EXHIBIT 99.1
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MERGER AGREEMENT
BY AND AMONG
MERGE TECHNOLOGIES INCORPORATED,
ADI ACQUISITION CORP.,
ACCUIMAGE DIAGNOSTICS CORP.
AND
THE PRINCIPAL SHAREHOLDER OF ACCUIMAGE DIAGNOSTICS CORPORATION
NOVEMBER 24, 2004
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TABLE OF CONTENTS
PAGE
RECITALS ..................................................................1
SECTION 1. DEFINITIONS.......................................................1
SECTION 2. THE MERGER; CLOSING; EFFECTIVE TIME...............................8
2.1. THE MERGER....................................................8
2.2 CLOSING.......................................................8
2.3 EFFECTIVE TIME................................................9
2.4 CHARTER AND BYLAWS............................................9
2.5. DIRECTORS AND OFFICERS........................................9
2.6 EFFECT OF THE MERGER ON SHARES................................9
2.7 EXCHANGE OF SHARES FOR MERGER CONSIDERATION..................11
2.8 ADJUSTMENT FOR CLOSING BALANCE SHEET.........................12
2.9 HOLDBACK.................................................13
SECTION 3. REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE PRINCIPAL
SHAREHOLDER..................................................13
3.1 ORGANIZATION.................................................14
3.2 AUTHORIZATION OF TRANSACTION.................................14
3.3 NONCONTRAVENTION; CONSENTS...................................14
3.4. CAPITALIZATION...............................................15
3.5 FINANCIAL STATEMENTS; SEC FILINGS............................16
3.6 UNDISCLOSED LIABILITIES......................................18
3.7 SUBSEQUENT EVENTS............................................19
3.8 ACCOUNTS RECEIVABLE..........................................20
3.9 TAX MATTERS..................................................20
3.10 CONTRACTS....................................................22
3.11 REAL PROPERTY................................................24
3.12 INVENTORY....................................................25
3.13 TITLE AND RELATED MATTERS....................................26
3.14 INTELLECTUAL PROPERTY........................................26
3.15 LITIGATION...................................................27
3.16 EMPLOYEE BENEFITS............................................27
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3.17 LABOR RELATIONS; EMPLOYEES...................................29
3.18 ENVIRONMENTAL MATTERS........................................30
3.19 LEGAL COMPLIANCE.............................................32
3.20 PERMITS......................................................32
3.21 AFFILIATE AGREEMENTS.......................................33
3.22 INSURANCE....................................................33
3.23 BANK ACCOUNTS AND POWERS......................................33
3.24 BROKERS' FEES.................................................34
3.25 CERTAIN PAYMENTS..............................................34
3.26 CUSTOMER RELATIONSHIPS........................................34
3.27 VENDORS.......................................................34
3.28 BOARD APPROVAL................................................35
3.29 BOOKS AND RECORDS.............................................35
3.30 ANTITRUST LAW COMPLIANCE......................................35
3.31 PRODUCT LIABILITY.............................................35
3.32 FULL DISCLOSURE...............................................36
3.33 INTERNAL CONTROL OVER FINANCIAL REPORTING.....................36
3.34 COMPLIANCE WITH SOX...........................................36
SECTION 4. REPRESENTATIONS AND WARRANTIES OF MERGE..........................37
4.1 ORGANIZATION..................................................37
4.2 AUTHORIZATION OF TRANSACTION..................................37
4.3 NONCONTRAVENTION; CONSENTS....................................37
SECTION 5. PRE-CLOSING COVENANTS............................................37
5.1 GENERAL.......................................................38
5.2 NOTICES AND CONSENTS..........................................38
5.3 CARRY ON IN ORDINARY COURSE...................................38
5.4 NO DEFAULT.....................................................39
5.5 FULL ACCESS...................................................39
5.6 NOTICE OF DEVELOPMENTS........................................40
5.7 NO SOLICITATION OF TRANSACTIONS...............................40
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5.8 TAX MATTERS....................................................42
5.9 NEW OEM CONTRACTS..............................................42
5.10 PROXY STATEMENT..............................................43
5.11 COMPANY SHAREHOLDERS' MEETING.................................44
5.12 MISSING RECORDS...............................................44
SECTION 6. POST-CLOSING COVENANTS...........................................44
6.1 GENERAL.......................................................44
6.2 LITIGATION SUPPORT............................................44
6.3 AGREEMENTS REGARDING TAX MATTERS..............................45
6.4 CONFIDENTIAL INFORMATION.......................................45
6.5 COVENANT NOT TO COMPETE; SOLICITATION.........................46
6.6 PAYMENT OF PRINCIPAL SHAREHOLDER'S NOTE.......................46
SECTION 7. CLOSING CONDITIONS...............................................46
7.1 CONDITIONS TO OBLIGATION OF MERGE..............................46
7.2 CONDITIONS TO OBLIGATION OF THE COMPANY AND ITS SHAREHOLDERS..49
SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT..........................50
8.1 SURVIVAL.......................................................50
8.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF MERGE................50
8.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY..........51
8.4 INDEMNIFICATION PROCEDURES.....................................51
8.5 BASKET; CAP; SOLE SOURCES OF INDEMNIFICATION...................52
8.6 RIGHT OF SET-OFF...............................................52
8.7 DISPUTE RESOLUTION.............................................52
SECTION 9. TERMINATION......................................................53
9.1 TERMINATION...................................................53
9.2 EFFECT OF TERMINATION..........................................54
SECTION 10. MISCELLANEOUS...................................................55
10.1 PRESS RELEASES AND ANNOUNCEMENTS..............................55
10.2 EXPENSES; TRANSFER TAXES.....................................55
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10.3 WAIVER.......................................................56
10.4 FURTHER ASSURANCES...........................................56
10.5 NO THIRD-PARTY BENEFICIARIES.................................56
10.6 SUCCESSORS AND ASSIGNS.......................................56
10.7 SEVERABILITY.................................................57
10.8 COUNTERPARTS; FACSIMILE SIGNATURES...........................57
10.9 DESCRIPTIVE HEADINGS; CONSTRUCTION...........................57
10.10 NOTICES.....................................................57
10.11 ENTIRE AGREEMENT............................................58
10.12 AMENDMENTS..................................................59
10.13 TIME OF ESSENCE.............................................59
10.14 INCORPORATION OF EXHIBITS AND SCHEDULES.....................59
10.15 ATTORNEYS' FEES; GOVERNING LAW..............................59
EXHIBITS
Consulting Agreement...............................................Exhibit A
Escrow Agreement...................................................Exhibit B
Items for Opinion of Counsel of Company............................Exhibit C
Items for Opinion of Counsel to Merge..............................Exhibit D
SCHEDULES
Subsidiaries and Affiliates........................................Schedule 3.1
Liens and Encumbrances; Consents...................................Schedule 3.3
Capitalization ....................................................Schedule 3.4
Company Financial Statements.......................................Schedule 3.5
Undisclosed Liabilities............................................Schedule 3.6
Conduct of Business................................................Schedule 3.7
Accounts Receivable................................................Schedule 3.8
Tax Matters........................................................Schedule 3.9
Contracts .........................................................Schedule 3.10
Leases.............................................................Schedule 3.11
Title..............................................................Schedule 3.13
Intellectual Property..............................................Schedule 3.14
Litigation.........................................................Schedule 3.15
Employee Benefit Plans.............................................Schedule 3.16
Labor Relations; Employees .......................................Schedule 3.17
Legal Compliance...................................................Schedule 3.19
Permits............................................................Schedule 3.20
Affiliate Agreements...............................................Schedule 3.21
Insurance..........................................................Schedule 3.22
Bank Accounts......................................................Schedule 3.23
Customers .........................................................Schedule 3.26
Vendors............................................................Schedule 3.27
Internal Controls Over Financial Reporting.........................Schedule 3.33
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "AGREEMENT") is made and entered into as of
the 24th day November, 2004 by and among MERGE TECHNOLOGIES INCORPORATED, a
Wisconsin corporation ("MERGE"), ADI ACQUISITION CORP., a Nevada corporation
("ACQUISITION SUB"), ACCUIMAGE DIAGNOSTICS CORP., a Nevada corporation (together
with its subsidiaries and predecessors, the "COMPANY"), and ▇▇▇▇▇ ▇▇▇▇▇▇
("PRINCIPAL SHAREHOLDER").
RECITALS
A. The Company is presently engaged in the business of development,
marketing and support of software for the visualization, analysis and management
of medical imaging data whose primary function is to enhance physicians'
interpretation of data from medical imaging modalities such as computed
tomography ("CT"), magnetic resonance ("MR") and ultrasound through the
application of three-dimensional ("3D") computer graphics and image processing
technologies (collectively the "Business").
B. The respective boards of directors of each of MERGE, ACQUISITION
SUB, and the COMPANY have determined that the merger of Acquisition Sub with
into the Company (the "Merger") upon the terms and subject to the conditions set
forth in this Agreement is advisable and have approved the Merger.
C. The Principal Shareholder owns 34,050,000 Shares of the Company on
the date hereof and has entered in a Voting, Proxy and Option Agreement with
Merge on the date hereof (the "Voting Agreement") approving the Merger and the
transactions contemplated by this Agreement, subject to the conditions set forth
in the Voting Agreement.
