitted Encumbrances" means (a) those Encumbrances that result
----------------------
from all statutory or other liens for Taxes or assessments (1) which are not yet
due or delinquent or (2) the validity of which is being contested in good faith
by appropriate proceedings and for which adequate reserves are being maintained
in accordance with GAAP; (b) those Encumbrances that result from any cashiers',
landlords', workers', mechanics', carriers', materialmen's, suppliers' and
repairers' lien and other similar Encumbrances imposed by law or incurred in the
Ordinary Course of Business; (c) those Encumbrances imposed by any law, rule,
regulation, ordinance or restriction promulgated by any Governmental Entity; (d)
those Encumbrances that result from all leases, subleases or licenses to which
Target or any of its Subsidiaries is a party; and (e) all other Encumbrances
which, individually, or in the aggregate,
5
do not detract from the value of, or materially interfere with, the use of the
Asset subject thereto or affected thereby.
(kk) "Per Share Contribution Amount" means that amount equal to (A)
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$500,000 divided by (B) the number of shares of Target Stock issued and
outstanding immediately prior to the Closing.
(ll) "Per Share Purchase Price" shall be determined by dividing (A)
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the Purchase Price by (B) the number of Shares of Target Stock outstanding
immediately prior to the Closing.
(mm) "Person" means an individual, corporation, partnership, limited
------
liability company association, trust, unincorporated organization, entity or
group (as defined in the Exchange Act).
(nn) "Pro Rata Indemnification Percentage" shall mean, with respect to
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any Target Shareholder, the percentage of any Damages equal to (a) the number of
shares of Target Stock held by such Target Shareholder immediately prior to
Closing divided by (b) the total number of shares of Target Stock outstanding
immediately prior to Closing.
(oo) "Proprietary Rights" means all (a) U.S. and foreign patents,
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patent applications, patent disclosures and improvements thereto, including all
term extensions thereof, (b) U.S. and foreign trademarks, service marks, trade
dress, logos, trade names, domain names and corporate names and the goodwill
associated therewith and registrations and applications, extensions or renewals
for registration thereof, (c) U.S. and foreign copyrights and registrations and
applications, extensions or renewals for registration thereof, (d) trade
secrets, (e) URL registrations, (f) inventions, formulae, processes, designs,
know-how or other data or information, (g) other similar intangible proprietary
rights, including confidential or proprietary business information and
processes, (h) copies and tangible embodiments of any of the items described in
the foregoing (a) through (g) (in whatever form or medium) and (i) licenses
granting any rights with respect to any of the items described in the foregoing
(a) through (h).
(pp) "Purchase Price" means the aggregate sum of (A) $8,000,000 and
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the sum of the Delivered Option Proceeds, less the sum of (i) the outstanding
principal balance, if any, under the Notes after the application of Section
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9.3(e), (ii) the amount of Excess Expenses, if any and (iii) the amount of the
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cash, if any, paid to ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇ in connection with the termination of any
Target Options held by ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇ (the amount calculated pursuant to this
clause (A) being defined as the "Cash Portion"), and (B) 2,400,000 shares of the
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Parent Stock (the "Stock Portion") valued at the Parent Stock Value; provided,
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however, (1) that if the Parent Stock Value is greater than $5.00 per share, the
number of shares of Parent Stock comprising the Stock Portion shall be reduced
until the value of the Stock Portion (determined by multiplying the number of
whole shares of Parent Stock comprising the Stock Portion and the Parent Stock
Value) is equal to $12,000,000 (or as close thereto as possible without
exceeding $12,000,000) and (2) that if the Parent Stock Value is less than $3.75
per share, the number of shares of Parent Stock comprising the Stock Portion
shall be increased until the value of the Stock Portion (determined by
multiplying the number of whole shares of Parent Stock
6
comprising the Stock Portion and the Parent Stock Value) is equal to $9,000,000
(or as close thereto as possible without going below $9,000,000); provided
further, that in no event shall the number of shares of Parent Stock comprising
the Stock Portion consist of greater than 2,800,000 or less than 2,000,000
shares of Parent Stock; provided further, that the number of shares of Parent
Stock comprising the Stock Portion shall be reduced by the number of shares of
Parent Stock underlying the Assumed Options, if any.
(qq) "SEC" means the Securities Exchange Commission.
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(rr) "Securities Act" means the Securities Act of 1933, as amended.
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(ss) "Subsidiary" when used with respect to any party means any
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corporation or other organization, whether incorporated or unincorporated, (i)
of which such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting and
economic interests in such partnership) or (ii) at least a majority of the
securities or other interests of which having by their terms ordinary voting
power to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
(tt) "Stock Recipient" means those persons listed on Schedule II who
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elect at least three Business Days prior to Closing to receive only stock (other
than their pro rata share of the Withheld Cash) in the Merger pursuant to
Section 3.1(d). A definitive list of those Persons listed on Schedule II who
elect to become Stock Recipients shall be prepared by Target and delivered to
Parent at least three Business Days prior to Closing as part of the Purchase
Price Allocation Table.
(uu) "Target Non-Plan Options" means all options to purchase Target
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Stock, whether exercisable or non-exercisable, issued pursuant to an option
agreement but not issued pursuant to the Target Stock Plan.
(vv) "Target Option Plan" means Target's 2000 Incentive Stock Option
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Plan, dated December 1, 2000.
(ww) "Target Options" means all options to purchase shares of Target
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Stock, whether exercisable or non-exercisable.
(xx) "Target Plan Options" means all options to purchase shares of
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Target Stock, whether exercisable or non-exercisable, issued pursuant to the
Target Option Plan.
(yy) "Target Shareholder" means any Person that is the beneficial
------------------
owner of Target Stock immediately prior to the Closing.
(zz) "Target Shareholder Representative" means ▇▇▇▇ ▇▇▇▇▇.
---------------------------------
7
(aaa) "Target Restricted Stock" means the restricted Target Stock
-----------------------
issued pursuant to that certain Restricted Stock Grant Contract between Target
and ▇▇▇▇▇▇ Rock dated November 14, 2000.
(bbb) "Target Stock" means the common stock of Target, par value
------------
$.01.
(ccc) "Tax" and "Taxes" mean any federal, state, local or foreign
--- -----
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), energy, utility, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or any
other tax or similar governmental charge of any kind whatsoever, including any
interest, penalty, or addition thereto.
(ddd) "Tax Return" means any return, declaration, report, claim for
----------
refund, or information return or statement relating to Taxes (required to be
supplied, actually supplied, to a governmental or regulatory authority),
including any schedule or attachment thereto, and including any amendment
thereof.
(eee) "Taxing Authority" means any federal, state, local or foreign
----------------
governmental authority responsible for administration and collection of Taxes.
(fff) "VSCA" has the meaning set forth in the Recitals hereto.
----
(ggg) "Withheld Cash" means the $500,000 paid into the Escrow
-------------
pursuant to Section 3.1(e).
ARTICLE II.
THE MERGER
----------
2.1 The Merger. Upon the terms and subject to the conditions set forth
----------
in this Agreement, and in accordance with the VSCA, Target shall be merged with
and into the Merger Sub at the Effective Time (as defined below). Following the
Merger, the separate corporate existence of Target shall cease and the Merger
Sub shall continue as the surviving corporation (the "Surviving Corporation") in
---------------------
accordance with the VSCA and the CCC.
2.2 Closing. Unless this Agreement shall have been terminated and the
-------
transactions herein contemplated shall have been abandoned pursuant to the
provisions of Article XI, the closing of the Merger (the "Closing") will take
---------- -------
place on the third Business Day after satisfaction or waiver by the respective
parties (as permitted by this Agreement and applicable law) of the conditions
(excluding conditions that, by their terms, cannot be satisfied until the
Closing Date) set forth in Article IX (the "Closing Date"), unless another time
---------- ------------
or date is agreed to in writing by the parties hereto. The Closing shall be
held at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, unless another place is agreed to in writing by
the parties hereto.
8
2.3 Effective Time. Upon the Closing, the parties shall file with the
--------------
State Corporation Commission of Virginia (the "Virginia Commission") articles of
-------------------
merger in such form as is required by the VSCA (the "Articles of Merger"), and
------------------
shall file with the Secretary of State of the State of California an Agreement
of Merger in the form, and together with such certificates, as is required under
the CCC (the "Agreement of Merger"), executed in accordance with the relevant
--------------------
provisions of the VSCA or the CCC, and shall make all other filings, recordings
or publications required under the VSCA or the CCC in connection with the
Merger. The Merger shall become effective at such time as the Articles of Merger
are duly filed with the Virginia Commission and the Agreement of Merger is filed
with the Secretary of State of the State of California, or at such other time as
the parties may agree and specify in the Articles of Merger and the Agreement of
Merger (the time the Merger becomes effective being the "Effective Time").
--------------
2.4 Effects of the Merger. At and after the Effective Time, the Merger
---------------------
will have the effects set forth in the applicable provisions of the VSCA and the
CCC.
2.5 Certificate of Incorporation. The articles of incorporation of Merger
----------------------------
Sub as in effect immediately prior to the Effective Time shall be the articles
of incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
2.6 Bylaws. The bylaws of Merger Sub as in effect at the Effective Time
------
shall be the bylaws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
2.7 Officers and Directors of Surviving Corporation. The officers and
-----------------------------------------------
directors of Merger Sub shall be the officers and directors of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or director or until their respective successors are
duly elected and qualified, as the case may be.
ARTICLE III.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
--------------------------------------------------------------------------
EXCHANGE OF CERTIFICATES
------------------------
3.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of the holder of any shares of Target
Stock or any shares of capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each issued and outstanding share of
---------------------------
capital stock of Merger Sub shall remain issued and outstanding.
(b) Conversion of Target Shares. At and as of the Effective Time,
---------------------------
each share of Target Stock (other than any Dissenting Shares) shall be converted
into the right to receive the Per Share Purchase Price, payable as set forth
below, and each Dissenting Share shall be converted into the right to receive
payment from the Surviving Corporation with respect thereto
9
in accordance with the provisions of the VSCA. No share of Target Stock shall be
deemed to be outstanding or to have any rights other than those set forth in
this Section 3.1(b) after the Effective Time. The Per Share Purchase Price
(after giving effect to the delivery of the Withheld Cash into the Escrow) shall
be paid as follows:
(i) For each share of Target Stock held by a Cash/Stock
Recipient immediately prior to the Closing such Cash/Stock Recipient shall
receive (A) cash in an amount equal to (1) the Cash Portion less the Withheld
Cash (such amount, the "Remaining Cash") divided by (2) the number of shares of
--------------
Target Stock held by all Target Shareholders and (B) a number of shares of
Parent Stock equal to the Stock Portion divided by the number of shares of
Target Stock held by all Target Shareholders immediately prior to the Closing
(the aggregate number of such shares of Parent Stock, the "Cash/Stock Recipient
--------------------
Shares") and (C) additional cash issued in lieu of any fractional shares
------
resulting from the calculation in (B), in accordance with Section 3.5(c).
(ii) For each share of Target Stock held by a Stock Recipient
immediately prior to the Closing such Stock Recipient shall receive (A) a number
of shares of Parent Stock equal to the Stock Portion divided by the total number
of shares of Target Stock held by all Target Stockholders immediately prior to
the Closing and (B) a number of shares of Parent stock equal to (1) the quotient
determined by dividing the Remaining Cash by the Parent Stock Value, which
quotient is further divided by (2) the number of shares of Target Stock held by
all Target Shareholders immediately prior to the Closing (the aggregate number
of all shares of Parent Stock under these clauses (A) and (B), the "Stock
-----
Recipient Shares") and (C) additional cash issued in lieu of any fractional
----------------
shares resulting from the above calculation, in accordance with Section 3.5(c).
(iii) For each share of Target Stock held by either ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇, such Person shall receive (A) cash in an amount equal
to (1) the Remaining Cash less all amounts of cash paid to Target Shareholders
pursuant to Sections 3.1(b)(i), divided by (2) the number of shares of Target
Stock held by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇, collectively, and (B) a number of
shares of Parent Stock equal to the quotient obtained by dividing (1) the number
of shares comprising the Stock Portion less the Cash/Stock Recipient Shares and
the Stock Recipient Shares by (2) the number of shares of Target Stock held by
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇.
(c) Target shall provide those Target Shareholders listed on Schedule
II hereto the opportunity to elect to become (i) Cash/Stock Recipients, and
thereby to receive the consideration set forth in Section 3.1(b)(i) in exchange
for their shares of Target Stock in the Merger or (ii) Stock Recipients, and
thereby to receive the consideration set forth in Section 3.1(b)(ii) in exchange
for their shares of Target Stock in the Merger. In order to facilitate the
payment of the Purchase Price as set forth above, Target shall deliver the
Purchase Price Allocation Table to Parent no later than three (3) Business Days
prior to the Closing. The "Purchase Price Allocation Table" means that table
-------------------------------
certified by Target and delivered by Target to Parent, which table shall set
forth the name of each Target Shareholder, the number of shares of Target Stock
owned by each Target Shareholder, each Target Shareholder's status as a
Cash/Stock Recipient, a Stock Recipient or both, and the amount of cash and/or
the number of
10
shares of Parent Stock that each Target Shareholder shall receive in exchange
for his or her shares of Target Stock. Target and the Target Shareholders shall
bear the sole responsibility for preparing the Purchase Price Allocation Table
and for verifying its accuracy, and Parent shall have no obligation with respect
to the payment of the Purchase Price other than to deliver the amounts set forth
on the Purchase Price Allocation Table to the Target Shareholders as set forth
thereon. Target and the Target Shareholders acknowledge that Parent and Merger
Sub have not participated in any way in the preparation of the Purchase Price
Allocation Table.
(d) Cancellation of Treasury Stock and Parent-Owned Stock. Each share
-----------------------------------------------------
of Target Stock that is owned by Target and each share of Target Stock that is
owned by Parent, Merger Sub or any other wholly owned subsidiary of Parent shall
automatically be canceled and retired and shall cease to exist, and no Parent
Stock or other consideration shall be delivered in exchange therefor.
(e) Conveyance of Parent Stock to the Target Shareholders; Escrow.
-------------------------------------------------------------
Subject to the terms and conditions of this Agreement, on the Closing Date, in
exchange for Certificates representing all of the outstanding Target Stock,
Parent shall deliver (i) to the Escrow, to be held in accordance with the terms
thereof, the Withheld Cash, and (ii) to the Target Shareholder Representative
for the benefit of each Target Shareholder (A) cash, payable by cashier's check
or wire transfer of immediately available funds, in the amount of (x) the
aggregate amount set forth opposite the Target Shareholder's name on the
Purchase Price Allocation Table under the heading "Cash Received" less (y) the
Per Share Contribution Amount multiplied by the number of shares of Target Stock
held by such Target Stockholder and (B) a certificate representing the number of
shares of Parent Stock set forth opposite such Target Shareholder's name on the
Purchase Price Allocation Table under the heading "Stock Received." In the event
that Parent waives the requirement set forth in Section 9.3(m) that it receive
all Certificates on or prior to Closing, then on the Closing Date, Parent shall
deliver to the Target Shareholder Representative the cash and shares of Parent
Stock due to the Target Shareholders that have delivered Certificates and shall
subsequently deliver to the Target Shareholder Representative the remaining cash
and shares of Parent Stock, as and when the remaining Certificates are delivered
to Parent.
3.2 Target Options and Target Restricted Stock. Except with respect to the
------------------------------------------
Target Options held by ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇ (which may be exchanged in accordance
with Section 3.6), the Board of Directors of the Target, or, if appropriate, any
-----------
committee thereof, shall adopt appropriate resolutions and take all other
necessary actions (including plan amendments):
(a) to cause each outstanding Target Plan Option which has not vested
immediately as of the date thereof to become vested and fully exercisable, and
shall use reasonable efforts to cause all vested Target Plan Options to be
exercised or cancelled prior to the Closing; and
(b) to cause each Target Non-Plan Option to become fully vested and
immediately exercisable and to use reasonable efforts to enter into, with each
holder of a Target Non-Plan
11
Option, an amendment to the option agreement relative to such Target Non-Plan
Option, such that each of the Target Non-Plan Options shall be fully exercisable
prior to Closing and if not exercised then terminated immediately prior to the
Closing Date; and
(c) to take such actions as may be required to permit each holder of
a Target Option to employ a method of cashless or net exercise as it may deem
appropriate; and
(d) to cause all Target Restricted Stock to become fully vested and
free from all restrictions on the Closing Date.
3.3 Escrow Cash.
-----------
(a) Prior to the Closing Date, Parent shall appoint a bank or trust
company or other entity reasonably satisfactory to the Target Shareholder
Representative to act as the escrow agent (the "Escrow Agent"), and each of
------------
Parent and the Target Shareholder Representatives shall execute and deliver an
escrow agreement in substantially the form attached hereto as Exhibit B (the
---------
"Escrow Agreement"). On the Closing Date, Parent shall deliver to the Escrow
----------------
Agent cash in the amount of the Withheld Cash. The Withheld Cash will be
retained in escrow (the "Escrow") pursuant to the Escrow Agreement for the
------
benefit of the Target Shareholders for a period of twenty-four (24) months after
the Closing Date (the "Escrow Period") to cover, on a non-exclusive basis,
-------------
Parent Indemnity Claims pursuant to Section 10.1(a) hereof and indemnity claims
---------------
made by Parent pursuant to Section 10.3 hereof. The Withheld Cash shall not
------------
limit the amount of, and does not constitute the exclusive remedy for, any
Parent Indemnity Claims. Except to the extent of such Parent Indemnity Claims
which have been made and have been determined to be valid or not yet determined
to be invalid pursuant to Section 10.1 hereof, together with all interest
------------
accrued thereon, the Withheld Cash shall be delivered to the Target Shareholder
Representative promptly following the twenty-four (24) month anniversary of the
Closing Date, together with all interest accrued thereon.
(b) The execution and adoption of this Agreement, or the execution of
the Limited Acknowledgement Signature Page, shall constitute approval of the
Escrow Agreement and of all arrangements relating thereto, including, without
limitation, the placement of the Withheld Cash in escrow and the appointment of
the Escrow Agent and the Target Shareholder Representative.