D. The parties desire to make certain representations, warranties,
covenants and agreements as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the value, receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
set forth below:
"ACQUISITION PROPOSAL" means any offer or proposal made by a Person
other than Merge or Acquisition Sub concerning any (a) merger, consolidation,
business combination or similar transaction involving the Company or any
subsidiary of the Company pursuant to which the stockholders of the Company
immediately prior to such transaction would own less than 85% of the aggregate
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voting power of the entity surviving or resulting from such transaction (or the
ultimate parent entity thereof), (b) sale, exclusive license or other
disposition, directly or indirectly, of assets of the Company or its
subsidiaries representing 15% or more of the consolidated assets of the Company
and its subsidiaries; (c) issuance, sale or other disposition of securities (or
rights to purchase, or instruments convertible into, or exchangeable for, such
securities) by the Company representing 15% or more of the voting power of the
Company; or (d) transaction in which any Person or group shall acquire
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act), or the
right to acquire beneficial ownership of 15% or more of the outstanding capital
stock of the Company.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Section 1504(a) of the Code or any similar provision of state, local or foreign
Law.
"AGREEMENT" means this Merger Agreement, as the same may be amended
from time to time in accordance with the terms hereof.
"ANCILLARY AGREEMENTS" means the Voting Agreement, the Escrow
Agreement, the Consulting Agreement, and any Employment Agreement to be signed
at Closing by an employee of the Company and Merge or any Affiliate of Merge or
a Principal Shareholder.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means AccuImage Diagnostics Corporation, a Nevada
corporation, its subsidiaries and its predecessors.
"CONSULTING AGREEMENT' means the Consulting Agreement in the form of
EXHIBIT A between Merge and Principal Shareholder to be signed at Closing.
"CONTRACTS" means, collectively, all leases, licenses, agreements,
purchase orders, indentures, contracts, commitments, bids and proposals, Plans,
guarantees, letters of credit, bonds, notes, mortgages, indemnities, and all
orders outstanding for the purchase or provision of materials, goods or services
by the Company, in each case whether written or oral, including those listed on
SCHEDULE 3.10, to which the Company is a party.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in Section
3(2) of ERISA.
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in Section
3(1) of ERISA.
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"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES" means any cost,
damages, expense, liability, obligation or other responsibility, including those
of the foregoing which are latent, contingent or potential in nature, arising
from or under any Environmental Law and consisting of or relating to:
(a) any environmental, health or safety matters or conditions
(including on-site or off-site contamination, occupational
safety and health, and regulation of chemical substances
or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims,
demands and response, investigative, remedial, or
inspection costs and expenses arising under any
Environmental Law;
(c) financial responsibility under any Environmental Law or
any Law related to occupational safety and health for
cleanup costs or corrective action, including any
investigation, cleanup, removal, containment or other
remediation or response actions required by any
Environmental Law (whether or not such action has been
required or requested by any Governmental Entity or any
other Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative, or
remedial measures required under any Environmental Law.
The terms "removal" and "remediation," and "responsive action" include
the types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et. seq., as
amended ("CERCLA").
"ENVIRONMENTAL LAW" means any Law with respect to the preservation of
the environment or the promotion of worker health and safety, including any Law
relating to Hazardous Materials, drinking water, surface water, groundwater,
wetlands, landfills, open dumps, storage tanks, underground storage tanks, solid
waste, waste water, storm water run-off, noises, odors, air emissions, waste
emissions or ▇▇▇▇▇. Without limiting the generality of the foregoing, the term
encompasses each of the following statutes and the regulations promulgated
thereunder, and any similar applicable state, local or foreign Law, each as
amended (a) CERCLA, (b) the Solid Waste Disposal Act, (c) the Hazardous
Materials Transportation Act, (d) the Toxic Substances Control Act, (e) the
Clean Water Act, (f) the Clean Air Act, (g) the Safe Drinking Water Act, (h) the
National Environmental Policy Act of 1969, (i) the Superfund Amendments and
Reauthorization Act of 1986, (j) Title III of the Superfund Amendments and
Reauthorization Act, (k) the Federal Insecticide, Fungicide and Rodenticide Act
and (l) the provisions of the Occupational Safety and Health Act of 1970
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relating to the handling of and exposure to Hazardous Materials and similar
substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGENT" means The Capital Trust Company of Delaware.
"ESCROW AGREEMENT' means the Escrow Agreement among Merge, Principal
Shareholder and the Escrow Agent, in substantially the form of EXHIBIT B to be
signed prior to Closing.
"GAAP" means United States generally accepted accounting principles, as
in effect as of the date of this Agreement.
"GOVERNMENTAL ENTITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"HAZARDOUS ACTIVITY" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about or from the facilities or any part thereof into the environment, other
than in ordinary use in compliance with Laws, and any other act, business,
operation or thing that poses an unreasonable risk of harm to persons or
property on or off the facilities, or that may affect the value of the
facilities of the Company.