3.4 Target Shareholder Representative.
---------------------------------
(a) ▇▇▇▇ ▇▇▇▇▇ shall be appointed by and constitute the Target
Shareholder Representatives and as such shall serve as and have all powers as
agent and attorney-in-fact of each Target Shareholder, for and on behalf of such
Target Shareholders: to give and receive notices and communications; to have
authority 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 any disputes involving any Parent Indemnity Claims made by the
Parent and the retaining of Withheld Cash by the Parent thereunder; to sign
receipts, consents, or other documents to effect the transactions contemplated
hereby; to execute and deliver the Escrow Agreement; and to take all actions
necessary or appropriate in the judgment of the Target Shareholder
Representative for the accomplishment of the foregoing. If the Target
Shareholder
12
Representative ceases to act as the Target Shareholder Representative for any
reason, such Target Shareholder Representative or his agent shall notify the
Parent of the Target Shareholder Representative's intent to resign as the Target
Shareholder Representative, and the Target Shareholders entitled to receive a
majority of the Withheld Cash (assuming no claim by the Parent has been made for
any such Withheld Cash or, if a claim has been made, the Target Shareholders
entitled to receive a majority of the balance of the Withheld Cash) shall, by
written notice to the Parent, appoint a successor to such Target Shareholder
Representative within 30 days. Notice or communications to or from any Target
Shareholder Representative shall constitute notice to or from each of the Target
Shareholders.
(b) The Target Shareholder Representative shall not be liable for any
action taken or not taken as a Target Shareholder Representative in the absence
of the Target Shareholder Representative's gross negligence or willful
misconduct.
(c) A decision, act, consent or instruction of the Target Shareholder
Representative shall constitute a decision of all Target Shareholders, and shall
be final, binding and conclusive upon each of the Target Shareholders, and the
Parent and Target may rely upon any decision, act, consent or instruction of the
Target Shareholder Representative as being the decision, act, consent or
instruction of each and all of the Target Shareholders. Parent and Target are
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction. Although the Target
Shareholder Representative shall not be obligated to obtain instructions from
the Target Shareholders prior to any decision, act, consent or instruction, if,
and to the extent that, the Target Shareholder Representative receives any
written instructions from the Target Shareholders entitled to receive a majority
of the Withheld Cash held by Parent, the Target Shareholder Representative shall
comply with such instructions.
(d) The Target Shareholders shall share, on a pro rata basis in
relation to their holdings of Target Stock, out-of-pocket expenses and the cost
of any attorneys, accountants or other advisors retained by the Target
Shareholder Representative in connection with any action taken or not taken as a
Target Shareholder Representative. The Target Shareholder Representative shall
be entitled to request in writing and Parent shall withhold from any escrow
payments to the Target Shareholders, upon such request, amounts payable to
attorneys, accountants or other advisors which amounts shall be paid to such
individuals or the Target Shareholder's Representative, as set forth in the
request submitted by the Target Shareholder Representative.
3.5 Exchange of Certificates.
------------------------
(a) Exchange Procedure. Subject to the provisions of Section 3.1(e)
------------------ --------------
and 3.3 hereof, each Target Shareholder shall be entitled to receive in exchange
---
for its Certificate the consideration set forth in Section 3.1(b) hereof.
--------------
(b) If any certificate for shares of Parent Stock is to be issued in
a name other than that in which the Certificate surrendered in exchange
therefor, is registered or in a name other than such holder, it shall be a
condition of such issuance that the person requesting such
13
issuance shall pay any transfer or other tax required by reason of the issuance
of certificates for such shares of Parent Stock in a name other than that of the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of Parent or its agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, Parent shall not be liable to any
Target Shareholder for any number of shares of Parent Stock (or dividends or
distributions with respect thereto) or cash to be distributed in exchange for
Parent Stock or in lieu of fractional shares delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(c) No Further Ownership Rights in Target Stock. All shares of Parent
-------------------------------------------
Stock issued upon the surrender for exchange of Certificates in accordance with
the terms of this Article III (including any cash paid pursuant to Sections 3.1
----------- ------------
and 3.5(d)) shall be deemed to have been issued (and paid) in full satisfaction
-------
of all rights pertaining to the shares of Target Stock theretofore represented
by such Certificates, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of Target
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
-------
III, except as otherwise provided by law.
---
(d) No Fractional Shares.
--------------------
(i) No certificate representing fractional shares of Parent
Stock shall be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Parent.
(ii) Each holder of a Certificate issued and outstanding at the
Effective Time who would otherwise be entitled to receive a fractional share of
Parent Stock upon surrender of such Certificate for exchange pursuant to this
Article III (after taking into account all shares of Target Stock then held by
-----------
such holder) shall receive, in lieu thereof, cash in an amount equal to the
value of such fractional share, which shall be equal to the fraction of a share
of Parent Stock that would otherwise be issued multiplied by the Parent Stock
Value.
(iii) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Certificates with respect to
any fractional share interests, Parent shall promptly pay such amounts, without
interest, to such holders of Certificates subject to and in accordance with this
Article III.
-----------
(e) No Liability. None of Parent, Merger Sub or Target shall be
------------
liable to any Person in respect of any shares of Parent Stock (or dividends or
distributions with respect thereto) or cash to be distributed in exchange for
shares of Parent Stock or in lieu of fractional shares delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(f) Lost Certificates. In the event that any Certificate shall have
-----------------
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such Person of
14
a bond in such reasonable amount as Parent may direct as indemnity against any
claim that may be made against it with respect to such Certificate, Parent will
issue in exchange for such lost, stolen or destroyed Certificate the Parent
Stock, any cash and any unpaid dividends or distributions with respect to Parent
Stock, to which they are entitled pursuant hereto.
3.6 Assumed Options. All Target Options held by ▇▇. ▇▇▇▇▇▇▇ which remain
---------------
outstanding and unexercised on the Closing Date (the "Outstanding Kostuik
-------------------
Options") shall be assumed by Parent and converted into options to purchase
-------
shares of Parent Stock (the "Assumed Options"). The Assumed Option shall
---------------
continue to have, and shall be subject to, substantially the same terms and
conditions as the Outstanding Kostuik Options, as in effect prior to the
Closing, except that such Assumed Options shall be exercisable solely for that
number of whole shares of Parent Stock which is equal to the product of the
number of shares of Target Stock that were purchasable under the terms of the
Outstanding Kostuik Options as in effect on the Closing Date, multiplied by the
Assumed Option Exchange Ratio, rounded down to the nearest whole number of
shares of Parent Stock, and the per-share exercise price for shares of Parent
Stock issuable on exercise of such Assumed Options shall be equal to the
quotient determined by dividing the exercise price per share of Target Stock at
which the Outstanding Kostuik Options were exercisable immediately prior to the
Closing Date by the Assumed Option Exchange Ratio. The "Assumed Option Exchange
-----------------------
Ratio" shall be equal to the quotient of the Gross Parent Share Equivalent
-----
divided by the sum of (x) the total number of issued and outstanding Target
Shares after all pre-closing option exercises and immediately before the Closing
and (y) the number of Outstanding Kostuik Options. For purposes of this Section
3.6, the "Gross Parent Share Equivalent" shall be equal to the sum of (a) the
quotient of the Cash Portion of the Purchase Price divided by the Parent Stock
Value, and (b) the number of shares of Parent Stock issued as the Stock Portion
of the Purchase Price without regard to the reduction therefrom for Assumed
Options issued hereunder.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF TARGET
----------------------------------------
Target represents and warrants to Parent and Merger Sub that the
statements contained in this Article IV are correct and complete as of the date
----------
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article IV), except as set forth in the
----------
disclosure schedule delivered by Target to Parent on the date hereof (the
"Target Disclosure Schedule"). Nothing in the Target Disclosure Schedule shall
---------------------------
be deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Target Disclosure Schedule identifies the exception
with particularity. The Target Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article IV and the disclosure in any paragraph shall qualify other
----------
paragraphs in this Article IV only to the extent that it is reasonably apparent
----------
that such disclosure qualifies or applies to such other paragraphs.
15
4.1 Organization, Standing and Power. Target has been duly incorporated
--------------------------------
and is validly existing and in good standing under the laws of its jurisdiction
of incorporation and has the requisite power and authority to carry on its
business as now being conducted. Target only has employees in the Commonwealth
of Virginia and only leases property in the Commonwealth of Virginia. Target is
duly qualified and in good standing to do business in each jurisdiction in which
it has employees, owns or leases properly or in which the nature of its business
makes such qualification necessary, except where the failure to be so qualified
could not reasonably be expected, either individually or in the aggregate, to
have a Material Adverse Effect on Target. The copies of the Organizational
Documents of Target which were previously furnished to Parent are true, complete
and correct copies of such documents as in effect on the date of this Agreement.
Target has no Subsidiaries.
4.2 Capital Structure.
-----------------
(a) The authorized capital stock of Target consists solely of Fifteen
Million (15,000,000) shares of Target Stock, of which 5,841,800 shares are
issued and outstanding. The respective number of shares of Target Stock held by
each record owner of Target Stock is set forth on Section 4.2 of the Target
Disclosure Schedule under the heading "Target Stock". All shares of capital
stock of Target have been duly authorized and validly issued and are fully paid
and nonassessable and were not issued in violation of any preemptive rights or
any applicable federal or state securities laws. As of May 15, 2001, there were
outstanding Target Options to purchase 245,500 shares of Target Stock. Subject
to Section 3.2, immediately prior to Closing, all Target Options will be
-----------
cancelled, exercised or, in the case of the Target Options held by ▇▇. ▇▇▇▇
▇▇▇▇▇▇▇, exchanged. The terms of all Target Options are described in detail
(e.g., grant date, vesting schedule, exercise price, etc.) on Section 4.2 of the
Target Disclosure Schedule under the heading "Target Options." Except as set
forth in Section 4.2 of the Target Disclosure Schedule and for changes since the
date hereof, resulting from the exercise of Target Options outstanding on such
date, there are outstanding (i) no shares of capital stock or other voting
securities of Target (including any Capital Stock Equivalents), (ii) no
securities of Target convertible into or exchangeable for shares of capital
stock or voting securities of Target, (iii) no options, preemptive or other
rights to acquire from Target, and no obligation of Target to issue any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Target and (iv) no equity equivalent
interest in the ownership or earnings of Target or other similar rights. There
are no outstanding obligations of Target to repurchase, redeem or otherwise
acquire any Target securities. Target is not a party to any employment or other
agreements (including leases) and has not made any offers for employment that
contemplate or obligate Target to grant any options or issue any stock or other
instruments convertible into stock.
(b) Target does not own, directly or indirectly, any capital stock or
other ownership interest in any Person.
(c) No bonds, debentures, notes or other indebtedness of Target
having the right to vote on any matters on which shareholders may vote ("Target
------
Voting Debt") are issued or outstanding.
-----------
16
(d) Except as otherwise set forth in Section 4.2 of the Target
Disclosure Schedule, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Target is a party or by which it is bound obligating Target to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other voting securities of Target or obligating Target to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are no outstanding
obligations of Target to repurchase, redeem or otherwise acquire any shares of
capital stock of Target other than as set forth in Section 4.2(d) of the Target
Disclosure Schedule, which sets forth a list of each holder of Target Stock as
to whom Target, as applicable, has the right or obligation to repurchase such
capital stock. With respect to each such holder, the Target Disclosure Schedule
sets forth the name of such holder, the vesting schedule of such holder's shares
(if applicable), the repurchase price and the expiration date of such repurchase
right.
4.3 Authority; No Conflicts.
-----------------------
(a) Target has all requisite corporate power and corporate authority
to enter into this Agreement and, subject, in the case of the consummation of
the Merger only, to the adoption of this Agreement by the requisite vote of the
holders of Target Stock, to consummate the transactions contemplated hereby. The
Board of Directors of Target has approved this Agreement and the transactions
contemplated by this Agreement and has duly resolved to recommend to Target's
shareholders that they approve this Agreement and the transactions contemplated
by this Agreement (and has not withdrawn and will not withdraw prior to August
15, 2001, such approval or recommendation). The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Target, subject in the case of the consummation of the Merger to the adoption
of this Agreement by the requisite vote of the holders of Target Common Stock.
This Agreement has been duly executed and delivered by Target and constitutes a
valid and binding agreement of Target, enforceable against Target in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or affecting
creditors generally and by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law). ▇▇▇▇ ▇▇▇▇▇
and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ represent in excess of 89% of the total votes of Target
Stock required to approve the Merger (and the other transactions contemplated in
this Agreement) and each has entered into a valid and enforceable Voting
Agreement (as hereinafter defined) obligating himself to vote in favor of the
Merger (and the other transactions contemplated by this Agreement). As of the
Closing, Target has obtained all required shareholder approval to consummate the
Merger and other transactions contemplated in this Agreement.
(b) The execution and delivery of this Agreement does not or will
not, as the case may be, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of, or
constitute a default (with or without notice or lapse of time, or both) under,
or give rise to a right of consent, termination, amendment, cancellation or
acceleration of any obligation or the loss of any property, right or benefit
under, or the creation of a lien, pledge, security interest, charge or other
encumbrance on any assets (any
17
such conflict, violation, default, right of consent, termination, amendment,
cancellation or acceleration, loss or creation, a "Violation") pursuant to: (i)
---------
any provision of the Organizational Documents of Target or (ii) any Material
Agreement or other loan or credit agreement, note, mortgage, bond, indenture,
lease, benefit plan or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target, or its properties or assets,
other than those in the case of (ii) that could not reasonably be expected to
have a Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any supranational, national, state, municipal or
local government, any instrumentality, subdivision, court, administrative agency
or commission or other authority thereof, or any quasi-governmental or private
body exercising any regulatory, taxing, or other governmental or quasi-
governmental authority (a "Governmental Entity"), is required by or with respect
-------------------
to Target in connection with the execution and delivery of this Agreement by
Target or the consummation by Target of the transactions contemplated hereby,
except for those required under or in relation to (i) the VSCA with respect to
the filing and recordation of appropriate merger or other documents, and (ii)
antitrust or other competition laws of other jurisdictions.
4.4 Financial Information.
---------------------
(a) The unaudited balance sheet of Target as of December 31, 1999,
and the related unaudited statements of income and cash flows of Target, which
financial statements have been included in Section 4.4(a) of the Target
Disclosure Schedule, fairly present the financial condition and results of
operations of Target as of such date or for the period covered thereby and,
except as set forth in Section 4.4 of the Target Disclosure Schedule, were
prepared in accordance with generally accepted accounting principles ("GAAP")
----
applied on a consistent basis and consistent with the past practices of Target.
(b) The unaudited balance sheet of Target as of December 31, 2000
(the "Balance Sheet"), and the related unaudited statements of income and cash
-------------
flows of Target, which financial statements have been included in Section 4.4(b)
of the Target Disclosure Schedule (collectively, the "2000 Financials"), fairly
---------------
present the financial condition and results of operations of Target as of such
date or for the period covered thereby and, except as set forth in Section 4.4
of the Target Disclosure Schedule and other than those differences that are a
direct result of Target's revenue recognition policy with respect to the GenSci
Contract and the absence of footnotes in the 2000 Financials, were prepared in
accordance with GAAP applied on a consistent basis and consistent with the past
practices of Target.
(c) The unaudited balance sheet of Target as of March 31, 2001 (the
"Reference Balance Sheet"), and the related unaudited statements of income and
-----------------------
cash flows of Target, which financial statements have been included in Section
4.4(c) of the Target Disclosure Schedule (collectively, the "March 2001
----------
Financials"), fairly present the financial condition and results of operations
----------
of Target as of such date or for the period covered thereby (except for normally
recurring year-end adjustments) and, except as set forth in Section 4.4 of the
Target Disclosure Schedule and other than those differences that are a direct
result of Target's revenue recognition policy with respect to the GenSci
Contract and the absence of footnotes in the March
18
2001 Financials, were prepared in accordance with GAAP applied on a consistent
basis and consistent with the past practices of Target.
(d) Prior to Closing, Ernst & Young shall deliver to Parent audited
financial statements for the year ended December 31, 2000 (collectively, the
"Audited Financials"). There shall be no material differences between the
------------------
information presented in the Audited Financials and the information presented in
the unaudited financial statements described in Section 4.4(b), other than those
--------------
differences that are a direct result of Target's revenue recognition policy with
respect to the GenSci Contract.
4.5 No Undisclosed Liabilities. Target has no liabilities of the type
--------------------------
required to be reflected in financial statements in accordance with GAAP and, to
the Knowledge of Target, no other liabilities, except for liabilities or
obligations (i) reflected as liabilities or reserved against on the Reference
Balance Sheet or in the Target Disclosure Schedule, (ii) for performance
obligations under the Material Contracts and any other contracts or agreements
of the Target that were not required to be disclosed in the Target Disclosure
Schedules or (iii) incurred in the Ordinary Course of Business consistent with
past practice since March 31, 2001, or in connection with the transactions
contemplated herein.
4.6 Compliance with Applicable Laws. Except as set forth in Section 4.6
-------------------------------
of the Target Disclosure Schedule, Target holds all permits, licenses,
certificates, franchises, registrations, consents, variances, exemptions, orders
and approvals of all Governmental Entities which are material to the operation
of its business (the "Target Permits"). Target is in material compliance with
--------------
the terms of the Target Permits. The business of Target is not being and has not
been conducted in material violation of any law, ordinance, regulation,
judgment, decree, injunction, rule or order of any Governmental Entity, and
Target has not received any written warning, notice, notice of violation or
probable violation, notice of revocation, or other written communication from or
on behalf of any Governmental Entity, alleging (A) any violation of any Target
Permit or (B) that Target requires any Target Permit required for its business
that is not currently held by it. No investigation by any Governmental Entity
with respect to Target is pending or, to the Knowledge of Target, threatened.
4.7 Regulatory Matters.
------------------
(a) To the Knowledge of Target, all of the products sold by Target
are classified as Class I Medical Devices (as defined in 21 C.F.R.). Target, and
the products sold by Target, are in compliance in all material respects with all
current and otherwise applicable statutes, rules, regulations, standards, guides
or orders administered or issued by the FDA and all other Governmental Entities
(except for environmental agencies or bodies) having regulatory authority over
the products of Target (except with respect to environmental matters) and its
business.
(b) Since its founding, Target has not received any of the following
communications and, to Target's Knowledge, no facts exist which furnish any
reasonable basis for, any Notice of Inspectional Observation (Form FDA 483),
Notice of Adverse Findings, Warning Letters, Section 305 notices, subpoena, an
Unacceptable Determination under a
19
GWQAP or other similar communication by any Governmental Entity, and there have
been no recalls, field notifications, alerts or seizures required or threatened
relating to the products sold by Target.
(c) Since its founding, Target has neither filed any premarket
approval applications ("PMA") nor received any premarket notification ("510(k)")
--- ------
clearance or concurrence letters from the FDA. Section 4.7(c) of the Target
Disclosure Schedule contains a complete list of all of Target's products not
marketed under an approved PMA or 510(k).
(d) Since its founding, Target has not claimed any investigational
device exemptions ("IDE") and has not conducted any clinical investigations
---
under an IDE.
(e) To Target's Knowledge, there are no facts which are reasonably
likely to cause: (i) the denial, withdrawal, recall or suspension of any product
sold or intended to be sold by Target; (ii) a change in the marketing
classification or labeling of any such products or (iii) a termination or
suspension of marketing of any such products.
(f) Since Target's founding, no products manufactured, marketed or
sold by Target or in connection with its business which have been recalled or
subject to a field notification (whether voluntarily or otherwise) and no
proceedings have occurred (whether completed or pending) seeking to recall,
suspend or seize any product sold or proposed to be sold by Target or in
connection with its business.
(g) Since its founding, Target has not received any FDA inspection
reports ("Forms 483s") and the FDA has not inspected Target's facilities. Target
----------
has furnished Parent with access to selected internal audit reports (as required
by 21 C.F.R. (S)820.22) conducted by Target since its founding. Section 4.7(g)
of the Target Disclosure Schedule contains an accurate and complete list of all
such internal audit reports.
(h) Since its founding, Target has not filed any Medical Device
Reports (pursuant to 21 C.F.R. Part 804).
(i) Target has made available to Parent all Complaints maintained by
Target (as required by 21 C.F.R. Part 820) and all Product Experience Reports
received or compiled by Target since its founding. Section 4.7(i) of the Target
Disclosure Schedule contains a complete list of all such Complaints and Product
Experience Reports received or compiled by Target since its founding.
(j) Target has made available to Parent copies of all labels for all
of Target's products in Target's possession. Except as set forth on Section
4.7(j) of the Target Disclosure Schedule, all labels are in material compliance
with all applicable FDA and similar federal, state, local and foreign
requirements.
(k) Target has not obtained any regulatory approvals from any foreign
regulatory agencies related to the products distributed and sold by Target.
20
4.8 Litigation. Section 4.8 of the Target Disclosure Schedule sets forth a
----------
true and complete list of all litigation as of the date hereof to which Target
is, or to the Knowledge of Target, is threatened to be, a party or as to which
its property may be bound. Except as set forth in Section 4.8 of the Target
Disclosure Schedule, there is no litigation, arbitration, claim, suit, action,
investigation or proceeding pending or, to the Knowledge of Target, threatened,
against or affecting Target, nor is there any judgment, award, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against Target.
4.9 Taxes.
-----
(a) Filing of Tax Returns. Target has timely filed with the
---------------------
appropriate Taxing Authorities all Tax Returns required to have been filed by
it. Such Tax Returns filed are complete, correct and accurate in all material
respects. Target has not requested any extension of time within which to file
any Tax Returns that have not subsequently been filed. Target has delivered to
Parent true and correct copies of all federal and state income Tax Returns filed
by or on behalf of Target for the taxable periods ended prior to the Closing
Date, and, to the extent specifically requested in writing by Parent, has
provided or made available for examination by Parent true and correct copies of
all other Tax Returns filed by or on behalf of Target.
(b) Payment of Taxes. Target has paid all Taxes required to have been
----------------
paid by it, except (i) Taxes for which an adequate reserve has been established
therefor in conformity with generally accepted accounting principles
consistently applied, or (ii) as set forth in Section 4.9 of the Target
Disclosure Schedule. All Taxes that Target is required to have collected or
withheld have been duly collected or withheld and, to the extent required, have
been duly paid to the proper Taxing Authority.
(c) Audit History. Any Tax deficiencies asserted by any Taxing
-------------
Authority as a result of any prior examination of Target's Tax Returns or Tax
liabilities have been paid or finally settled. No issue has been raised by the
IRS or other Taxing Authority in any such examination which, by application of
similar principles, could reasonably be expected to result in a proposed
deficiency for any other period beginning on or before the Closing Date that was
not so examined. There are no audits pending of any of Target's Tax Returns by
any Taxing Authority. There have been no waivers or extensions of statutes of
limitations by Target which have continuing effect. Target has delivered to
Parent true and correct copies of any forms, report, protests, closing
agreements or other documents submitted to, or received from, any Taxing
Authority within the past three years in connection with an assertion of any
increased liability against Target.
(d) Asset Liens. There are no liens for Taxes (other than for current
-----------
Taxes not yet due and payable) on any assets of Target.
(e) Tax Elections. To the Knowledge of Target, all Tax elections
-------------
having continuing effect for any taxable year ended after the Closing Date made
by or with respect to Target are set forth in Section 4.9 of the Target
Disclosure Schedule or are adequately disclosed on the Tax Returns provided to
Parent. Target: (i) has not made nor will make a consent dividend election under
Section 565 of the Code; (ii) has not consented at any time under Section
21
341(f)(1) of the Code to have the provisions of Section 341(f)(2) of the Code
apply to any disposition of Target's assets; (iii) has not agreed, nor is
required (either due to any of the transactions contemplated herein or
otherwise), to make any adjustment under Section 481(a) of the Code by reason of
a change in accounting method (other than any change in method of accounting
that may be required as a result of the consummation of the transactions
contemplated by this Agreement; (iv) has not made an election, nor is required,
to treat any asset of Target as owned by another person pursuant to the
provisions of former Section 168(f) of the Internal Revenue Code of 1954, as
amended and in effect immediately prior to the enactment of the Tax Reform Act
of 1986, or as "tax-exempt bond financed property" or "tax-exempt use property"
within the meaning of Section 168 of the Code; and (v) has not made any of the
foregoing elections nor is required to apply any of the foregoing rules under
any comparable state, local or foreign Tax provision.
(f) Prior Affiliated Groups. Target has never been a member of an
-----------------------
affiliated group of corporations within the meaning of Section 1504 of the Code.
Target has no liability for the Taxes of any Person other than Target (i) under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv)
otherwise.
(g) Tax Rulings; Binding Agreement. Target has not requested or
------------------------------
received any ruling from any Taxing Authority, or signed any binding agreement
with any Taxing Authority (including, without limitation, any advance pricing
agreement), that would impact the amount of Tax owed by it after the Closing
Date.
(h) Power of Attorney. There is no power of attorney granted by
-----------------
Target relating to any Tax that is currently in force.
(i) Tax Sharing Agreements. There are no Tax-sharing agreements or
----------------------
similar arrangements with respect to or involving Target (other than this
Agreement), and, after the Closing Date, Target shall not be bound by any such
Tax-sharing agreements or similar arrangements or have any liability thereunder
for amounts due in respect of periods prior to the Closing Date.
(j) Partnerships and Single Member LLCs. Except as set forth in
-----------------------------------
Section 4.9 of the Target Disclosure Schedule, Target (i) is not a party to or a
participant or member in any joint venture, partnership, or other arrangement or
contract which is treated as a partnership for United States federal income Tax
purposes and (ii) does not own a single member limited liability company which
is treated as a disregarded entity.
(k) Withholding. Target is not a "United States real property holding
-----------
company" within the meaning of Section 897 of the Code. The transactions
contemplated herein are not subject to the Tax withholding provisions of Section
3406 of the Code or, to the Knowledge of Target (after consulting with its legal
counsel), of any other provision of law.
(l) Parachute Payments. Except as disclosed in Section 4.13 of the
------------------
Target Disclosure Schedule, Target is not a party to any agreement, contract,
arrangement or plan that
22
has resulted or could result, as a result of the consummation of the
transactions contemplated by this Agreement, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
(m) Tax-Exempt Interest. None of the assets of Target directly or
-------------------
indirectly secures any debt the interest on which is Tax-exempt under Section
103(a) of the Code.
(n) Permanent Establishment. Target does not have and has not had a
-----------------------
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country.
(o) International Boycott. Target has never participated in nor is
---------------------
participating in an international boycott within the meaning of Section 999
of the Code.
(p) Tax Attributes. Except as set forth on Section 4.9 of the Target
--------------
Disclosure Schedule, Target has no net operating losses, tax credit carryovers
or other tax attributes presently subject to limitation under Section 382, 383
or 384 of the Code, or, to the Knowledge of Target, otherwise, excepting any
limitation which may arise as a result of the execution of this Agreement or
consummation of the transactions contemplated hereby.
(q) Tax Return Disclosures. Target has not been advised by any
----------------------
signing return preparer that it has taken any positions on its 1999 federal
income Tax Returns that would require disclosure in order to avoid the
substantial understatement penalty within the meaning of Section 6662 of the
Code.
(r) Record Keeping. Target has complied with all reporting and record
--------------
keeping requirements under Code Sections 6038A and 6038B.
(s) No Transferee Liability. Target has no Liability pursuant to
-----------------------
Section 6901 of the Code or otherwise under applicable law for Taxes owed by
another Person by virtue of any transfer of an asset or assets to it, and
neither Parent nor Merger Sub will be subject to such Liability as a result of
any of the transactions contemplated hereby (other than Taxes imposed on Target,
for which Merger Sub will become liable by operation of law).
(t) No Spin-Offs. Target has not distributed stock of a "controlled
------------
corporation" (within the meaning of Section 355(a) of the Code) in a transaction
subject to Code Section 355 within the past two years.
(u) Tax Reserves. The unpaid Taxes of Target did not, as of the date
------------
of the Reference Balance Sheet, exceed the reserve for Tax liability (excluding
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the balance sheet included in the
financial statements dated the date of such balance sheet (rather than in any
notes thereto).
23
4.10 Absence of Certain Changes or Events.
------------------------------------
(a) Except as set forth in Section 4.10 of the Target Disclosure
Schedule, since the date of the Reference Balance Sheet, (i) Target has
conducted its business in the Ordinary Course of Business and has not incurred
any material liability, except in the Ordinary Course of Business; (ii) through
the date of this Agreement, there has not been any change in the business,
financial condition, liabilities, assets, technology, employee relations,
customer relations, supplier relations, manufacturer relations or distributor
relations, or results of operations of Target that has had, or could reasonably
be expected to have, a Material Adverse Effect on Target, (iii) there has not
been any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any shares of
Target Stock; and (iv) there has not been any split, combination or
reclassification of any Target Stock or any issuance or the authorization of any
issuance of any other securities in exchange or in substitution for shares of
Target Stock; (v) there has not been (A) any granting by Target to any executive
officer of Target of any increase in compensation, (B) any granting by Target to
any such executive officer of any increase in severance or termination pay, or
(C) any entry by Target into any employment, severance or termination agreement
with any such executive officer; and (vi) there has not been any change in
accounting methods, principles or practices by Target affecting its assets,
liabilities or business, except insofar as may have been required by a change in
GAAP.
(b) Except for the transactions contemplated in this Agreement and
except as set forth in Section 4.10 of the Target Disclosure Schedule, since the
date of the Reference Balance Sheet, Target has not (i) incurred, or become
subject to, any material obligation or material Liability other than
manufacturing or purchase orders entered into in the Ordinary Course of
Business, (ii) sold, transferred, leased, pledged or mortgaged or agreed to
sell, transfer, lease, pledge, or mortgage any assets, property or rights
(including Proprietary Rights) or cancelled, waived or compromised or agreed to
cancel, waive or compromise, any debts, claims or rights, (iii) made any
significant change in any method of management, operation or accounting, (iv)
had any of its Proprietary Rights challenged on the basis of validity;
transferred or exchanged any of its Proprietary Rights (other than the granting
of licenses as set forth in Section 4.10(b) of the Target Disclosure Schedule);
or had any other material developments related to its Proprietary Rights, (v)
paid any bonus or extraordinary compensation to any employee, (vi) made any
distribution of any kind or character to its shareholders, (vii) entered
into any transaction with a shareholder, director or officer or any party
related to any shareholder, director or officer, (viii) issued or committed to
issue any capital stock or any securities convertible into capital stock, (ix)
purchased or acquired capital assets costing more than $50,000 in any one
instance, (x) received any notice of alleged infringement of the intellectual
property of third parties, or (xi) entered into any other material transaction
other than in the Ordinary Course of Business and consistent with past practice.
4.11 Vote Required. The affirmative vote of the holders of a majority of
-------------
the outstanding shares of Target Stock (the "Required Target Vote") is the only
--------------------
vote of the holders of any class or series of Target Stock necessary to approve
this Agreement and the transactions contemplated hereby.
24
4.12 Material Agreements.
-------------------
(a) Section 4.12 of the Target Disclosure Schedule sets forth a
complete list of any of the following contracts to which Target is a party or by
which Target is bound (each, a "Material Agreement"):
------------------
(i) all written management, compensation, employment or other
contracts entered into with any executive officer, director or key employee of
Target;
(ii) all contracts under which Target has any outstanding
indebtedness, obligation or liability for borrowed money or the deferred
purchase price of property or has the right or obligation to incur any such
indebtedness, obligation or liability, in each individual case in an amount
greater than $25,000 or, with respect to any related contracts, in the aggregate
amount greater than $50,000;
(iii) all bonds or agreements of guarantee or indemnification
under which Target acts as surety, guarantor or indemnitor with respect to any
obligation (fixed or contingent) in an individual amount or potential amount
greater than $25,000 or, with respect to any related obligations, in the
aggregate amount greater than $50,000;
(iv) all non-compete or similar agreements;
(v) all partnership and joint venture agreements;
(vi) all agreements relating to acquisitions or dispositions
of any business or product line;
(vii) all corporate insurance policies currently in effect and
covering Target, its operations or personnel;
(viii) all bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or other employee benefit agreements, trusts, plans, funds or other
arrangements for the benefit or welfare of any director, officer or employee of
Target;
(ix) all agreements pursuant to which Target has agreed to pay a
rebate other than any such agreements entered in the Ordinary Course of
Business;
(x) all supply agreements with any of Target's suppliers that
have minimum volume requirements in excess of $50,000, together with any
modification thereof or subsequent agreement related thereto;
(xi) all agreements with brokers that are not terminable by
Target upon 60 days' notice;
25
(xii) all indemnification agreements or similar agreements the
principal purpose of which is to provide for indemnification, and any other
agreements with respect to which Target has any material indemnification
obligations;
(xiii) all agreements, together with any modification thereof or
subsequent agreement related thereto, pursuant to which Target has licensed
from, or to, a third party any inventions, trade secrets, know-how, trademarks,
trademark registrations, trade names, copyrights or other Proprietary Rights,
but excepting therefrom any commercially available off the shelf software; and
(xiv) all contracts under which Target is obligated to pay or
become obligated to pay more than $50,000 in any twelve month period or which
are not terminable by Target on less than 90 days notice.
(b) Target is not in default under the terms of any Material
Agreement in a manner that permits the other party to adversely alter or
terminate any rights of Target or to collect damages thereunder. To the
Knowledge of Target, (i) no other party thereto is in default under the terms of
any Material Agreement and (ii) each Material Agreement is valid, binding and
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors generally, or by general equity
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). Target has not received any notice of
termination with respect to any Material Agreement.
For purposes of this Section 4.12, the term "Material Agreement" does not
------------
include (i) any purchase orders having a duration of one year or less for
products, services or inventory issued or received in the Ordinary Course of
Business, (ii) Ordinary Course of Business invoices and (iii) any agreement with
respect to which Target has no continuing obligations.
4.13 Employee Benefit Plans; ERISA.
-----------------------------
(a) Existence of Plans. Except as disclosed on Section 4.13 of the
------------------
Target Disclosure Schedule, (i) neither Target nor any of its respective ERISA
Affiliates (as defined below) maintains or sponsors (or ever maintained or
sponsored), or makes or is required to make contributions to, any "employee
pension benefit plan," as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), (ii) none of the Plans (as
-----
defined below) is or was a "multiemployer plan," as defined in Section 3(37) of
ERISA and Target has no liability to any other "multiemployer plan," (iii) none
of the Plans provides or provided post-retirement medical or health benefits
except as required by law, (iv) neither Target nor any of its ERISA Affiliates
is or was a party to any collective bargaining agreement, and (v) neither Target
nor any of its ERISA Affiliates has announced or otherwise made any commitment
to create or amend any Plan. Notwithstanding any statement or indication in this
Agreement to the contrary, except as disclosed on Section 4.13 of the Target
Disclosure Schedule or as required by law, there are no Plans (a) as to which
Parent will be required to make any contributions or with respect to which
Parent shall have any obligation or liability whatsoever, whether on behalf of
any of the current or former employees of Target or on behalf of any other
26
person, after the Closing, or (b) which Parent or the Surviving Corporation will
not be able to terminate immediately after the Closing in accordance with their
terms and ERISA. Target has delivered or made available to Parent true and
complete copies of: (i) each of the Plans and any related funding agreements
thereto (including insurance contracts) including all amendments, all of which
are legally valid and binding and in full force and effect and there are no
defaults thereunder, (ii) the currently effective summary plan description
pertaining to each of the Plans, (iii) for each funded Plan, financial
statements consisting of (A) the statement of assets and liabilities of such
Plan as of its most recent valuation date, and (B) the statement of changes in
fund balance and in financial position or the statement of changes in net assets
available for benefits under such Plan for the most recently-ended plan year,
which such financial statements shall fairly present the financial condition and
the results of operations of such Plan in accordance with GAAP, consistently
applied, as of such dates. For purposes of this Agreement, "ERISA Affiliate"
---------------
means any person that, together with Target as of any relevant measuring date
under ERISA was or is required to be treated as a single employer under Code
Section 414. For purposes of this Section 4.13, "Plan" means (i) each of the
------------ ----
"employee benefit plans" (as such term is defined in Section 3(3) of ERISA) of
which any of Target, any Subsidiary, or any ERISA Affiliate is or ever was a
sponsor or participating employer or as to which Target or any Subsidiary or any
of their ERISA Affiliates makes contributions or is required to make
contributions, and (ii) any similar employment, severance or other arrangement
or policy of Target or any of its ERISA Affiliates (whether written or oral)
providing for health, life, vision or dental insurance coverage (including self-
insured arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits or retirement benefits, fringe
benefits, or for profit sharing, deferred compensation, bonuses, stock options,
stock appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits.
(b) Penalties. Neither Target nor any of its ERISA Affiliates is
---------
subject to any material liability, tax or penalty whatsoever to any person or
agency whomsoever as a result of engaging in a prohibited transaction under
ERISA or the Code, and neither Target nor any of its ERISA Affiliates has any
Knowledge of any circumstances which reasonably might result in any material
liability, tax or penalty, including but not limited to, a penalty under Section
502 of ERISA, as a result of a breach of any duty under ERISA or under other
laws. No event has occurred which could subject any Plan to tax under Section
511 of the Code. Neither Target, nor any of its ERISA Affiliates, nor any other
organization of which any of them are a successor or Parent corporation as
defined in Section 4069(b) of ERISA, have engaged in any transaction described
in Section 4069(a) of ERISA.
(c) Qualification. All of the Plans have been administered and
-------------
maintained in substantial compliance with ERISA, the Code and all other
applicable laws. All contributions required to be made to each of the Plans
under the terms of that Plan, ERISA, the Code or any other applicable Laws have
been timely made.