"HAZARDOUS MATERIALS" means each and every element, compound, chemical
mixture, contaminant, pollutant, material, waste or other substance that is
defined, determined or identified as hazardous or toxic under any Environmental
Law or the Release of which is prohibited under any Environmental Law. Without
limiting the generality of the foregoing, the term will include (a) "hazardous
substances" as defined in CERCLA, the Superfund Amendments and Reauthorization
Act of 1986, or Title III of the Superfund Amendments and Reauthorization Act
and regulations promulgated thereunder, each as amended, (b) "hazardous waste"
as defined in the Solid Waste Disposal Act and regulations promulgated
thereunder, each as amended, ( c) "hazardous materials" as defined in the
Hazardous Materials Transportation Act and the regulations promulgated
thereunder, each as amended, (d) "chemical substance or mixture" as defined in
the Toxic Substances Control Act and regulation promulgated thereunder, each as
amended, (e) petroleum and petroleum products and byproducts and (f) asbestos.
"INTELLECTUAL PROPERTY" means, collectively, patents, patent
disclosures, trademarks, service marks, trade dress, logos, trade names,
copyrights and mask works, and all registrations, applications, reissuances,
continuations, continuations-in-part, revisions, extensions, reexaminations and
associated goodwill with respect to each of the foregoing, computer software
4
(including source and object codes), computer programs, computer data bases and
related documentation and materials, data, documentation, trade secrets,
confidential business information (including ideas, formulas, compositions,
inventions, know-how, manufacturing and production processes and techniques,
research and development information, drawings, designs, plans, proposals and
technical data, financial, marketing and business data and pricing and cost
information) and other intellectual property rights (in whatever form or
medium).
"IRS" means the Internal Revenue Service of the U.S. Department of the
Treasury.
"LAW" means any constitutional provision, statute, law, rule,
regulation, Permit, decree, injunction, judgment, order, ruling, determination,
finding or writ of any Governmental Entity.
"LIEN" means any mortgage, pledge, security interest, charge, claim,
suretyship, attachment, restriction or encumbrance, other than (a) mechanics',
materialmens' and similar liens with respect to amounts not yet due and payable,
(b) liens for Taxes not yet due and payable and (c) liens securing rental
payments under capital lease arrangements.
"NET ASSET VALUE" means total assets minus total liabilities of the
Company determined in accordance with GAAP.
"ORGANIZATIONAL DOCUMENTS" means, collectively, (a) the articles or
certificate of incorporation and the bylaws of a corporation; (b) any charter,
operating agreement and similar documents adopted or filed in connection with
the creation, formation or organization of a Person; and (c) any amendment to
any of the foregoing.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMIT" means any license, permit, franchise, certificate of authority
or order, or any waiver of the foregoing, issued by any Governmental Entity.
"PLAN" means any written plan, fund, program, policy, payroll policy,
contract or commitment, whether qualified or not qualified for federal income
tax purposes, whether for the benefit of a single individual or more than one
individual whether or not subject to ERISA, which is (a) an Employee Pension
Benefit Plan, (b) an Employee Welfare Benefit Plan or (c) an incentive, bonus,
employment, equity, retention, non-competition, deferred compensation,
severance, change in control or ownership or other benefit compensatory plan,
fund, program, policy, agreement, contract or commitment of the Company or any
Affiliate of the Company for employees, former employees, directors, independent
contractors, former independent contractors or their dependents or their
beneficiaries.
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"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a Governmental Entity.
"PROHIBITED TRANSACTION" has the meaning set forth in Section 406 of
ERISA and Section 4975 of the Code.
"REGULATORY AGENCY" means (i) the Securities and Exchange Commission,
(ii) any self-regulatory organization (including NASDAQ), and (iii) any other
federal, state or foreign governmental or regulatory agency or authority.
"RELATED PERSON" means with respect to a particular individual: (a)
each other member of such individual's Family; (b) any Person that is directly
or indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person with respect to which such individual or one
or more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity). "RELATED PERSON"
means, with respect to a specified Person other than an individual: (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person; (b) any Person that holds a 5% or more voting or equity
interest in such specified Person; (c) each Person that serves as a director,
officer, partner, executor or trustee of such specified Person (or in a similar
capacity); (d) any Person with respect to which such specified Person serves as
a general partner or a trustee (or in a similar capacity); and (e) any related
Person of any individual described in clause (b) or (c). For purposes of this
definition, the "FAMILY" of an individual includes (i) the individual, (ii) the
individual's spouse and former spouses, (iii) any other natural person who is
related to the individual or the individual's spouse as a parent or descendant,
and (iv) any other natural person who resides with such individual.
"RELEASE" means any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping or other releasing into the environment,
whether intentional or unintentional.
"SCHEDULES" means, collectively, the disclosure schedules attached to
this Agreement, which are incorporated into the Agreement in their entirety and
made a part thereof.
"SHARES" means all of the issued and outstanding voting and non-voting
shares of capital stock of the Company.
"SHAREHOLDERS" means the owners of all the Shares of the Company.