(d) Parachute Payments. Except as disclosed on Section 4.13 of the
------------------
Target Disclosure Schedule, there is no contract, agreement or benefit
arrangement covering any current or former employee or consultant of Target
which, individually or collectively (but excluding any payment under any
agreement that may be entered into, or transaction occurring, after the
27
Closing Date, which payment is unrelated to the Merger and the transactions
closely related thereto), could give rise to the payment of any amount which
would constitute an "excess parachute payment" (as defined in Section 280G) of
the Code). Except as disclosed on Section 4.13 of the Target Disclosure Schedule
or elsewhere in this Agreement, neither the execution of this Agreement nor the
consummation of any of the transactions contemplated hereby (whether alone or
upon the occurrence of any additional or further acts or events) will (i) result
in any obligation or liability (with respect to accrued benefits or otherwise)
on the part of Target, Parent, the Surviving Corporation, or any of their
respective Subsidiaries, to any Plan, or to any present or former employee,
director, officer, shareholder, contractor or consultant of Parent, the
Surviving Corporation, or any their respective Subsidiaries or any of their
dependents, (ii) be a trigger event under any Plan that will result in any
payment (whether of severance pay or otherwise) becoming due to any such present
or former employee, officer, director, shareholder, contractor, or consultant,
or any of their dependents, or (iii) accelerate the time of payment or vesting,
or increase the amount, of any compensation theretofore or thereafter due or
granted to any employee, officer, director, shareholder, contractor, or
consultant of Target or any of their dependents. With respect to any insurance
policy which provides, or has provided, funding for benefits under any Plan,
there is and will be no liability of Target, Parent or any of its Subsidiaries
in the nature of a retroactive or retrospective rate adjustment, loss sharing
arrangement, or actual or contingent liability as of the Closing Date, nor would
there be any such liability if such insurance policy were terminated as of the
Closing Date.
(e) COBRA. With respect to each Plan which provides health care
-----
coverage, Target and each ERISA Affiliate have complied in all material respects
with (i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
-----
and the applicable COBRA regulations and (ii) the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996 and the regulations
thereunder, and neither Target nor any ERISA Affiliate has incurred any
liability under Section 4980B of the Code.
(f) Litigation. Other than routine claims for benefits under the
----------
Plans, there are no pending or, to Target's Knowledge, threatened, actions or
proceedings involving the Plans, or the fiduciaries, administrators, or trustees
of any of the Plans or Target, any Subsidiary or any of their respective ERISA
Affiliates as the employer or sponsor under any Plan, with any of the IRS, the
Department of Labor, the PBGC, any participant in or beneficiary of any Plan or
any other person whomsoever. To the Knowledge of Target, there is no reasonable
basis for any such claim, lawsuit, dispute, action or controversy.
4.14 Brokers or Finders. No agent, broker, investment banker, financial
------------------
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Target.
4.15 Property.
--------
(a) General. Target has good and valid title to, or valid leasehold
-------
interests or licensed rights in, all its material properties and Assets, except
for such as are no longer used in
28
the conduct of the businesses of Target or as have been disposed of in the
Ordinary Course of Business, free and clear of all Encumbrances except Permitted
Encumbrances.
(b) Owned Real Property. Target does not own any real property.
-------------------
(c) Leased Real Property. Target has good and valid leasehold title
--------------------
to, and enjoys peaceful and undisturbed possession of, all leased property used
or occupied by Target (the "Target Leased Property"), free and clear of any and
----------------------
all Encumbrances other than any Permitted Encumbrances which would not permit
the termination of the lease therefor by the lessor. There has been no material
default under any such lease by Target or, to the Knowledge of Target, by any
other party. Target has not received notice of any pending or threatened special
assessment relating to Target Leased Property or otherwise has any Knowledge of
any pending or threatened special assessment relating thereto. Section 4.15 of
the Target Disclosure Schedule lists all leases of real property to which Target
is a party.
4.16 Affiliated Transactions and Certain Other Agreements. Except as set
----------------------------------------------------
forth in Section 4.16 of the Target Disclosure Schedule, Target does not,
directly or indirectly, have any agreement, arrangement or understanding with or
commitment or obligation to or from any of its shareholders, officers, directors
or employees (or any of their respective Affiliates), whether written or oral,
other than arrangements with its employees in the Ordinary Course of Business.
Without limiting the generality of the foregoing, except as disclosed in Section
4.16 of the Target Disclosure Schedule, no shareholder, officer, director or
employee of Target (or any of their respective Affiliates) is, directly or
indirectly, a joint investor or co-venturer with, or owner, lessor, lessee,
licensor or licensee of any property, real or personal, tangible or intangible,
owned or used, by Target and no such person is, directly or indirectly, a lender
to or debtor of Target.
4.17 Environmental Matters. To its Knowledge (a) Target has complied with
---------------------
all applicable Environmental Laws; (b) the properties currently operated by
Target (including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substance to an extent
reasonably likely to give rise to liability or remediation obligations for
Target under any applicable Environmental Law; (c) the properties formerly
operated by Target were not contaminated with any Hazardous Substance during the
period of operation by Target to an extent reasonably likely to give rise to
liability or remediation obligations for Target; (d) Target is not reasonably
likely to be subject to liability or remediation obligations for any Hazardous
Substance disposal or management or contamination at any other property to an
extent reasonably likely to give rise to liability or remediation obligations
for Target under any Environmental Laws; (e) Target has not received any notice,
demand, letter, claim or request for information indicating that Target may be
in violation of or subject to liability under any Environmental Law; (f) Target
is not subject to any orders, decrees, injunctions or other arrangements with
any Governmental Entity or any indemnity or other agreement with any third party
relating to any Environmental Law or Hazardous Substances; and (g) there are no
other circumstances or conditions involving Target that could reasonably be
expected to result in any claims, liability, investigations, costs or
restrictions on the ownership, use, or transfer of any property of Target
pursuant to any Environmental Law.
29
4.18 Proprietary Rights.
------------------
(a) Subject to the immediately following sentence, Target owns or
possesses, has access to or can become licensed on reasonable terms to use, all
Proprietary Rights necessary for the operation of its business as now conducted.
To Target's Knowledge, the operation of Target's business as now conducted and
Target's products do not infringe upon or conflict with the rights of any other
Person.
(b) Except as listed in Section 4.18(b) of the Target Disclosure
Schedule, and except with respect to non-disclosure agreements entered into in
the Ordinary Course of Business, there are no outstanding options, licenses,
encumbrances or liens of any kind relating to the Proprietary Rights owned by
Target, nor is Target bound by or a party to any options, licenses, encumbrances
or liens of any kind with respect to the Proprietary Rights and processes of any
other Person. None of the licenses, encumbrances or liens identified in Section
4.18(b) of the Target Disclosure Schedule will interfere with Target's ability
to perform its obligations under this Agreement including, without limitation,
the transfer of Proprietary Rights owned by Target.
(c) Target has not received any communications alleging that Target
has violated or, by conducting its business as proposed, would violate, any of
the Proprietary Rights of any other Person. To Target's Knowledge, the conduct
of Target's business as currently conducted does not infringe the rights of any
Person anywhere in the world.
(d) Target has no Knowledge that any of its employees are obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any
Governmental Entity, that would interfere with the use of such employee's best
efforts to promote the interests of Target or that would conflict with Target's
business as presently conducted. Each current employee of Target has, or will
have as of the Closing Date, executed a non-disclosure of Proprietary
Information agreement with respect to the Proprietary Information made available
to each such employee during the term of and within the scope of such employee's
employment with Target. Each current employee of Target has, or will have as of
the Closing Date, executed an assignment of inventions agreement with respect to
inventions developed by each such employee during the term of and within the
scope of such employee's employment with Target.
(e) Section 4.18(e) of the Target Disclosure Schedule sets forth a
complete and accurate list of (i) all Proprietary Rights for which Target has
made a filing with a Governmental Entity in the U.S. or a foreign country or
which are material to the operation of Target's business held by, or under
obligation of assignment to, Target and (ii) all applications therefor together
with the name of the owner thereof. Each owner listed in Section 4.18(e) of the
Target Disclosure Schedule is listed in the records of the appropriate
Governmental Entity as the sole owner of record. Target has, or will have as of
the Closing Date, obtained agreements from all necessary Persons to provide
necessary and reasonable assistance in perfecting Target's Proprietary Rights.
All such agreements are assignable by Target without further approvals from any
other party and are hereby assigned to Parent or shall be assigned to Parent as
of the Closing Date.
30
(f) To the Knowledge of Target, no trade secret, formula, process,
invention or design which is not publicly known or was not, as of the time of
disclosure, publicly known, and which is currently used in the conduct of the
business of Target has been disclosed or authorized to be disclosed by Target to
any Person, except in the Ordinary Course of Business or pursuant to an
obligation of confidentiality binding upon said Person.
(g) Each Proprietary Right listed in Section 4.18(e) of the Target
Disclosure Schedule (i) is, to Target's Knowledge, in proper form, (ii) has not
been disclaimed and (iii) has been duly maintained, including the submission of
all necessary filings in accordance with the legal and administrative
requirements of the appropriate jurisdictions, and the patents described in
Section 4.18(e) to the Target Disclosure Schedule are valid and enforceable.
4.19 Product Liability. Target has not committed any act, nor has there
-----------------
been any omission, which could reasonably be expected to result in, and there
has been no occurrence which could reasonably be expected to give rise to,
product liability or Liability for breach of warranty (whether covered by
insurance or not) on the part of Target, with respect to products designed,
manufactured, assembled, sold, repaired, maintained, delivered or installed or
services rendered prior to or on the Closing Date which could reasonably be
expected to result in Liability to Target exceeding $50,000 in the aggregate.
4.20 Insurance. Target has provided to Parent accurate and complete
---------
copies of all fire and casualty, general liability, business interruption,
product liability, and sprinkler and water damage insurance policies maintained
by Target (collectively, "Target Insurance Policies"). All premiums under all
-------------------------
such policies have been paid and Target is otherwise in compliance with terms of
such policies. Target has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies. Target has not
made any claims under the Target Insurance Policies for which it has been denied
coverage.
4.21 Labor Relations. Target does not have any Knowledge that any officer
---------------
or key employee of Target intends to terminate their employment with Target nor
does Target have a present intention to terminate the employment of any of the
foregoing. Except (i) as set forth on Section 4.21 of the Target Disclosure
Schedule and (ii) as subject to general laws and principles relating to wrongful
termination of employees, the employment of each officer and employee of Target
is terminable at the will of Target.
4.22 Net Working Capital. Immediately prior to the Closing, Target's Net
-------------------
Working Capital, after adding back any Excess Expenses paid or accrued by
Target, shall be greater than zero.
4.23 Target Affiliates. Section 4.23 of the Target Disclosure Schedule
-----------------
sets forth a list of those persons and entities who are, in Target's reasonable
judgment, "affiliates" of Target within the meaning of Rule 145 promulgated
under the Securities Act or for purposes of Accounting Series Releases 130 and
135 of the SEC (the "Target Affiliates").
-----------------
31
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF TARGET SHAREHOLDERS
-----------------------------------------------------
Each Target Shareholder represents and warrants, as to such Target
Shareholder, to Parent and Merger Sub that the statements contained in Sections
--------
5.1 through 5.5 below, are correct and complete as of the date of this Agreement
--- ---
and will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Article V), except as set forth in the disclosure schedule
---------
delivered by the Target Shareholders to Parent on the date hereof (the "Target
------
Shareholders Disclosure Schedule"). Each of ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------
represent additionally that the statements contained in Section 5.6 are correct
-----------
and complete and will be correct and complete as of the Closing Date. Nothing
in the Target Shareholders Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however,
unless the Target Shareholders Disclosure Schedule identifies the exception with
particularity. The Target Shareholders Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article V and the disclosure in any paragraph shall qualify other
---------
paragraphs in this Article V only to the extent that it is reasonably apparent
---------
that such disclosure qualifies or applies to such other paragraphs.
5.1 Ownership of Target Stock. Such Target Shareholder is the owner,
-------------------------
beneficially and of record, of the number of shares of Target Stock as set forth
on Section 5.1(a) of the Target Shareholders Disclosure Schedule, and, except as
set forth on Section 5.1(b) of the Target Shareholders Disclosure Schedule,
there exists no encumbrance of any kind with respect to such shares of such
Target Shareholder's Target Stock. Except as set forth on Section 5.1(b) of the
Target Shareholders Disclosure, such Target Shareholder is not a party to any
shareholders agreement, voting trust or other voting or similar agreement with
respect to the Target Stock.
5.2 Authority; Enforceability. Such Target Shareholder has the full
-------------------------
right, capacity, power and authority to enter into this Agreement and the other
documents executed and delivered by such Target Shareholder in connection with
this Agreement, and to consummate the transactions contemplated hereby and
thereby. This Agreement and the documents executed and delivered by such Target
Shareholder has been duly executed and delivered by such Target Shareholder and
constitute valid and binding obligations enforceable against such Target
Shareholder in accordance with their terms.
5.3 Private Placement.
-----------------
(a) Such Target Shareholder understands that (i) the offering and
sale of the shares of Parent Stock hereunder is intended to be exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
and (ii) such shares will be "restricted" shares as defined in the Securities
Act.
(b) The shares of Parent Stock are being acquired by such Target
Shareholder through the Merger for its own account and without a view to the
public distribution of such shares or any interest therein.
32
(c) Such Target Shareholder either is an Accredited Investor or,
within a reasonable period of time prior to the Target Shareholders Meeting, has
received (pursuant to Regulation D of the Securities Act) the following
information:
(i) Parent's annual report on Form 10-K for its fiscal year
ended December 31, 2000; and
(ii) Parent's quarterly report on Form 10-Q for its quarter ended
March 31, 2001.
(d) Such Target Shareholder is not a broker-dealer subject to
Regulation T promulgated by the Board of Governors of the Federal Reserve
System.
(e) Such Target Shareholder, or such Target Shareholder's
Representative, has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in shares of Parent Stock, and such Target Shareholder who is an
Accredited Investor is capable of bearing the economic risks of such investment,
including a complete loss of its investment in such shares.
(f) Such Target Shareholder, or such Target Shareholder's
Representative, has been given the opportunity to ask questions of, and receive
answers from, Parent concerning the transactions contemplated by the Agreement,
the shares of Parent Stock to be issued in connection with the Merger and other
related matters. Such Target Shareholder acknowledges that the Parent has made
available to such Target Shareholder or its agents all documents and information
requested by or on behalf of such Target Shareholder relating to an investment
in the shares of Parent Stock to be issued to such Target Shareholder in
connection with the Merger. In evaluating the suitability of an investment in
such shares of Parent Stock, such Target Shareholder has not relied upon any
other representations or other information (whether oral or written) made by or
on behalf of the Parent other than as contemplated by the two preceding
sentences and Article VI.
----------
(g) Such Target Shareholder acknowledges that the shares of Parent
Stock to be issued to it in connection with the Merger will bear customary
Securities Act restrictive legends (restricting transfer without receipt of an
opinion of counsel reasonably satisfactory to Parent ) and that such Target
Shareholder may not sell or dispose of any of the shares other than pursuant to
a registered offering, unless otherwise exempt from the registration
requirements of the Securities Act.
5.4 Prohibitions. Neither the execution and delivery of this Agreement by
------------
such Target Shareholder or any of the documents executed and delivered by such
Target Shareholder, the performance by such Target Shareholder of its
obligations hereunder and thereunder, nor the consummation of the transactions
contemplated hereby or thereby will: (a) with or without the giving of notice or
the passage of time, or both, violate, or be in conflict with, or constitute a
default under, or cause or permit the termination or the acceleration of the
maturity of, any debt or obligation of such Target Shareholder or require the
payment of any prepayment or other penalty by such Target Shareholder; (b)
require notice to or the consent of any Person, including,
33
without limitation, any right of first refusal or similar right, to which such
Target Shareholder is a party, or by which the properties of such Target
Shareholder is bound or subject; (c) result in the creation or imposition of any
security interest, lien, or other encumbrance upon any property or assets of
such Target Shareholder under any agreement or commitment to which it is a
party, or by which the properties of such Target Shareholder is bound or subject
or (d) violate any statute or law or any judgment, decree, order, regulation or
rule of any court or Governmental Entity to which such Target Shareholder or the
properties of such Target Shareholder is bound or subject.
5.5 Consents and Approvals of Governmental Entities. No consent, approval
-----------------------------------------------
or authorization of, or declaration, filing or registration with, any
Governmental Entity is required to be made or obtained by such Target
Shareholder in connection with the execution or delivery by such Target
Shareholder of this Agreement or the documents executed and delivered by such
Target Shareholder, the performance of such Target Shareholder of its
obligations hereunder or thereunder or the consummation by such Target
Shareholder of the transactions contemplated hereby or thereby.
5.6 Voting Agreements. Each of ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ has the
-----------------
requisite capacity, power and authority to enter into the voting agreement
attached hereto as Exhibit C (the "Voting Agreement") and to consummate the
--------- ----------------
transactions contemplated thereby. The Voting Agreement has been duly executed
and delivered by such shareholder and constitutes a valid and binding agreement
of such shareholder, enforceable against such shareholder in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors generally, or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF PARENT
----------------------------------------
AND MERGER SUB
--------------
Parent represents and warrants to Target and the Target Shareholders
that the statements contained in this Article VI are correct and complete as of
----------
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Article VI).
----------
6.1 Organization, Standing and Power. Parent has been duly incorporated
--------------------------------
and is validly existing in good standing under the laws of its jurisdiction of
incorporation and has the requisite power and authority to carry on its business
as now being conducted. Parent is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure so to qualify could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect on Parent.
The copies of the Organizational Documents of Parent which were previously
furnished or made available to Target are true, complete and correct copies of
such documents as in effect on the date of this Agreement.
34
Merger Sub is a wholly owned Subsidiary of Parent and a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California.
The copies of the Organizational Documents of Merger Sub which were
previously furnished or made available to Target are true, complete and correct
copies of such documents as in affect on the date of this Agreement.
6.2 Capital Structure.
-----------------
(a) The authorized capital stock of Parent consists of (i) 50,000,000
shares of Parent Stock, of which, at March 31, 2001, 15,040,465 shares were
outstanding, and (ii) 5,000,000 shares of preferred stock, par value $.01 per
share, of which at March 31, 2001 and as of the Closing, 594,000 shares were
designated Series E Convertible Preferred Stock, and, at March 31, 2001 and as
of the Closing, no shares of Preferred Stock were outstanding. All issued and
outstanding shares of the capital stock of Parent are duly authorized, validly
issued, fully paid and nonassessable, and no class of capital stock is entitled
to preemptive rights.
(b) The authorized capital stock of Merger Sub consists of 100 shares
of common stock, par value $0.01 per share, all of which are duly authorized,
validly issued and outstanding, fully paid and nonassessable and owned by Parent
free and clear of all liens, claims and encumbrances. Merger Sub was formed
solely for the purpose of engaging in a business combination transaction with
Target.