"SUPERIOR PROPOSAL" means any bona fide written offer or proposal made
by a Person other than Merge or Acquisition Sub that concerns any merger,
consolidation, tender offer, exchange offer, asset acquisition (including by
exclusive license), stock or other securities issuance, business combination or
6
similar transaction involving the Company or any subsidiary of the Company that,
if consummated, would result in a third party (or its stockholders) owning,
directly or indirectly, a majority of the Shares then outstanding (or a majority
of the voting power of the shares of capital stock of the surviving entity in a
merger, or of the direct or indirect parent of the surviving entity in a merger)
or a majority of the assets of the Company and its subsidiaries prior to such
transaction, which the Board of Directors of the Company determines in good
faith (after consultation with a recognized financial advisor) to be (i) more
favorable to the stockholders of the Company from a financial point of view
(taking into account probability of closing and all other terms and conditions
of such proposal and this Agreement and any changes to the financial terms of
this Agreement proposed by Merge in response to such offer or otherwise) than
the Merger; and (ii) reasonably capable of being completed, taking into account
all financial, legal regulatory and other aspects of the proposal, and the
identity of the Person making the proposal.
"TAX RETURN" means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto.
"TAX" means any federal, state, local or foreign net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise,
severance, environmental, capital stock, social security, unemployment,
disability, real property, personal property, registration, value added,
alternative, add-on minimum, stamp, occupation, premium, windfall profits,
customs, duties or other tax, fee, assessment or charge, including any interest,
penalty or addition thereto.
"TRANSFER AGENT" means Pacific Stock Transfer Company, the Company's
current transfer agent for its Shares.
In addition, the following terms shall have the meanings ascribed to
them in the section number opposite such term:
"ACCOUNTS RECEIVABLE"..............................Section 3.8
"AUDITOR" .........................................Section 2.8
"BALANCE SHEET"....................................Section 3.8
"BALANCE SHEET PROCEDURES".........................Section 2.8
"BASKET AMOUNT"....................................Section 8.5
"BY-LAWS"..........................................Section 2.4
"BUSINESS".........................................Recitals
"CERTIFICATE"......................................Section 2.6(a)
"CERTIFICATE OF MERGER"............................Section 2.3
"CHARTER"..........................................Section 2.4
"CLOSING"..........................................Section 2.2
"CLOSING DATE".....................................Section 2.2
"CLOSING DATE BALANCE SHEET".......................Section 2.8
"COMPANY BALANCE SHEET"............................Section 3.5
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"COMPANY SEC REPORTS"..............................Section 3.5
"CONSULTING AGREEMENT..............................Section 1
"DAMAGES"..........................................Section 8.2
"DISSENTING SHAREHOLDER"...........................Section 2.6
"DISSENTING SHARES"................................Section 2.6
"▇▇▇▇▇"............................................Section 3.5
"EFFECTIVE TIME"...................................Section 2.3
"ESCROW AGREEMENT".................................Section 1
"EXCLUDED SHARES"..................................Section 2.6
"FILED COMPANY SEC REPORTS"........................Section 3.5
"FINANCIAL STATEMENTS".............................Section 3.5(b)
"HOLDBACK".........................................Section 2.9
"INDEMNIFIED BUYERS"...............................Section 8.2
"MERGE COMPANIES"..................................Section 2.6(a)
"MERGER"...........................................Recitals
"MERGER CONSIDERATION".............................Section 2.3
"NEVADA SECRETARY".................................Section 2.3
"NEVADA STATUTE"...................................Section 2.1
"PRELIMINARY CLOSING BALANCE SHEET"...............Section 2.8
"SEC"..............................................Section 3.5(a)
"SOX"..............................................Section 3.5
"SURVIVING CORPORATION"............................Section 2.1
"TARGET AMOUNT"....................................Section 2.8
"VOTING AGREEMENT..................................Recitals
"YEAR-END BALANCE SHEET"...........................Section 3.5(e)
SECTION 2. THE MERGER; CLOSING; EFFECTIVE TIME
2.1. THE MERGER.
Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as defined in Section 2.3) Acquisition Sub
shall be merged with and into the Company and the separate corporate existence
of Acquisition Sub shall thereupon cease. The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"), and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. The Merger shall have the effects specified in the Nevada General
Corporation Law (the "Nevada Statute").
2.2 CLOSING.
The closing of the Merger (the "Closing") shall take place (i) at the
offices of ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ on the second business day after the day on which the last to be
fulfilled or waived of the conditions set forth in Section 7 shall be satisfied
or waived in accordance with this Agreement (other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the fulfillment
8
or waiver of those conditions) or (ii) at such other place and time and/or on
such other date as the Company and Merge may agree in writing (the "Closing
Date").
2.3 EFFECTIVE TIME.
As soon as practicable following the Closing on the Closing Date, the
Company and Merge will cause a certificate of merger (the "Certificate of
Merger") to be executed, acknowledged and filed with the Secretary of State of
the State of Nevada (the "Nevada Secretary") as provided in Section 92A.200 of
the Nevada Statute. As part of such filing, a plan of merger in form reasonably
acceptable to Merge and the Company will be filed with the Nevada Secretary. The
Merger shall become effective at the time the Certificate of Merger is duly
filed with the Secretary of State of the State of Nevada (the "Effective Time").
2.4 CHARTER AND BYLAWS.
The Certificate of Incorporation of Acquisition Sub as in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation (the "Charter"), until duly amended
as provided therein or by applicable Law. The bylaws of Acquisition Sub as in
effect immediately prior to the Effective Time shall be the bylaws of the
Surviving Corporation (the "By-Laws"), until duly amended as provided therein or
by applicable Law.
2.5. DIRECTORS AND OFFICERS.
The directors of Acquisition Sub at the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Charter and
the By-Laws. The officers of Acquisition Sub at the Effective Time shall, from
and after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Charter and
the By-Laws.
2.6 EFFECT OF THE MERGER ON SHARES.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any Shares of the Company, each Share
issued and outstanding immediately prior to the Effective Time (other than
"Excluded Shares" as defined below) shall be converted into the right to receive
the proportionate share of Six Million Dollars ($6,000,000) which amount shall
include the Holdback (as defined in Section 2.9) (the "Merger Consideration").
Shares owned by Merge, Acquisition Sub or any other direct or
indirect Subsidiary of Merge (collectively, the "Merge Companies") or Shares
9
that are owned by the Company or any direct or indirect subsidiary of the
Company, and in each case not held on behalf of third parties, or Shares
("Dissenting Shares") that are owned by shareholders ("Dissenting Shareholders")
who do not vote to approve the Merger and comply with all the provisions of the
Nevada Statute concerning the right of holders of Shares to dissent from the
Merger and require payment of fair value (as that term is used in the Nevada
Statute) for their Shares shall be an "Excluded Share" and collectively,
"Excluded Shares" for purposes of this Agreement. At the Effective Time, all
Shares shall no longer be outstanding and shall be canceled and retired and
shall cease to exist, and each certificate (a "Certificate") formerly
representing any of such Shares (other than Excluded Shares) shall thereafter
represent only the right to receive the Merger Consideration.
The portion of the Merger Consideration due to each
Shareholder on the Closing Date (other than Dissenting Shareholders) shall be
his or her proportionate ownership of the outstanding Shares as of Closing.
(b) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, any Dissenting Shares shall not be converted as
described in Section 2.6(a), but shall be converted into the right to receive
such consideration as may be determined to be due to the respective Dissenting
Shareholders pursuant to the Nevada Statute. If, after the Effective Time, any
Dissenting Shareholder withdraws his demand or fails to perfect or otherwise
loses his rights as a Dissenting Shareholder to payment of fair value, in any
case pursuant to the Nevada Statute, his Shares shall be deemed to be converted
as of the Effective Time into the right to receive his proportionate share of
the Merger Consideration. The Company shall give Merge (i) prompt notice of any
demands for fair value for Shares received by the Company and (ii) the
opportunity to participate in and direct all negotiations and proceedings with
respect to any such demands. The Company shall not, without the prior written
consent of Merge, make any payment with respect to, or settle, offer to settle
or otherwise negotiate, any such demands. Any amounts paid to the holders of
Dissenting Shares in excess of their proportionate share of the Merger
Consideration, and the costs of all proceedings, including attorneys' and expert
witness fees, in resolving the claim of any Dissenting Shareholder, shall be an
amount to be indemnified under Section 8 or paid out of the Holdback, at the
option of Merge
(c) Cancellation of Shares. Each Share issued and outstanding
immediately prior to the Effective Time and owned by any of the Merge Companies
or owned by the Company or any direct or indirect subsidiary of the Company (in
each case other than Shares that are owned on behalf of third parties), shall,
by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, shall be canceled and retired without payment
of any consideration therefor and shall cease to exist.
(d) Acquisition Sub. At the Effective Time, each share of
Common Stock, par value $.01 per share, of Acquisition Sub issued and
outstanding immediately prior to the Effective Time shall be automatically
converted into one share of common stock of the Surviving Corporation.