(c) All shares of Parent Stock to be issued in the Merger shall be
duly authorized, fully paid and nonassessable, and shall have the same
associated rights under the Interpore Rights Plan as Interpore's outstanding
common stock immediately prior to the Merger.
6.3 Authority; No Conflicts.
-----------------------
(a) Parent has all requisite corporate power and corporate authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent. This Agreement has been duly executed
and delivered by Parent and constitutes a valid and binding agreement of Parent,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors generally,
or by general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(b) The execution and delivery of this Agreement does not or will
not, as the case may be, and the consummation of the transactions contemplated
hereby will not, result in any Violation of: (i) any provision of the
Organizational Documents of Parent or (ii) except as could not reasonably be
expected to have a Material Adverse Effect on Parent and subject to obtaining or
making the consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (c) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or other
agreement, obligation, instrument, permit,
35
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent, or its properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Parent in connection with the execution and delivery of this
Agreement by Parent or the consummation by Parent of the transactions
contemplated hereby, except for (x) those required under or in relation to (A)
state securities or "blue sky" laws, (B) the Securities Act, (C) the Exchange
Act, (D) the VSCA with respect to the filing and recordation of appropriate
merger or other documents, (E) rules and regulations of the Nasdaq, and (F)
antitrust or other competition laws of other jurisdictions, and (y) such
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to make or obtain could not reasonably be expected
to have a Material Adverse Effect on Parent or materially impair or delay the
ability of Parent to consummate the transactions contemplated hereby.
(d) Merger Sub has all requisite corporate power and corporate
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Merger Sub of
this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Merger Sub. This Agreement has been duly executed and delivered
by Merger Sub and constitutes a valid and binding agreement of Merger Sub,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors generally,
or by general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
6.4 Reports and Financial Statements. Parent has filed all required
--------------------------------
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC since December 31, 1999 (collectively, including all exhibits
thereto, the "Parent SEC Reports"). None of the Parent SEC Reports, as of their
------------------
respective dates (and, if amended or superseded by a filing prior to the date of
this Agreement or of the Closing Date, then on the date of such filing),
contained any untrue statement of a material fact or omitted 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. The
consolidated financial statements of Parent and its Subsidiaries included in
such reports comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect hereto, have been prepared in accordance with GAAP, consistently
applied (except, in the case of the unaudited interim financial statements, as
permitted by Form 10-Q of the SEC) and fairly present in all material respects
(subject, in the case of the unaudited interim financial statements, to normal,
year-end audit adjustments) the consolidated financial position of Parent and
its Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended. Since March 31, 2001,
except as disclosed in the Parent SEC Reports, neither Parent nor any of its
Subsidiaries has incurred any liabilities of the type required to be reflected
in financial statements in accordance with GAAP, or to the Knowledge of Parent,
any other material liabilities, except liabilities, obligations or contingencies
(a) which are reflected on or reserved against the consolidated balance sheet of
Parent and its Subsidiaries as at
36
March 31, 2001 (including the notes thereto), (b) which are not required by GAAP
to be reflected on a balance sheet, or (c) which were incurred in the Ordinary
Course of Business after March 31, 2001, and consistent with past practices, or
in connection with the transactions contemplated herein.
6.5 Absence of Litigation. Except (i) as described in the Parent SEC
---------------------
Reports or (ii) as would not be reasonably likely to have a Material Adverse
Effect on Parent, neither Parent nor any of its Subsidiaries is a party to any
litigation nor, to the Knowledge of Parent, is any such litigation threatened.
Except as described in the Parent SEC Reports, no claim, action, proceeding or
investigation is pending before any court, arbitrator or administrative,
governmental or regulatory authority or body which seeks to delay or prevent the
consummation of the transactions contemplated hereby or which would reasonably
be likely to materially and adversely affect or restrict Parent's ability to
consummate the transactions contemplated hereby.
6.6 Brokers or Finders. No agent, broker, investment banker, financial
------------------
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent on Merger Sub.
6.7 No Business Activities. Merger Sub is not a party to any material
----------------------
agreements and has not conducted any activities other than in connection with
the organization of Merger Sub, the negotiation and execution of this Agreement
and the consummation of the transactions contemplated hereby. Merger Sub has no
Subsidiaries.
6.8 Proprietary Rights. Except as disclosed in the Parent SEC Reports or
------------------
as would not be reasonably likely to have a Material Adverse Effect on Parent:
(a) Subject to the immediately following sentence, Parent owns or
possesses, has access to or can become licensed on reasonable terms to use, all
Proprietary Rights necessary for the operation of its business as now conducted.
To Parent's Knowledge, the operation of Parent's business as now conducted and
Parent's products do not infringe upon or conflict with the rights of any other
Person; and
(b) as of the date of this Agreement Parent has not received any
communications alleging that Parent has violated or, by conducting its business
as currently conducted, would violate, any of the Proprietary Rights of any
other Person.
6.9 Regulatory Matters. Except as disclosed in the Parent SEC Reports or
------------------
as would not be reasonably likely to have a Material Adverse Effect on Parent,
Parent, and the products sold by Parent, are in compliance in all material
respects with all current and otherwise applicable statutes, rules or
regulations issued by the FDA and all other Governmental Entities having
regulatory authority over the products of Parent and its business.
37
ARTICLE VII.
COVENANTS RELATING TO CONDUCT OF BUSINESS
-----------------------------------------
7.1 Conduct of Business of Target Pending the Merger. During the period
------------------------------------------------
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Target agrees, except as
set forth in Section 7.1 of the Target Disclosure Schedule, to carry on its
business in the ordinary course in substantially the same manner as previously
conducted, to pay its debts and Taxes when due, subject to good faith disputes
over such debts or Taxes, in the ordinary course in substantially the same
manner as previously paid, to pay or perform its other obligations when due in
the ordinary course in substantially the same manner as previously paid or
performed, to maintain insurance coverages and its books, accounts and records
in the usual manner consistent with past practices, to comply in all material
respects with all applicable laws, ordinances and regulations of Governmental
Entities, to maintain and keep its properties and equipment in good repair,
working order and condition (except ordinary wear and tear), and use all
reasonable efforts, consistent with past practices and policies, to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve its relationships and goodwill
with others having business dealings with it. Except as set forth in Section 7.1
of the Target Disclosure Schedule, without limiting the generality of the
foregoing and except as expressly contemplated by this Agreement, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, without the written consent
of Parent, Target shall not:
(a) adopt or propose any amendment to its articles of incorporation,
its bylaws or comparable charter or organizational documents;
(b) (i) issue, pledge or sell, or propose or authorize the issuance,
pledge or sale of additional shares of capital stock of any class (other than
upon exercise of Target Options outstanding on the date of this Agreement upon
payment of the exercise price thereof or as otherwise provided in Section
3.2(c)), (ii) except as contemplated in Section 3.2 hereof, amend, waive or
otherwise modify any of the terms of any option, warrant or stock option plan of
Target, including without limitation, the Target Options and the Target Option
Plan, or authorize cash payments in exchange for any options granted under any
of such plans, or (iii) adopt or implement any stockholder rights plan;
(c) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in respect
of any class or series of its capital stock (including any dividend distribution
payable in, or otherwise make a distribution of, shares of capital stock of any
subsequently formed Subsidiary of Target), or, except for the possible buy-out
of the Outstanding Kostuik Options, purchase, redeem or otherwise acquire or
propose to redeem or purchase or otherwise acquire, directly or indirectly, any
shares of its capital stock or any securities convertible into or exercisable
for any shares of its capital stock;
(d) split (including reverse split), combine, subdivide or reclassify
any shares of its capital stock, or any of its other securities;
38
(e) increase the compensation or fringe benefits payable or to become
payable to its directors, officers or employees, or pay any benefit not required
by any existing plan or arrangement (including, without limitation, the granting
of stock options, stock appreciation rights, shares of restricted stock or
performance units) or grant any severance or termination pay to (except pursuant
to existing Material Agreements, which Material Agreements shall be interpreted
and implemented in a manner consistent with past practice), or enter into or
adopt any Plan or any employment or severance agreement with, any director,
officer or, except as it relates to the hiring of new employees in the Ordinary
Course of Business, employee of Target or establish, adopt, enter into, or amend
any bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, savings, welfare, deferred compensation, employment,
termination, severance or other employee benefit plan, agreement, trust, fund,
policy or arrangement for the benefit or welfare of any directors, officers or
current or former employees, including any Plan, except (i) to the extent
required by applicable law or regulation or (ii) for salary and benefit
increases in the Ordinary Course of Business to employees other than executive
officers of Target.
(f) (i) outside of Target's Ordinary Course of Business, sell,
pledge, lease, dispose of, grant, encumber, or otherwise authorize the sale,
pledge, disposition, grant or encumbrance of any of the Assets of Target,
including by operation of law, or (ii) acquire any real property, any other
material Assets or any interest (including, without limitation, by merger,
consolidation, lease or acquisition of stock or Assets) in a corporation,
partnership, other business organization or any division thereof (or a
substantial portion of the Assets thereof);
(g) (i) incur, assume or pre-pay any debt for borrowed money (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other Person,
(iii) make any loans, advances or capital contributions to, or investments in,
any other Person or with respect to any other material Assets (including
advances to employees), (iv) enter into any "keep well" or other agreement to
maintain the financial condition of another entity, (v) enter into any
derivative contracts or make investments in marketable securities, or (vi) other
than in the Ordinary Course of Business, consistent with past practices, enter
into any contract or agreement that would be a Material Agreement;
(h) make or rescind any material express or deemed election relating
to Taxes, settle or compromise any material action, claim, suit, litigation,
proceeding, arbitration, audit or investigation relating to Taxes, amend any
material Tax Return except in the Ordinary Course of Business, or except as may
be required by applicable law, make any change to any of its material methods of
reporting income or deductions (including, without limitation, any change to its
methods or basis or write-offs of accounts receivable) for federal income Tax
purposes from those employed in the preparation of its federal income Tax return
for the taxable year ending December 31, 2000;
(i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted, unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the Ordinary Course of
Business of liabilities reflected or reserved against in the Reference Balance
Sheet or arising after the date hereof;
39
(j) waive any rights of substantial value or make any payment, direct
or indirect, of any material liability of Target before the same comes due in
accordance with its terms;
(k) fail to maintain its existing insurance coverage of all types in
effect or, in the event any such coverage shall be terminated or lapse, procure
substantially similar substitute insurance policies which in all material
respects provide coverage in at least such amounts and insure against such risks
as are currently covered by such policies;
(l) enter into, or amend any collective bargaining agreement (other
than as required by law or extensions of existing agreements in the Ordinary
Course of Business);
(m) change its methods of accounting as in effect on March 31, 2001,
except as required by GAAP, or take any action, other than reasonable and usual
actions in the Ordinary Course of Business, with respect to accounting policies
or procedures, unless required by GAAP;
(n) modify, amend or terminate any Material Agreement or waive,
release or assign any material rights or claims;
(o) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any Affiliates of
Target which involves the transfer of consideration or has a financial impact on
Target, other than pursuant to such agreements, arrangements, or understandings
existing on the date of this Agreement or disclosed in Section 5.1(o) of the
Target Disclosure Schedule;
(p) close, shut down, or otherwise eliminate any facility or office;
(q) make or commit to make any capital expenditures that exceed
$100,000 for any single item or related series of items or, except as required
pursuant to commitments existing on the date hereof or made without violation of
this Section 7.1, make any cash disbursement exceeding $100,000 for any single
-----------
item or related series of items;
(r) initiate, compromise, or settle any material litigation or
arbitration proceeding;
(s) take, or agree to commit to take, any action that could
reasonably be expected to result in (i) the representations and warranties of
Target contained herein that are qualified by materiality, not to be true and
correct, (ii) the representations and warranties of Target contained herein that
are not so qualified to not be true and correct in all material respects and
(iii) any of the conditions to the Merger to not be satisfied; and
(t) enter into an agreement, contract, commitment or arrangement to
do any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
7.2 Target Board Recommendation. Neither the Board of Directors of Target
---------------------------
(the "Target Board") nor any committee thereof shall, prior to August 15, 2001,
------------
withdraw or modify,
40
or propose to withdraw or modify, in a manner adverse to Parent the approval or
recommendation by the Target Board of this Agreement or the Merger. Target shall
use its reasonable best efforts to solicit from Target Shareholders the
approval, the vote or consent of shareholders required by the VSCA and Target's
articles of incorporation and bylaws to approve and adopt this Agreement and the
Merger.
Additionally, each of Target and Parent acknowledges receipt of
nonpublic information from the other party and agrees to hold any such nonpublic
information (including the existence and contents of negotiations and
communications regarding this Agreement, the Merger and the transactions
contemplated hereby and thereby) in confidence in accordance with (i) the
Confidentiality Agreement dated as of September 6, 2000, between Parent and
Target (the "Confidentiality Agreement"), and (ii) any applicable federal and/or
-------------------------
state securities laws.
7.3 Covenants of Parent and Merger Sub. During the period from the date of
----------------------------------
this Agreement and continuing until the Effective Time (except as expressly
contemplated or permitted by this Agreement or to the extent that Target shall
otherwise consent in writing):
(a) Organizational Documents. Except to the extent required to comply
------------------------
with their respective obligations hereunder, required by law or required by the
rules and regulations of any applicable governmental entity, Parent and Merger
Sub shall not amend or propose to amend their respective Organizational
Documents.
(b) Capitalization. Parent shall not effect any recapitalization,
--------------
stock dividends, stock splits or other extraordinary transactions.
(c) Other Actions. Parent shall not, and shall not permit any of its
-------------
Subsidiaries to, take any action that could reasonably be expected to result in
(i) any of the representations or warranties of Parent set forth in this
Agreement that are qualified as to materiality not to be true and correct, (ii)
the representations and warranties contained herein that are not so qualified to
not be true and correct in all material respects, or (iii) any of the conditions
to the Merger set forth in Article IX not being satisfied.
----------
7.4 Advice of Changes; Government Filings. Target shall report (to the
-------------------------------------
extent permitted by law, regulation and any applicable confidentiality
agreement) to Parent on operational matters. Each party shall (a) confer on a
regular and frequent basis with the other, and (b) promptly advise the other
orally and in writing of (i) any representation or warranty made by it contained
in this Agreement that is qualified as to materiality becoming untrue or
inaccurate in any respect or any such representation or warranty that is not so
qualified becoming untrue or inaccurate in any material respect, (ii) the
failure by it (A) to comply with or satisfy in any respect any covenant,
condition or agreement required to be complied with or satisfied by it under
this Agreement that is qualified as to materiality or (B) to comply with or
satisfy in any material respect any covenant, condition or agreement required to
be complied with or satisfied by it under this Agreement that is not so
qualified as to materiality or (iii) any change, event or circumstance that has
had or could reasonably be expected to have a Material Adverse Effect on such
party or materially adversely affect its ability to consummate the Merger in a
timely manner; provided, however, that no such notification shall affect the
representations, warranties,
41
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement. Each party agrees that, to the extent
practicable, it will consult with the other party with respect to the obtaining
of all permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other party apprised
of the status of matters relating to completion of the transactions contemplated
hereby.
7.5 Tax Matters.
-----------
(a) Tax Elections. Target shall not make any material Tax election or
-------------
settle or compromise any material Tax liability or refund that would have a
material continuing effect in any taxable year ending after the Closing Date;
provided, however, that Parent's consent to any Tax election or settlement or
compromise of any Tax liability or refund shall not be unreasonably withheld.
(b) Tax Periods Ending On or Before the Closing Date. The Surviving
------------------------------------------------
Corporation shall prepare or cause to be prepared and file or cause to be filed
all Tax Returns for Target for all periods ending on or prior to the Closing
Date (the "Pre-Closing Tax Returns") which are required to be filed after the
-----------------------
Closing Date. The Pre-Closing Tax Returns shall be prepared in a manner
consistent with the prior practice of Target, provided that the Pre-Closing Tax
Returns shall in all events be prepared in accordance with applicable law. Not
later than 30 days prior to the proposed filing of each such Tax Return, Parent
shall permit the Target Shareholder Representative to review and comment on each
such Tax Return. The Target Shareholder Representative may direct by written
instruction to Parent not later than 15 days before such proposed filing date of
any such Tax Return the adoption of any legally permissible position on such Tax
Returns to the extent the reporting position proposed by the Surviving
Corporation would result in indemnity liability of the Target Shareholders under
this Agreement, other than a position which is not supported by substantial
authority within the meaning of Section 6662 of the Code; provided that such
position does not materially and disproportionately increase the prospective Tax
liabilities of the Surviving Corporation or Parent. Pursuant to, and to the
extent of, the indemnity obligations under Section 10.4, the Target Shareholders
shall reimburse Parent for any Taxes of Target with respect to such periods
within fifteen (15) days after payment by Parent or Target of such Taxes.
(c) Straddle Periods. Any Taxes with respect to Target that relate to
----------------
a Tax period beginning on or before the Closing Date and ending after the
Closing Date (a "Straddle Period") shall be apportioned between the portion of
---------------
such Straddle Period ending on or prior to the Closing Date (the "Pre-Closing
-----------
Partial Period") and the portion of such Straddle Period beginning on the day
--------------
after the Closing Date (the "Post-Closing Partial Period"), (i) in the case of
---------------------------
real or personal property Taxes (and any other Taxes not measured or measurable,
in whole or in part, by net or gross income or receipts), on a per diem basis
and, (ii) in the case of other Taxes, on the "closing of the books" method. The
Surviving Corporation shall file or cause to be filed all Tax Returns for Target
for any Straddle Period, and the Surviving Corporation shall pay all Taxes shown
as due on any such Tax Returns. The Target Shareholder Representative may direct
by written instruction to Parent not later than 15 days before such proposed
filing date of any such Tax Return the adoption of any legally permissible
position on such Tax Returns to the
42
extent that the reporting position proposed by the Surviving Corporation would
result in indemnity liability of the Target Shareholders under this Agreement,
other than a position that is not supported by substantial authority within the
meaning of Section 6662 of the Code; provided that such position does not
materially and disproportionately increase the prospective Tax liabilities of
the Surviving Corporation or Parent. Pursuant to, and to the extent of, the
indemnity obligations under Section 10.4, the Target Shareholders shall
reimburse Parent for all such Taxes apportioned to the Pre-Closing Partial
Period that are due pursuant to the filing of any such Tax Returns under the
provisions of this Section 7.5(c) within fifteen (15) days of receipt of notice
--------------
of such filing by Target, which notice shall set forth in reasonable detail the
calculations regarding the Target Shareholders' share of such Taxes.
(d) Refunds. The Surviving Corporation agrees to assign and promptly
-------
remit all Tax refunds (including interest thereon) net of any Tax effect to
Target, received by Target of any Taxes for which the Target Shareholders have
indemnified Target hereunder; provided, however, that Parent and Target shall be
entitled to the portion of any Tax refund resulting from a carryback of a net
operating loss, net capital loss, Tax credit or similar item sustained or
arising in any period ending after the Closing Date or in any Post-Closing
Partial Period.
(e) Cooperation on Tax Matters.
--------------------------
(i) Parent, Target, the Target Shareholders and the Target
Shareholder Representative shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of Tax
Returns pursuant to this Agreement and any audit, litigation or other proceeding
with respect to Taxes. Such cooperation shall include the retention and (upon
the other party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. Target, the
Target Shareholders and the Target Shareholder Representative agree (A) to
retain all books and records with respect to Tax matters pertinent to Target
relating to any Taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by Parent
or the Target Shareholder Representative, any extensions thereof) of the
respective Taxable periods, and to abide by all record retention agreements
entered into with any Taxing Authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, Target or the Target
Shareholders or the Target Shareholder Representative, as the case may be, shall
allow the other party to take possession of such books and records.
(ii) Parent and the Target Shareholder Representative further
agree, upon request, to use their reasonable best efforts (at the cost of the
requesting party) to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
(f) Certain Taxes. All transfer, documentary, sales, use, stamp,
-------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with
43
this Agreement shall be paid, one-half by the Target Shareholders and one-half
by the Surviving Corporation, when due, and the Target Shareholders and the
Surviving Corporation will, at their own expense, file all necessary Tax Returns
and other documentation with respect to all such transfer, documentary, sales,
use, stamp, registration and other Taxes and fees, and, if required by
applicable law, Parent will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation.
(g) Amended Tax Returns. The Surviving Corporation may not amend a
-------------------
Tax Return with respect to Target for a taxable period beginning prior to the
Closing Date without the consent of the Shareholder Representative, which
consent shall not be unreasonably withheld.
(h) Characterization of Payments. Any payments made to the Target
----------------------------
Shareholders, Target or Parent pursuant to Article X shall constitute an
---------
adjustment of the consideration paid for Target Stock for Tax purposes and shall
be treated as such by Parent, Target and the Target Shareholders on their Tax
Returns to the extent permitted by law.
(i) Tax Treatment of Merger. The parties intend the Merger to qualify
-----------------------
as a reorganization under Section 368(a) of the Code, and hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Treasury
Regulations Sections 1.368-2(g) and 1.368-3(a). No party hereto has Knowledge of
any reason (a) that the transaction may not qualify as a reorganization within
the meaning of Section 368(a) of the Code. In support of such Tax treatment, the
parties hereto further represent and covenant as follows:
(i) Each of the parties hereto shall use their respective best
efforts to cause the Merger to qualify, and shall not take any action and shall
not fail to take any action which action or failure to act could reasonably be
expected to prevent the Merger from qualifying as a reorganization under Section
368(a) of the Code. Pursuant to the foregoing, each party agrees to make such
commercially reasonable additions or modifications to the terms of this
Agreement as may be necessary to permit satisfaction of the condition to closing
specified in Section 9.1(c) of this Agreement.
(ii) The parties acknowledge that an opinion, in form and
substance satisfactory to both Target and Parent, must be delivered prior to
Closing to both Target and Surviving Corporation, substantially to the effect
that on the basis of facts, representations, and assumptions set forth in such
opinion which are reasonably satisfactory to Target and Parent and which are
consistent with the state of facts existing as of the Effective Time, for
Federal income tax purposes, the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code (the "Tax Opinion"). In order to
-----------
obtain the Tax Opinion, the parties shall meet not less than ten (10) days prior
to the Closing, to select either ▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, as mutually
agreed to by Target and Parent, to deliver the Tax Opinion. In the event either
▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ will not deliver the Tax Opinion, the parties
shall request that the other firm deliver the Tax Opinion. If neither ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇▇ is able or willing to deliver the Tax Opinion, either
party may terminate the Merger and this Agreement at its sole discretion. Each
of Target and Parent agrees to bear one-half of the fees of counsel incurred in
connection with the Tax Opinion.
44
(iii) In connection with the Tax Opinion, Target, on the one
hand, and Parent and Merger Sub, on the other hand, shall deliver as requested
to ▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ standard and customary representation
letters. No party to this Agreement knows of any reason why it will be unable to
deliver Representation Letters, effective as of the Closing Date, in form
sufficient to enable counsel to render the Tax Opinion. Each party hereto will
immediately notify each of the other parties of any circumstance or condition of
which it is or becomes aware that might cause such party to be unable to provide
in good faith the representations that would be customarily required in support
of the Tax Opinion.
(iv) The parties hereto agree that they will report in their
respective federal income Tax Returns for the taxable period including the
Closing Date that the Merger qualified as a reorganization under Section 368(a)
of the Code, and will properly file with their federal income Tax Returns all
information required by Treas. Regs. (S)1.368-3. No party hereto, unless
required by law, will take any Tax reporting position inconsistent with the
characterization of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
ARTICLE VIII.
ADDITIONAL AGREEMENTS
---------------------
8.1 Target Shareholder Approval. Once permitted by applicable law, Target
---------------------------
shall call a meeting of the Target Shareholders or seek an action of the Target
Shareholders in order to obtain the requisite approval by the Target
Shareholders of the Merger and this Agreement as promptly as practicable
following the date hereof. To the extent consistent with the Target Board's
fiduciary duties, Target shall, through Target Board, recommend to the Target
Shareholders adoption of this Agreement and approval of the Merger and related
matters. Target shall use all reasonable efforts to solicit the Target
Shareholders' proxies in favor of this Agreement, the Merger and related matters
and to have the Target Shareholders execute the Limited Acknowledgement
Signature Pages to this Agreement. Without limiting the generality of the
foregoing, Target agrees that its obligations pursuant to this Section 8.1 shall
-----------
not be affected by the commencement, public proposal or communication to Target
of any Acquisition Proposal.
8.2 Access to Information. Upon reasonable notice, Target and Parent shall
---------------------
afford to the officers, employees, accountants, counsel, financial advisors and
other representatives of the other party reasonable access during normal
business hours, during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and its officers,
employees and representatives and, during such period, each of Target and Parent
shall furnish promptly to the other party (a) a copy of each report, schedule,
registration statement and other document filed, published, announced or
received by it during such period pursuant to the requirements of federal or
state securities laws, as applicable (other than reports or documents which such
party is not permitted to disclose under applicable law) and (b) consistent with
its legal obligations, all other information concerning its business, properties
and personnel as the other party may reasonably request. Such information
(including the existence and contents of negotiations and communications
regarding this Agreement, the Merger and the transactions contemplated hereby
and thereby) shall be held in confidence to the extent required by, and in
45
accordance with, the provisions of the Confidentiality Agreement, which
Confidentiality Agreement shall remain in full force and effect; provided,
however, that each of Target and Parent acknowledge that appropriate information
will be made available to the Target Shareholders consistent with the
information requirements of Rule 506 of Regulation D.
8.3 Approvals and Consents; Cooperation.
-----------------------------------
(a) The Parties shall cooperate with each other and use their
reasonable best efforts to take or cause to be taken all actions, and do or
cause to be done all things, necessary, proper or advisable on their part under
this Agreement and applicable laws to consummate and make effective the Merger
and the other transactions contemplated by this Agreement as soon as
practicable, including (i) promptly preparing and filing all necessary
documentation, to effect all applications, notices, petitions, filings, tax
ruling requests and other documents to obtain as promptly as practicable all
consents, waivers, licenses, orders, registrations, approvals, permits, tax
rulings and authorizations of all third parties and Governmental Entities which
are necessary to consummate the transactions contemplated by this Agreement and
(ii) subject to fiduciary duties, the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated by this Agreement, including
seeking to have any stay or temporary restraining order entered by any court or
Government Entity vacated or reversed ("Governmental Approvals"), and to comply
----------------------
with the terms and conditions of all such Governmental Approvals. Each of the
Parties shall use their reasonable best efforts to, and shall use their
reasonable best efforts to cause their respective representatives and other
Affiliates to, file within 20 days after the date hereof, and in all events
shall file within 60 days after the date hereof, all required initial
applications and documents in connection with obtaining the Governmental
Approvals and shall act reasonably and promptly thereafter in responding to
additional requests in connection therewith. Parent and Target shall have the
right to review in advance, and to the extent practicable, each will consult the
other on, in each case subject to applicable laws relating to the exchange of
information, all the information relating to Parent and Target, as the case may
be, and any of their respective Subsidiaries, directors, officers and
stockholders which appear in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. Without limiting the foregoing,
each of Parent and Target (the "Notifying Party") will notify the other promptly
---------------
of the receipt of comments or requests from Governmental Entities relating to
Governmental Approvals, and will supply the other Party with copies of all
correspondence between the Notifying Party or any of its representatives and
Governmental Entities with respect to Governmental Approvals.
(b) Parent and Target shall promptly advise each other upon receiving
any communication from any Governmental Entity whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such Party to believe that there is a reasonable likelihood that
any approval needed from a Governmental Entity will not be obtained or that the
receipt of any such approval will be materially delayed. Parent and Target shall
take any and all actions reasonably necessary to vigorously defend, lift,
mitigate and rescind the effect of any litigation or administrative proceeding
adversely affecting this Agreement or the transactions contemplated hereby or
thereby, including, without limitation,
46
promptly appealing any adverse court or administrative order or injunction to
the extent reasonably necessary for the foregoing purposes.
(c) Notwithstanding the foregoing or any other provision of this
Agreement, Parent shall have no obligation or affirmative duty under this
Section 8.3 to cease or refrain from the ownership of any Assets, or the
-----------
association with any Person which association is material to the operations of
Parent, whether on the date hereof or at any time in the future.
8.4 Public Announcements. Each of Parent and Target shall consult with the
--------------------
other party and obtain the prior written consent of said party, which consent
will not be unreasonably withheld, before issuing any press release or otherwise
making any public statement with respect to this Agreement or the transactions
contemplated hereby; provided, however, that Parent may issue press releases or
make public statements to the extent required by any Nasdaq, Securities Act or
Exchange Act regulation.
8.5 Further Assurances.
------------------
(a) Subject to the terms and conditions herein, each of the parties
agrees to use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, (i) using their respective reasonable best efforts to obtain all
permits and qualifications of Governmental Entities and parties to contracts
with each party hereto as are necessary for consummation of the transactions
contemplated by this Agreement, and (ii) to fulfill all conditions precedent
applicable to such party pursuant to this Agreement.
(b) In case at any time after the Effective Date any further action
is necessary to carry out the purposes of this Agreement or to vest the
Surviving Corporation with full title to all assets, rights, approvals,
immunities, franchises of any of the parties, the proper officers and/or
directors of Parent, Target and the Surviving Corporation shall take all such
necessary action.
8.6 Cooperation; Notice; Cure. Subject to compliance with applicable law,
-------------------------
from the date hereof until the Effective Time, each of Parent and Target shall
confer on a regular and frequent basis with one or more representatives of the
other party to report on the general status of ongoing operations. Each of
Parent and Target shall promptly notify the other in writing of, and will use
all commercially reasonable efforts to cure before the Closing Date, any event,
transaction or circumstance, as soon as practical after it becomes known to such
party, that causes or will cause any covenant or agreement of Parent or Target,
as the case may be, under this Agreement to be breached in any material respect
or that renders or will render untrue in any material respect any representation
or warranty of Parent or Target contained in this Agreement. No notice given
pursuant to this paragraph shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein.
47
8.7 Obtaining Consents. Each of Parent and Target shall give (or shall
------------------
cause their respective Subsidiaries to give) any notices to third parties, and
use, and cause their respective Subsidiaries to use, their reasonable best
efforts to obtain any third party consents related to or required in connection
with the Merger that are (a) necessary to consummate the transactions
contemplated hereby, (b) disclosed or required to be disclosed in the Target
Disclosure Schedule or the Parent Disclosure Schedule, as the case may be, or
(c) required to prevent a Material Adverse Effect for Parent or Target from
occurring prior to or after the Effective Time.
8.8 Employment and Consulting Agreements. Target shall use its reasonable
------------------------------------
efforts to cause (a) each of ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇
Straight to have entered into an employment agreement with the Surviving
Corporation substantially in the form set forth in Exhibit D (the "Employment
--------- ----------
Agreement"), (b) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ to have entered into a consulting agreement
---------
with the Surviving Corporation substantially in the form set forth in Exhibit E
---------
and (c) ▇▇▇▇▇▇ Rock to have entered into a consulting agreement with the
Surviving Corporation substantially in the form set forth in Exhibit F (the
---------
consulting agreements set forth in (a) and (b) collectively, the "Consulting
----------
Agreements"). Any existing employment or consulting agreement with ▇▇▇▇ ▇▇▇▇▇,
----------
Mohit ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Rock or ▇▇▇▇ ▇▇▇▇▇ and that certain Agreement, dated
June 21, 2000 between ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ regarding the equalization
of their pay and benefits shall be terminated contemporaneous with entering into
such new agreements.
8.9 Fees and Expenses. Except as set forth in Article X, whether or not
----------------- ---------
the Merger is consummated, all Expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such Expenses; provided, however, that the Excess Expenses incurred by
Target shall be deducted from the Purchase Price.
8.10 Employee Plans and Benefit Plans Generally. Parent shall provide, or
------------------------------------------
cause to be provided, compensation, vacation and leave, employee benefit plans,
programs and arrangements to employees of Target that are the same as those made
generally available to similarly situated employees of Parent. Each Target
employee who continues to be employed by Parent or any of its Subsidiaries
immediately following the Effective Time shall, to the extent permitted by law
and applicable tax qualification requirements, and subject to any generally
applicable break in service or similar rule, receive credit for all services
with Target for all purposes, including without limitation, for eligibility to
participate and vesting under any plans of the Parent for years of service with
Target or its Subsidiaries (or, if applicable, predecessor entities) prior to
the Effective Time. To the extent permitted by law and Parent's group health
plan, Parent shall cause any and all pre-existing condition (or actively-at-work
or similar) limitations, eligibility waiting periods and evidence of
insurability requirements under any such group health plan to be waived with
respect to Target participants in such plan and their eligible dependents and
shall provide them with credit for any co-payments, deductibles, offsets (or
similar payments) prior to the Effective Time for purposes of satisfying any
applicable deductible, out-of-pocket, or similar requirements under any Parent
plans in which they are eligible to participate after the Effective Time.
48
8.11 Voting Agreements. ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall each enter
-----------------
into a Voting Agreement, requiring these individuals to vote all such Target
Stock held by them in favor of the Merger, this Agreement and the transactions
contemplated hereby.
8.12 Shareholder Approval.
--------------------
(a) Target shall use its reasonable best efforts to obtain, as
promptly as practicable, the requisite shareholder approval in accordance with
the applicable requirements of the VSCA.
(b) Target, acting through its Board of Directors, shall include in
the Information Statement that is to be prepared jointly by Target and Parent
the unanimous recommendation of its Board of Directors that the shareholders of
Target vote in favor of the adoption of this Agreement and the approval of the
Merger.
(c) Each of Target and Parent shall ensure that the Information
Statement does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading (provided that
neither Target nor Parent shall be responsible for the accuracy or completeness
of any information furnished by the other party expressly for inclusion in the
Information Statement). At the request of Parent and as soon as is reasonably
practical, Target shall provide Parent with all information reasonably deemed
necessary in order for Target and Parent to satisfy their disclosure
obligations, if any, under the Securities Act in connection with the
solicitation of the approval of the Merger and the transactions contemplated
herein, and Target and Parent shall cooperate in the preparation of such
Information Statement.
(d) The adoption of this Agreement and the approval of the Merger by
Target Shareholders shall constitute approval of this Agreement (including the
provisions of Article X hereof), the Escrow Agreement and of all of the
---------
arrangements relating thereto, including without limitation the placement of the
Withheld Cash into Escrow and the appointment of Target Shareholder
Representative.
(e) The Parent and the Merger Sub shall ensure that any information
furnished by such party to Target expressly for inclusion in the Information
Statement does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading.
8.13 Release. Effective as of the Effective Time, each of the Target
-------
Shareholders does hereby release and discharge Parent, Merger Sub, Target and
each of their successors (by merger or otherwise), transferees and assigns and
their respective Affiliates (such successors, transferees and assigns, and their
respective Affiliates, collectively with Parent, Merger Sub and Target, the
"Released Parties"), from any and all rights (including any right to indemnity),
----------------
actions, causes of action, suits, debts, claims, sums of money, accounts,
reckonings, bonds, bills, covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgments, executions, claims and
demands whatsoever, in law or equity, whether asserted or unasserted, whether
absolute or continent, whether accrued or unaccrued, whether liquidated or
unliquidated,
49
and whether due or to become due, including, but not limited to, any instruments
or other writings evidencing a right to the payment of money, which the Target
Shareholders ever had, now have or hereafter can, shall or may have, against any
of the Released Parties, for, upon, or by reason of any matter, cause or thing,
whatever from the beginning of time to the date of this release, provided that
this release shall not release the Released Parties from (i) any of their
respective representations, warranties, covenants and obligations to any of the
Target Shareholders under this Agreement, the Registration Rights Agreement, the
Escrow Agreement and the Contingent Consideration Agreement, (ii) any action
arising out of fraud, (iii) the right to indemnification to which any Target
Shareholder may be entitled, related to actions taken or not taken by such
Target Shareholder in his or her capacity as a director or officer of Target,
under Target's Articles of Incorporation and by-laws and under applicable
Virginia law, and (iv) any of their respective obligations to any of the Target
Shareholders arising in the Ordinary Course of Business, consistent with past
practice and on arm's length terms.
8.14 Insurance. For a period of three years after the Effective Time,
---------
Parent shall maintain (to the extent available in the market) in effect a
directors' and officers' liability insurance policy, a products liability
insurance policy and a general insurance policy, each covering those persons,
products and other items that are currently covered by the existing policies of
the Target (true and complete copies of which have been hereto fore delivered by
Target to Parent) with coverage in the amount and scope at least as favorable as
Target's existing coverage; provided that in no event shall Parent be required
to expend in the aggregate in excess of 150% of the annual premium currently
paid by Target for any one of such coverages, and if such premium would at any
time exceed 150% of such amount, then Parent shall maintain insurance policies
which provide the maximum and best coverage available at an annual premium equal
to 150% of such amount.
8.15 Nasdaq Listing. Parent agrees to use reasonable efforts to authorize
--------------
for listing on Nasdaq the shares of Parent Stock issuable in the Merger prior to
the Effective Time.
ARTICLE IX.