10
2.7 EXCHANGE OF SHARES FOR MERGER CONSIDERATION.
(a) Payment Procedures. At the Closing, Merge shall deliver to
the Transfer Agent, for delivery to each of the Shareholders (other than holders
of Excluded Shares) such Shareholder's proportionate share of the Merger
Consideration due at Closing in exchange for Shares being surrendered except
that the Holdback shall be delivered by Merge to the Escrow Agent at Closing for
deposit pursuant to the Escrow Agreement. Upon surrender of a Certificate (or
affidavit of loss in lieu thereof) for cancellation to the Transfer Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor
(after giving effect to any tax withholding required by Law) (i) a check in the
amount of the holder's proportionate share of the Merger Consideration based
upon the number of Shares represented by such Certificate (or affidavit of loss
in lieu thereof), and the Certificate so surrendered shall forthwith be
canceled. No interest will be paid or accrued on any amount payable upon due
surrender of the Certificates. In the event of a transfer of ownership of Shares
that is not registered in the transfer records of the Transfer Agent, a check
for any cash to be paid upon due surrender of the Certificate may be paid to
such a transferee if the Certificate formerly representing such Shares is
presented to the Transfer Agent, accompanied by all documents required by the
Transfer Agent to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid or are not applicable.
(b) Transfers. After the Effective Time, there shall be no
transfers on the stock transfer books regarding the Company of the Shares that
were outstanding immediately prior to the Effective Time.
(c) Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificates to be lost,
stolen or destroyed and execution of an indemnity agreement in form satisfactory
to Merge and the Transfer Agent and further, if required by Merge or the
Transfer Agent, the posting by such Person of a bond in customary amount as
indemnity against any claim that may be made against it with respect to such
Certificates, the Transfer Agent may issue in exchange for such lost, stolen or
destroyed Certificates a check in the amount (after giving effect to any
required tax withholdings) proportionate share of the Merger Consideration
represented by such lost, stolen or destroyed Certificate deliverable in respect
of, the Shares represented by such Certificates pursuant to this Agreement.
2.8 ADJUSTMENT FOR CLOSING BALANCE SHEET.
(a) ADJUSTMENT. Merge shall be reimbursed by the amount that
the Net Asset Value (as hereinafter defined) of the Company determined as of the
Closing Date is less than $-220,168 (negative $220,168) (the "Target Amount").
The amount of any such adjustment shall be paid to Merge from the Holdback.
11
(b) NET ASSET VALUE. For purposes of this Section, the term
"Net Asset Value" means the net asset value reflected in the Closing Balance
Sheet (as hereinafter defined), except that the following shall be excluded from
the calculation of any Net Asset Value: (i) cash received upon exercise of stock
options for Shares exercised after September 30, 2004; (ii) up to $80,000 of
legal fees incurred by the Company in connection with the Merger, as evidenced
by invoices of legal counsel for the Company prepared in a manner consistent
with past practices; and (iii) operating losses of the Company incurred in the
ordinary course of business from and after October 1, 2004 (not to exceed
$40,000 per full calendar month, prorated to the Closing Date).
(c) Five days prior to the Closing Date, the Company will
prepare a Preliminary Balance Sheet in accordance with GAAP which has properly
accrued for all amounts owed to vendors and employees, current and previous
management and properly reserved for bad debt and all pending, threatened and
contingent liabilities required to be reserved for under GAAP up to and
including the Closing Date (such balance sheet, the "Preliminary Balance Sheet"
and such procedures, the "Balance Sheet Procedures"). If the Preliminary Balance
Sheet indicates that the Net Asset Value is less than the Target Amount, Merge
may deduct the difference from the Merger Consideration.
The final balance sheet as of the Closing Date (the "Closing
Date Balance Sheet") will be prepared by Merge and delivered to the Principal
Shareholder within one hundred eighty (180) days after Closing. The Closing Date
Balance Sheet shall be prepared consistent with the Balance Sheet Procedures. If
the Principal Shareholder notifies Merge within thirty (30) days following
receipt of the Closing Date Balance Sheet that the Principal Shareholder
disagrees with the Closing Date Balance Sheet, the parties shall attempt in good
faith to resolve such dispute as soon as possible. If the parties are unable to
resolve such dispute within thirty (30) days after the Merge's receipt of notice
from the Principal Shareholder, such dispute shall be submitted to a neutral
office of nationally recognized independent accountants (the "Auditor") jointly
chosen by, and mutually acceptable to, the Principal Shareholder and Merge for
the purpose of resolving the dispute set forth in such notice. If the parties
are not able to agree on the Auditor within thirty (30) days, the Auditor shall
be the Milwaukee Office of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or Deloitte Touche. The Auditor shall
review and decide the issue or issues that are subject of such dispute within 30
days. The decision of the Auditor shall be binding on the parties. The fees and
costs of the Auditor shall be borne equally by the Principal Shareholder and
Merge (50%). Any amount by which the Net Asset Value, as finally determined in
the Closing Date Balance Sheet, is less than the Target Amount (other than any
amount already withheld from the Merger Consideration) shall at Merge's option,
either first be paid out of the Holdback referred to in Section 2.9 or be
subject to indemnification as provided in Section 8. The Merger Consideration
shall not be increased if the Closing Date Balance Sheet Net Asset Value shows a
lower net loss than the Target Amount.