CONDITIONS PRECEDENT TO MERGER
------------------------------
9.1 Conditions to Obligation of each Party to Effect the Merger. The
-----------------------------------------------------------
respective obligations of Parent, Target, any Target Shareholders party hereto
and Merger Sub to effect the Merger shall be subject to the satisfaction or
waiver at or prior to the Closing Date of the following conditions:
(a) this Agreement and the Merger shall have been approved by the
shareholders of Target in the manner required under the VSCA and the articles of
incorporation and bylaws of Target;
(b) no statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent) shall
have been enacted, entered, promulgated or enforced by any Governmental Entity
of competent jurisdiction and no other legal restraint or prohibition shall be
in effect which prohibits, restrains, enjoins or restricts the
50
consummation of the Merger; provided, however, that the parties shall use their
reasonable best efforts to cause any such decree, ruling, injunction or other
order to be vacated or lifted;
(c) all filings required to be made prior to the Closing by any party
or any of its respective Subsidiaries with, and all consents, approvals and
authorizations required to be obtained prior to the Closing by any party or any
of its respective Subsidiaries from, any Governmental Entity in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby shall have been made or obtained, except where
the failure to obtain such consents is not reasonably likely to have a Material
Adverse Effect on Parent or a Material Adverse Effect on any Target Shareholder
and could not reasonably be expected to subject the parties, any Target
Shareholder or their Affiliates or any directors, trustees or officers of any of
the foregoing to the risk of criminal liability; and
(d) all consents or approvals of all Persons (other than Governmental
Entities) required for or in connection with or as a result of the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby shall have been obtained and shall be in full
force and effect, except for those the failure of which to obtain would not have
a Material Adverse Effect on Parent, Target or any Target Shareholder; provided
that the failure to obtain any of the consents or approvals listed on Section
4.3 of the Target Disclosure Schedule shall not be deemed to be a failure of
this condition to the obligations of Target or the Target Shareholders to effect
the Merger.
9.2 Conditions to Obligations of Target to Effect the Merger. The
--------------------------------------------------------
obligations of Target and any Target Shareholder party hereto to effect the
Merger shall be subject to the satisfaction of, or waiver by Target, at or prior
to the Closing Date, the following additional conditions:
(a) each of the representations and warranties of Parent and Merger
Sub contained in this Agreement that is qualified by materiality shall be true
and correct at and as of the Effective Time as if made at and as of the
Effective Time and each of such representations and warranties of Parent and
Merger Sub that is not so qualified shall be true and correct in all material
respects at and as of the Effective Time as if made as of the Effective Time;
(b) Parent and Merger Sub shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by them at or prior to the Effective Time;
(c) Target shall have received a certificate executed on behalf of
Parent and Merger Sub by the Chief Executive Officer or Chief Financial Officer
of Parent to the effect set forth in clauses (a) and (b) of this Section 9.2;
-----------
(d) Target shall have received the Tax Opinion as described in
Section 7.5(i)(ii);
51
(e) Parent, Target and the Target Shareholders shall have entered
into an agreement regarding contingent merger consideration, in substantially
the form set forth in Exhibit G hereto (the "Contingent Consideration
------------------------
Agreement");
---------
(f) Parent Board shall have adopted a resolution increasing the
number of directors comprising Parent Board by one and appointing one of ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ to fill such vacancy
(such director, the "Appointed Director") and confirming that such individual
------------------
shall be compensated for serving in such position in the same manner as all
outside directors and that if, during the initial term to be served by such
Appointed Director, any of such individuals is subsequently unable to serve as a
director for any reason that one of the other individuals shall be appointed in
his stead. The Appointed Director shall be a Class III director whose term
expires in 2004;
(g) Target shall be satisfied, in its reasonable discretion, that the
transactions contemplated by this Agreement comply with federal and state
securities laws;
(h) Parent shall have executed and delivered the Employment
Agreements and Consulting Agreements contemplated by Section 8.8 hereof;
-----------
(i) Target shall have received the requisite statutory approval of
the Merger from the Target Shareholders;
(j) No event shall have occurred that has or would result in the
triggering of the Interpore Rights Plan, or will occur as a result of the
Merger;
(k) The shares of Parent Stock to be issued in the Merger shall have
been authorized for inclusion in the NASDAQ Stock Market, subject to official
notice of issuance;
(l) Parent shall have executed and delivered the Registration Rights
Agreement substantially in the form of Exhibit J and the Escrow Agreement
substantially in the form of Exhibit B; and
(m) The Purchase Price shall have been delivered as contemplated by
Section 3.1(e).
9.3 Conditions to Obligations of Parent and Merger Sub to Effect the
----------------------------------------------------------------
Merger. The obligations of Parent and Merger Sub to effect the Merger shall be
------
subject to the satisfaction of, or waiver by Parent, at or prior to the Closing
Date, of the following additional conditions:
(a) each of the representations and warranties of Target contained in
this Agreement that is qualified by materiality shall be true and correct at and
as of the Effective Time as if made at and as of the Effective Time and each of
such representations and warranties of Target that is not so qualified shall be
true and correct in all material respects at and as of the Effective Time as if
made as of the Effective Time ;
52
(b) Target shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by it at or prior to the Effective Time;
(c) Parent shall have received a certificate executed on behalf of
Target by the Chief Executive Officer or Chief Financial Officer of Target to
the effect set forth in clauses (a) and (b) of this Section 9.3;
-----------
(d) the number of dissenting shares shall not exceed 5% of the number
of shares of Target Stock then issued and outstanding;
(e) immediately prior to the Closing, Target shall reduce the then-
outstanding principal balance of all Notes, together with all accrued and unpaid
interest thereon by repaying the Notes with any cash remaining on its balance
sheets, and after such cash payment, the amount of any remaining unpaid
principal under the Notes, together with any accrued and unpaid interest
thereon, shall be deducted from the Purchase Price;
(f) Parent shall have received a statement in a form reasonably
satisfactory to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3);
(g) the Target Shareholders holding, beneficially or of record, at
least a majority of the outstanding shares of each class of stock required to
approve the Merger shall have approved the Merger, this Agreement and the
transactions contemplated hereby;
(h) Target Shareholders owning at least 90% of the Target Shares,
including ▇▇▇▇▇ ▇▇▇▇▇▇, C. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇, shall have each
executed the Limited Acknowledgement Signature Page;
(i) The Surviving Corporation shall have received the Tax Opinion;
(j) each of ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ Watkco and ▇▇▇▇▇ Straight
shall have entered into an Employment Agreement, a form of which is attached
hereto as Exhibit D;
---------
(k) each of ▇▇▇▇▇▇ Rock and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall have entered into
Consulting Agreements;
(l) the Certificates representing all outstanding shares of Target
Stock shall have been delivered to Parent;
(m) all Target Options shall have been exercised, or, to the extent
not exercised, cancelled, such that there shall not exist any outstanding Target
Options at the time of Closing.
(n) each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ shall have executed this
Agreement as Executing Shareholders;
53
(o) Parent shall be satisfied, in its reasonable discretion, that the
transactions contemplated by this Agreement comply with federal and state
securities laws;
(p) Parent shall have received an opinion of counsel from Target's
counsel which addresses the items set forth in Exhibit H;
---------
(q) Ernst & Young shall have delivered to Target the Audited
Financials in a form reasonably satisfactory to Parent;
(r) The consents and approvals listed on Section 4.3 of the Target
Disclosure Schedule shall have been obtained;
(s) all employees of Target employed by Target for any period of time
during the period beginning on the date of this Agreement and ending on the
Closing Date shall have entered into an Assignment of Inventions, in the form
attached hereto as Exhibit I; and
---------
(t) Target shall have executed and delivered the Registration Rights
Agreement in substantially the form attached as Exhibit J and the Escrow
Agreement in substantially the form attached as Exhibit B.
ARTICLE X.
INDEMNIFICATION
---------------
10.1 General Indemnification.
-----------------------
(a) By the Target Shareholders.
--------------------------
(i) Subject to the limitations set forth in Sections 10.2 and
-------------
10.3, each Target Shareholder shall, severally, indemnify, save and hold the
----
Parent and its directors, officers, employees, successors, transferees and
assignees, and its respective representatives (each, an "Indemnified Party"),
-----------------
harmless from and against any and all costs, out-of-pocket losses, charges,
liabilities, obligations, actual damages, lawsuits, actions, judgments,
deficiencies, demands, fees, claims, settlements and expenses, including,
without limitation, interest, penalties, attorneys' fees and expenses, all
amounts paid in the investigation, defense or settlement of any of the foregoing
and costs of enforcing this indemnity (collectively, "Damages"), up to such
Target Shareholder's Pro Rata Indemnification Percentage of the Maximum
Indemnification Amount, incurred or suffered in connection with, arising out of,
resulting from or relating or incident to:
(A) any untruth, inaccuracy or incorrectness of, or other
breach of, any representation or warranty in Article IV;
----------
(B) the nonfulfillment, nonperformance, nonobservance or
other breach or violation of, or default under, any covenant or agreement made
by Target in or pursuant to this Agreement; and
54
(ii) Subject to the limitations set forth in Sections 10.2 and
-------------
10.3, each Target Shareholder shall, severally, indemnify, save and hold the
----
Indemnified Parties harmless from and against any Damages, up to such Target
Shareholder's Pro Rata Indemnification Percentage of the Maximum Indemnification
Amount, incurred or suffered in connection with, arising out of, resulting from
or relating or incident to:
(A) any untruth, inaccuracy or incorrectness of, or other
breach of, any representation or warranty of such Target Shareholder in
Article V; and
---------
(B) the nonfulfillment, nonperformance, nonobservance or
other breach or violation of, or default under, any covenant or agreement made
by such Target Shareholder in or pursuant to this Agreement.
(iii) The claims for indemnity by Indemnified Parties pursuant
to this Section 10.1(a) are referred to as "Parent Indemnity Claims." The
--------------- -----------------------
indemnity provided for in this Section 10.1(a) is not limited to Third-Party
---------------
Claims (as hereinafter defined) against any Indemnified Party, but includes
Parent Indemnity Claims incurred or sustained by any Indemnified Party in the
absence of Third-Party Claims.
(iv) Except, as otherwise expressly provided herein, in no
event will a Target Shareholder's aggregate liability for indemnity claims under
Sections 10.1(a)(i)(A) and 10.1(a)(ii)(A) exceed such Target's Shareholder Pro
---------------------- --------------
Rata Indemnification Percentage of the Maximum Indemnification Amount.
Solely for purposes of determining whether the Indemnity Threshold has been
reached pursuant to Section 10.2(b), whether there has occurred a breach of any
---------------
representation or warranty contained in Section 10.1(a)(i)(A) or Section
--------------------- -------
10.1(a)(ii)(A) that is qualified as to materiality shall be determined as if
--------------
such representation or warranty were made without any such qualification.
(b) Defense of Claims. If a Parent Indemnity Claim is made, Parent
-----------------
shall give written notice (a "Claim Notice") to the Target Shareholder
------------
Representative as soon as practicable and in any event within 10 business days
after the Indemnified Party becomes aware of any fact, condition or event which
may give rise to Damages for which indemnification may be sought under this
Section 10.1. The failure of the Indemnified Party to give timely notice
------------
hereunder shall not affect rights to indemnification hereunder, except and only
to the extent that, Target demonstrates actual damage caused by such failure.
(i) In the case of a Parent Indemnity Claim involving the
assertion of a claim by a third party (whether pursuant to a lawsuit or other
legal action or otherwise, a "Third Party Claim"), the Target Shareholder
-----------------
Representative shall be entitled to take control of the defense and
investigation of such Third Party Claim and to pursue the defense thereof in
good faith with counsel of its choice reasonably satisfactory to the Indemnified
Party so long as (A) the Target Shareholder Representative notifies the
Indemnified Party in writing, within 15 days after the Target Shareholder
Representative has received the Claim Notice, that at least a majority in
interest of the Target Shareholders will indemnify the Indemnified Party from
and against the entirety of any Damages the Indemnified Party may suffer
resulting from, arising out of, relating
55
to, in the nature of, or caused by the Third Party Claim, (B) the Target
Shareholder Representative provides the Indemnified Party with evidence
acceptable to the Indemnified Party that the Target Shareholders (in any case,
including ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇) will have the financial resources to
defend against the Third Party Claim and fulfill their indemnification
obligations hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not reasonably likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the Target
Shareholder Representative conducts the defense of the Third Party Claim
actively and diligently.
(ii) In the event the Target Shareholder Representative elects to
assume control of the defense and investigation of such lawsuit or other legal
action in accordance with Section 10.1(b)(i), (A) the Indemnified Party may, at
------------------
its own cost and expense, participate in the investigation, trial and defense of
such Third Party Claim and (B) neither the Target Shareholders nor the Target
Shareholder Representative will consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (such consent not to be withheld
unreasonably) and (C) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Target Shareholder Representative.
(iii) If Target fails to assume the defense of such Third-Party
Claim in accordance with Section 10.1(b)(i) within 10 calendar days after
------------------
receipt of the Claim Notice or if Target is unable to perform such defense
because of its failure to meet the conditions set forth in Section 10.1(b)(i),
------------------
the Indemnified Party against which such Third-Party Claim has been asserted
shall (upon delivering notice to such effect to Target) have the right to
undertake the defense, compromise and settlement of such Third Party Claim on
behalf of and for the account of the Target Shareholders; provided that such
Third Party Claim shall not be compromised or settled without the written
consent of the Target Shareholder Representative, which consent shall not be
unreasonably withheld or delayed. The expenses of all proceedings, contests or
lawsuits in respect of such Parent Indemnity Claims (other than as specifically
stated to the contrary herein) shall be part of the determination of Damages as
provided in Section 10.1(a)(i). Regardless of which party shall assume the
defense of the claim, the parties agree to cooperate fully with one another in
connection therewith. Such cooperation shall include the providing of records
and information which are relevant to such Third Party Claim and making
employees and officers available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder and to
act as a witness or respond to legal process. In the case of a claim for
indemnification hereunder in respect of a Third Party Claim, (a) if (and to the
extent) the Target Shareholders are responsible pursuant hereto to indemnify the
Indemnified Party in respect of the Third Party Claim, then within ten (10) days
after the occurrence of a final non-appealable determination with respect to
such Third Party Claim, the Indemnified Party shall be compensated, in
immediately available funds, the amount of any Damages (or such portion thereof
as the Target Shareholders shall be responsible for pursuant to the provision
hereof), as provided for and subject to the terms of Sections 10.2 and 10.3 and
------------- ----
(b) in the event that any Damages incurred by the Indemnified Party do not
involve payment by the Target Shareholders of a Third Party Claim, then if (and
to the extent) the Target Shareholders are responsible
56
pursuant hereto to indemnify the Indemnified Party against such Damages, within
10 days after agreement on the amount of Damages or the occurrence of a final
non-appealable determination of such amount, the Indemnified Party shall be
entitled to receive, in immediately available funds, the amount of such Damages
(for such portion thereof), subject to the terms of Sections 10.2 and 10.3.
------------- ----
(c) Parent Indemnity Claims shall be satisfied (i) first, by Parent's
holdback of any amounts actually owed by Parent to Target Shareholders pursuant
to, and in accordance with, the terms of the Contingent Consideration Agreement,
(ii) second, by the return to Parent of Withheld Cash, to the extent of such
Withheld Cash, (iii) third, subject to Sections 10.1(d) and 10.1(e) below, by
---------------- -------
payment of cash or other immediately available funds from the Special
Indemnifying Target Shareholders, up to an aggregate amount of $2,000,000 and
(iv) thereafter, by Parent's holdback of future amounts, if any, that would
otherwise be owed by Parent to the Target Shareholders pursuant to and in
accordance with the terms of the Contingent Consideration Agreement, in each
case within ten (10) days of the delivery of notice by an Indemnified Party of
the nature and amount of the Parent Indemnity Claims. Nothing in clause (i) of
this Section 10.1(c) shall prevent Parent from immediately seeking satisfaction
---------------
of a Parent
Indemnity claim under clauses (ii) and (iii) if, at the time such claim is
presented for payment no amounts are due and owed to the Target Shareholders
under the Contingent Consideration Agreement.
(d) For purposes hereof, ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ are referred
to as the "Special Indemnifying Target Shareholders." As Special Indemnifying
----------------------------------------
Target Shareholders, each of them shall be responsible for up to $1.0 million of
any amounts that become payable pursuant to Section 10.1(c)(iii) hereof and
--------------------
shall share any indemnity obligation equally. In the event that parent Indemnity
claims are to be paid by the Special Indemnifying Target Shareholders pursuant
to Section 10.1(c)(iii) and thereafter amounts become payable pursuant to the
--------------------
Contingent Consideration Agreement that are not subject to Parent Indemnity
Claims, then all such amounts shall first be remitted to the Special
Indemnifying Shareholders until they have received their aggregate pro rata
portion of the Merger consideration (inclusive of any Contingent Consideration).
(e) Any Parent Indemnity Claim that is paid by the Special
Indemnifying Target Shareholders pursuant to Section 10.1(c)(iii) may be
satisfied by the delivery by the Special Indemnifying Target Shareholders of
shares of Parent Stock valued at the higher of (i) the Parent Stock Value as of
the Closing Date or (ii) the average of the last trading prices for the Parent
Stock as listed on the Nasdaq Stock Market for the ten (10) trading days ending
on the day prior to the date on which such Parent Indemnity Claim became due and
payable by the Special Indemnifying Target Shareholders; provided, however, that
any such delivery of shares of Parent Stock to satisfy Parent Indemnity Claims
shall only be permitted if accompanied by an opinion of counsel in form and
substance reasonably satisfactory to Parent that such delivery of shares of
Parent Common Stock will not affect the status of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
57
10.2 Limitations on Indemnity.
------------------------
(a) With the exception of ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, the
maximum aggregate amount of Damages for which each of the Target Shareholders
shall be liable for Parent Indemnity Claims for any untruth, inaccuracy or
incorrectness of, or other breach of, any of the representations or warranties
of the Target or the Target Shareholders pursuant to this Agreement shall be an
amount equal to such Target Shareholder's Pro Rata Indemnification Percentage of
the Withheld Cash and the Contingent Consideration, if any (the "Maximum
-------
Indemnification Amount"). With respect to ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, the
----------------------
maximum aggregate amount of Damages for which each of them shall be liable for
Parent Indemnity Claims for any untruth, inaccuracy or incorrectness of, or
other breach of, and of the representations or warranties of Target or such
Target Shareholder pursuant to this Agreement shall be an amount equal to such
Target Shareholder's Pro Rata Indemnification Percentage of the Withheld Cash,
the Contingent Consideration, if any, and his share of the amounts payable under
Section 10.1(c)(iii) (such aggregate amount, the "Special Indemnifying
--------------------
Shareholder Maximum Indemnification Amount").
------------------------------------------
(b) Except as otherwise provided in the immediately following
sentence, no Indemnified Party shall seek, or be entitled to, indemnification
from Target or the Target Shareholders pursuant to Section 10.1(a) until and to
---------------
the extent that the aggregate amount of
Damages incurred or suffered by all Indemnified Parties under such section
exceeds $100,000 (the "Indemnity Threshold"), and once the Indemnified Parties
-------------------
have incurred or suffered aggregate Damages exceeding the Indemnity Threshold,
the Indemnified Parties shall be entitled to indemnity for the amount of all
Parent Indemnity Claims in excess of the Indemnity Threshold. Notwithstanding
the foregoing, Damages incurred or suffered by the Indemnified Parties in
connection with inaccuracies in the representations and warranties set forth in
the first sentence of Section 4.1 and in Sections 4.2, 4.3(a), 4.3(b)(i), 4.11,
----------- ------------ ------ --------- ----
4.14, 5.1 and 5.2 and any breach of the covenants and agreements of Target and
---- --- ---
Target Shareholders contained in Sections 7.1, 7.5, 8.6, 8.9, and 8.13 shall be
------------ --- --- --- ----
recoverable regardless of whether the Indemnity Threshold has been exceeded and
shall not be taken into account when determining whether the Indemnity Threshold
has been satisfied.
(c) The indemnification provisions of this Article X shall constitute
---------
the sole and exclusive remedy of the Parent and Merger Sub for any inaccuracy,
untruth, incompleteness or other breach of any representation, warranty or
covenant contained in or made by Target or Target Shareholders pursuant to this
Agreement or in any certificates delivered at the Closing in connection with or
related to the consummation of the transactions contemplated by this Agreement.
(d) The gross amount which the Target Shareholders are liable to,
for, or on behalf of the Indemnified Party as Damages shall be reduced by any
insurance proceeds actually recovered by or on behalf of such Indemnified Party
relating to the Parent Indemnity Claim and Parent agrees to take commercially
reasonable actions, up to and including filing a claim for insurance, to collect
such proceeds; provided that if there is a dispute with any insurance carrier
regarding any such recovery, Parent shall have no obligation to litigate such
dispute, but shall
58
reasonably cooperate with the Target Shareholder Representative if the Target
Shareholder Representative elects to bring such suit;
(e) If the Target Shareholder Representative makes any payment on a
Parent Indemnity Claim, the Target Shareholders shall be subrogated, to the
extent of such payment to all rights and remedies of the Indemnified Party to
any insurance benefits or other claims or benefits of the Indemnified Party with
respect to such claim.
(f) Any amounts payable in satisfaction of the indemnification
obligations of the Target Shareholders under this Article X to or on behalf of
---------
any Indemnified Party pursuant to this Agreement shall be reduced by the amount
of any Tax benefits to the Indemnified Party as a result of the Damages
involved, including any increased deductions, credits or losses of the
Indemnified Party. In the case of Tax benefits consisting of depreciation or
amortization deductions, the Tax benefit amount will be based on the net present
value of such deductions using a discount rate equal to the mid-term applicable
federal rate in effect on the day on which the indemnification payments are due.
(g) Notwithstanding any provision made herein to the contrary, no
claim for indemnity hereunder may be made for special or punitive damages and
any claims for indemnity hereunder for consequential damages, when added
together with other damages indemnifiable hereunder, shall not exceed the
limitation set forth in Section 10.2(a).
10.3 Special Limitation. Parent Indemnity Claims arising out of or
------------------
asserted in connection with (i) fraud, (ii) willful misconduct, or (iii) any
breach of the representations made in the first sentence of Section 4.1 and in
-----------
Sections 4.2, 4.3(a), 4.3(b)(i), 4.11, 4.14, 5.1 and 5.2 and any breach of the
------------ ------ --------- ---- ---- --- ---
covenants and agreements of Target and Target Shareholders contained in
Sections 7.1, 7.5, 8.6, 8.9, 8.13 and Article X shall not be subject to the
------------ --- --- --- ---- ---------
limitation set forth in Section 10.2(a) and instead shall be limited to each
---------------
Target Shareholder's Pro Rata Indemnification Percentage of the Purchase Price
and the Contingent Consideration; provided that the reference to Article X in
this sentence shall not be deemed to increase the indemnification obligations of
any Target Shareholder for breaches of any other Section referenced in this
sentence.
10.4 Tax Indemnification. The Target Shareholders shall indemnify, save
-------------------
and hold harmless Parent (and each of its Affiliates, successors and assigns)
from and against (a) all Taxes imposed on Target or for which Target or the
Surviving Corporation is liable with respect to all periods ending on or prior
to the Closing Date; and (b) any costs or expenses with respect to the Taxes
indemnified hereunder. Notwithstanding the foregoing, no indemnification
obligation shall arise under this Section 10.4 to the extent that such Taxes are
------------
(i) reflected in the reserve for Tax liability (rather than any reserve for
deferred taxes established to reflect timing differences between book and Tax
income) shown in the Reference Balance Sheet or used in the computation of Net
Working Capital, (ii) incurred in the Ordinary Course of Business consistent
with past practice since March 31, 2001, or (iii) incurred as a result of the
transactions contemplated by this Agreement; provided, however, that this clause
(iii) shall not apply to any Taxes incurred as a result of any action or
inaction taken by the Target Shareholders that is not specifically contemplated
by this Agreement. For purposes of this Section 10.4, Taxes shall
------------
59
include the amount of Taxes which would have been paid but for the application
of any credit or net operating or capital loss deduction attributable to any
period (or portion thereof) ending after the Closing Date, but shall not include
amounts which would have been paid without regard to the application of any
credit or net operating or capital loss deductions attributable to any period
(or portion thereof) ending on or before the Closing Date. The indemnification
provisions of this Section 10.4 shall not be subject to the limits on
indemnification set forth in Section 10.2. The indemnification provisions of
------------
this Section 10.4 shall constitute the sole and exclusive remedy of an
------------
Indemnified Party for Damages which consist of a Tax Liability of Target or the
Surviving Corporation for the period through the Closing Date that arise from
any inaccuracy, untruth, incompleteness or other breach of any representation or
warranty or covenant contained in or made pursuant to this Agreement by Target
or the Target Shareholders or contained in any certificates delivered at the
Closing in connection with or related to the consummation of the transactions
contemplated by this Agreement, so that no duplicate recovery by such
Indemnified Party shall occur with respect to Taxes.
10.5 Schedule Updates. After the date of this Agreement, the Target shall
----------------
have the right to update the exceptions contained in the Target Disclosure
Schedule, through the date which is five (5) business days immediately prior to
the Closing Date, for matters arising after the date of this Agreement which, if
existing or occurring at or prior to the date thereof, would have been required
to be set forth or described in the Target Disclosure Schedule; provided,
however, the foregoing shall apply only if the event, occurrence or other item
giving rise to the update to the Target Disclosure Schedule (i) arises after the
date of this Agreement, (ii) is not within the control of the Target or any
Target Shareholder, and (iii) would not constitute a breach
of any of the covenants or agreements of the Target and the Target Shareholders
set forth in this Agreement, provided that such updating of the Target
Disclosure Schedule shall not affect the requirement set forth in Section 9.3(j)
--------------
hereof. No update to the Target Disclosure Schedule shall have any effect for
the purpose of determining the satisfaction or fulfillment of the conditions
precedent to the Closing contained in the Merger Agreement, it being understood
that any update accurately disclosed in the Target Disclosure Schedule which
meets all of the requirements set forth in this Section 10.5 shall not form the
basis for a claim for breach of any representation or warranty that survives the
Closing if the Merger is consummated.
ARTICLE XI.
TERMINATION AND AMENDMENT
-------------------------
11.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time:
(a) by mutual written consent of Parent and Target, by action of
their respective Boards of Directors;
(b) by either Target or Parent if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties shall have used their reasonable best
efforts to resist, resolve or lift, as applicable, subject to the provisions of
Section 8.4) permanently restraining, enjoining or otherwise prohibiting the
-----------
60
transactions contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and non-appealable;
(c) by Parent, upon a material breach of any covenant or agreement
on the part of Target or any Target Shareholder set forth in this Agreement or
if (i) any representation or warranty of Target or any Target Shareholder in
this Agreement that is qualified as to materiality shall have become untrue or
(ii) any representation or warranty of Target or any Target Shareholder that is
not so qualified shall have become untrue in any material respect, in each case
such that the conditions set forth in Section 9.3(a) or Section 9.3(b) would not
-------------- --------------
be satisfied (a "Terminating Target Breach"); provided, however, that, if such
-------------------------
Terminating Target Breach is capable of being cured by Target or such Target
Shareholder prior to the Effective Time through the exercise of its reasonable
best efforts, Parent shall promptly give notice of such Terminating Target
Breach to Target or such Target Shareholder and if such Terminating Target
Breach is cured within fifteen (15) days after giving notice to Target or such
Target Shareholder of such breach, Parent may not terminate this Agreement under
this Section 11.1(c);
---------------
(d) by Target, upon a material breach of any covenant or agreement
on the part of Parent set forth in this Agreement, or if (i) any representation
or warranty of Parent that is qualified as to materiality shall have become
untrue or (ii) any representation or warranty of Parent that is not so qualified
shall have become untrue in any material respect, in each case such that the
conditions set forth in Section 9.2(a) or Section 9.2(b) would not be satisfied
-------------- --------------
("Terminating Parent Breach"); provided, however, that, if such Terminating
-------------------------
Parent Breach is capable of being cured by Parent prior to the Effective Time
through the exercise of its reasonable best efforts, Target shall promptly give
notice of such Terminating Parent Breach to
Parent and if such Terminating Parent Breach is cured within fifteen (15) days
after giving written notice to Parent of such breach, Target may not terminate
this Agreement under this Section 11.1(d);
---------------
(e) by either party in accordance with their respective rights as
set forth in Section 8.3;
-----------
(f) by Parent, if Target Board or any committee of Target Board (i)
shall withdraw or modify in any manner adverse to Parent, its approval or
recommendation of this Agreement or the Merger, (ii) shall fail to reaffirm such
approval or recommendation within five days of Parent's request, (iii) shall
approve or recommend any Company Alternative Proposal (as defined in the Note
Purchase Agreement) or (iv) shall resolve to take any of the actions specified
in clauses (i), (ii) or (iii) above;
(g) by Parent if the required approval of the Target Shareholders
shall not have been obtained (i) at a duly held shareholders' meeting called for
the purpose of obtaining such approval, including any adjournments or
postponements or (ii) pursuant to unanimous written consent of the Target
Shareholders; or
(h) by Target, on the one hand, or by Parent, on the other hand, if
the Closing shall not have occurred on or before September 1, 2001; provided
that the right to terminate this Agreement under this Section 11.1(h) shall not
---------------
be available to either party if such party has made
61
a material misrepresentation, breached a warranty or failed to fulfill any
obligation under this Agreement and such misrepresentation, breach or failure
has been the cause of, or resulted in, the failure of the Closing to occur on or
before such date.
11.2 Effect of Termination.
---------------------
(a) In the event of termination of this Agreement by either Target
or Parent as provided in Section 11.1, this Agreement shall forthwith become
------------
void and there shall be no liability or obligation on the part of Parent or
Target or their respective officers or directors except (i) with respect to this
Section 11.2 and (ii) with respect to any liabilities or damages incurred or
------------
suffered by a party as a result of the willful breach by the other party of any
of its covenants or other agreements set forth in this Agreement.
(b) In the event that (i) this Agreement is (A) terminated by Target
or (B) Target breaches its standstill obligations as set forth in the Note
Purchase Agreement (in which case upon notice by Target or Parent to the other
party, this Agreement will be deemed terminated) and (ii) within six months
after the date of such breach or termination, as the case may be, Target or any
Target Affiliate signs a letter of intent or other agreement relating to the
acquisition of a majority interest in the securities of Target, or all or
substantially all of its assets, or business, in whole or in part, whether
directly or indirectly, through purchase, merger, consolidation, or otherwise
(such transaction, a "Subsequent Sale Transaction") and such Subsequent Sale
---------------------------
Transaction is ultimately consummated, then, immediately upon the closing of
such transaction, Target will pay to Parent the sum of $500,000 (the "Subsequent
----------
Sale Fee"), which amount shall be payable by wire transfer of immediately
--------
available funds. This fee will serve as the exclusive remedy to Parent in the
event of a breach of the Target's standstill
obligations under the Note Purchase Agreement. Target acknowledges that the
agreements contained in this Section 11.2(b) are an integral part of the
---------------
transactions contemplated in this Agreement, and that, without these
arrangements, Parent and Merger Sub would not enter into this Agreement.
Accordingly, if Target fails to promptly pay the Subsequent Sale Fee and in
order to obtain such payment Parent commences a suit which results in a judgment
against Target for any amount of fees and expenses set forth in this Section
-------
11.2(b), Target shall pay to Parent its costs and expenses (including attorneys'
-------
fees) in connection with such suit together with interest on such amount in
respect of the period from the date such amount became due until the date such
amount is paid at the prime rate of Silicon Valley Bank in effect from time to
time during such period. If, however, Parent commences a suit as set forth in
the immediately preceding sentence and such suit results in a judgment that
Parent is not entitled to any amount of fees and expenses set forth in this
Section 11.2(b), Parent shall pay to Target its costs and expenses (including
---------------
attorneys' fees) in connection with such suit together with interest on such
amount in respect of the period from the date such amount became due until the
date such amount is paid at the prime rate of Silicon Valley Bank in effect from
time to time during such period.
(c) In the event of termination of this Agreement pursuant to this
Article XI, this Agreement (other than as set forth in Section 12.1) shall
---------- ------------
become void and of no effect with no liability under the terms of the Agreement
(other than as set forth in this Section 11.2) on the
------------
62
part of any party hereto; provided, however, that no such termination shall
relieve any party hereto from any liability for breach of this Agreement.
11.3 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of each of the parties hereto.
11.4 Extension; Waiver. At any time prior to the Effective Time, the
-----------------
parties hereto, by action taken or authorized by their respective Boards of
Directors, 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 contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions 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 a written instrument signed on behalf of such party. No delay on
the part of any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party hereto of any right, power or privilege hereunder operate as a waiver
of any other right, power or privilege hereunder, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder. Unless otherwise provided, the rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that the
parties hereto may otherwise have at law or in equity. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
ARTICLE XII.
GENERAL PROVISIONS
------------------
12.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties of Target contained in Article IV and the
----------
representations and warranties of the Target Shareholders contained in Article V
---------
above shall survive the Closing hereunder (even if Parent knew or had reason to
know of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect for a period of twenty-four (24) months
thereafter. Notwithstanding the foregoing, the representations and warranties of
Target and the Target Shareholders contained in the first sentence of Section
-------
4.1 and in Sections 4.2, 4.3(a), 4.3(b)(i), 4.11, 4.14, 5.1 and 5.2 and any
--- ------------ ------ --------- ---- ---- --- ---
breach of the representations, covenants and agreements of Target and the Target
Shareholders contained in Sections 7.1, 7.5, 8.6, 8.9, 8.13 and Article X shall
------------ --- --- --- ---- ---------
survive the Closing (even if Parent knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of forty-eight (48) months thereafter (other
than matters related to Taxes, which shall survive subject to any applicable
statutes of limitations). All of the representations and warranties of Parent
contained in Article VI above and any breach of the representations, covenants
and agreements of the Parent contained in Sections 7.5, 8.6 and 8.9 shall
--- --- ---
survive the Closing hereunder (even if Target or the Target Shareholders knew or
had reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for a period of twenty-four (24)
months thereafter. Notwithstanding the foregoing, the representations and
warranties of Parent contained in the first sentence of Section 6.1 and in
-----------
63
Sections 6.2, 6.3(a), 6.3(b)(i) and 7.5 shall survive the Closing (even if
------------ ------ --------- ---
Target or the Target Shareholders knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of forty-eight (48) months thereafter
12.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, (b) on the first business day following the date of dispatch if
delivered by a nationally recognized next-day courier service, (c) on the tenth
business day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid or (d) if sent by
facsimile transmission, with a copy mailed on the same day in the manner
provided in (a) or (b) above, when transmitted and receipt is confirmed by
telephone. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
To Parent: Interpore International, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Target: American OsteoMedix Corporation
Plaza Business Center
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
12.3 Interpretation. When a reference is made in this Agreement to
--------------
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents, glossary of defined terms and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words
64
"without limitation." The parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden or proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local or
foreign statue or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the content requires otherwise.
12.4 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 party, it being understood that both
parties need not sign the same counterpart.
12.5 Entire Agreement; No Third Party Beneficiaries.
----------------------------------------------
(a) This Agreement (including the Schedules and Exhibits), the
Contingent Consideration Agreement, the Note Purchase Agreement and the Note
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
12.6 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of California, without regard to the laws
that might be applicable under conflicts of laws principles.
12.7 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible. Any provision of this Agreement held invalid or
unenforceable only in part, degree or certain jurisdictions will remain in full
force and effect to the extent not held invalid or unenforceable. To the extent
permitted by applicable law, each party waives any provision of law that renders
any provision of this Agreement invalid, illegal or unenforceable in any
respect.
12.8 Assignment. Neither this Agreement nor any of the rights, interests
----------
or obligations hereunder shall be assigned by any of the parties hereto, in
whole or in part (whether by operation of law or otherwise), without the prior
written consent of the other parties, and any
65
attempt to make any such assignment without such consent shall be null and void.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns.
12.9 Enforcement. The parties agree that irreparable damage would occur
-----------
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
12.10 Attorneys' Fees. In the event any litigation, arbitration, mediation,
---------------
or other proceeding ("Proceeding") is initiated by any party against any other
----------
party to enforce, interpret or otherwise obtain judicial or quasi judicial
relief in connection with this Agreement, the prevailing party in such
Proceeding shall be entitled to recover from the unsuccessful party all costs,
expenses, and actual attorneys' fees relating to or arising out of such
Proceeding (whether or not such Proceeding proceeds to judgment), and any post
judgment or post award proceeding including without limitation one to enforce
any judgment or award resulting from such Proceeding. Any such judgment or award
shall contain a specific provision for the recovery of all such subsequently
incurred costs, expenses, and actual attorneys' fees.
[Signature page follows]
66
IN WITNESS WHEREOF, Parent, Target and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first set forth above.
INTERPORE INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
OP SUB, INC., a California corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
AMERICAN OSTEOMEDIX CORPORATION,
a Virginia corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Title: President and Chief Executive
Officer
SHAREHOLDERS OF TARGET
By: /s/ ▇▇▇▇ ▇▇▇▇▇
----------------------------------
▇▇▇▇ ▇▇▇▇▇
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