12
2.9 HOLDBACK.
$1,000,000 of the Merger Consideration shall be deposited by Merge at
Closing with the Escrow Agent to be governed by the terms of the Escrow
Agreement (the "Holdback"). At the conclusion of the escrow Merge will pay the
Principal Shareholder simple interest out of its own funds to the extent
sufficient funds are not in Escrow, at the rate of five percent (5%) per annum,
on the net adjusted balance of the Holdback outstanding at the end of the escrow
period (i.e. original balance less amounts due to Merge under Section 2.8 or
Section 8 of this Agreement) and due to Principal Shareholder. Such interest
will be calculated from the Closing Date. No interest shall be paid by Merge or
out of the Escrow to Principal Shareholder from and after the Closing Date on
amounts paid to Merge out of the Escrow.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
THE PRINCIPAL SHAREHOLDER
The Company and the Principal Shareholder, jointly and severally prior
to the Closing, and the Principal Shareholder by himself from and after the
Closing, hereby represent and warrant to, and covenant with, Merge and
Acquisition Sub as of the date of this Agreement and as of the Closing Date, as
follows, it being agreed that a disclosure applicable to one representation and
warranty shall be deemed to modify and provide information with respect to the
other representations and warranties to which the disclosure is reasonably
believed to be relevant without the necessity of repetition:
3.1 ORGANIZATION.
The Company is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Nevada. The Company and each of its
Affiliates is duly qualified or licensed to conduct business and is in good
standing under the Laws of each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its activities makes
such qualification necessary, a list of which is set forth on SCHEDULE 3.1,
except where the failure to so qualify would not have a material adverse effect
on the business or assets of the Company. The Company has full corporate power
and authority necessary to own or lease its assets and property, and to carry on
the Business and to own and use the properties owned and used by it. The Company
has delivered to Merge copies of the Organizational Documents of the Company,
each as amended to date, and each such document is in full force and effect. The
Company is not in violation of its Organizational Documents. SCHEDULE 3.1 lists
all Affiliates of the Company, indicating the jurisdiction of incorporation or
organization of each Affiliate. The Company does not control, directly or
indirectly, or have any direct or indirect ownership or equity interest in any
Person.
3.2 AUTHORIZATION OF TRANSACTION.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Board of Directors of the Company and, prior to
Closing, will be authorized by all necessary action on the part of the
Shareholders. The Company and the Principal Shareholder have the absolute and
13
unrestricted right, power, authority and capacity (including full corporate
power and authority) or have taken all requisite action to enable the Company
and the Principal Shareholder to execute and deliver this Agreement and the
Ancillary Agreements and to perform their obligations hereunder and thereunder.
This Agreement has been, and upon Closing will be, duly executed and delivered
by the Company and the Principal Shareholder. When duly executed and delivered,
this Agreement constitutes, and each of the Ancillary Agreements delivered in
conjunction with this Agreement, when executed and delivered will constitute,
the valid and legally binding obligation of the Company and/or of the Principal
Shareholder as the case may be, each enforceable in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy insolvency,
and the relief of debtors, and (ii) general equitable principles.
3.3 NONCONTRAVENTION; CONSENTS.
(a) Except as set forth on Schedule 3.3, the execution and
delivery of this Agreement and the Ancillary Agreements by the Company and the
Principal Shareholder contemplated by this Agreement, and the consummation and
performance by the Company and the Principal Shareholder of the transactions
contemplated hereby or thereby, will not: (i) violate any Law to which the
Company or the Principal Shareholder or by which either of them or any of their
respective properties are bound or affected; (ii) violate any provision of the
Organizational Documents of the Company; (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under or impair the Company's rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of the Company, pursuant
to any Contract, Permit, or other instrument or obligation to which the Company
is a party or by which the Company or its properties are bound or affected.
(b) SCHEDULE 3.3 lists all consents, waivers and approvals
required to be obtained in connection with the consummation and performance of
the transactions contemplated hereby under any of the Contracts or Permits to
which the Company or the Principal Shareholder is a party. No Contract to which
the Company is a party has been amended to increase the amount payable by the
Company thereunder or otherwise modify the terms thereof in order to obtain any
such consent, approval or authorization.
(c) Except as set forth on Schedule 3.3, no consent, approval,
order or authorization of or registration, declaration or filing with any
Governmental Entity, is required by or with respect to the Company or the
Principal Shareholder in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby or
thereby.
14
3.4. CAPITALIZATION.
(a) SCHEDULE 3.4 sets forth for the Company (i) the number of
shares of authorized capital stock, (ii) the number of issued and outstanding
capital stock of each class of the shares, (iii) the names of its directors and
elected officers and (iv) the names each Person owning options or warrants for
Shares and the number of shares, options, warrants, and convertible securities
owned by such Person and obtainable upon exercise in full of all options and
warrants. All of the issued and outstanding Shares of capital stock of the
Company, and all Shares issuable upon exercise of outstanding options and
warrants, have been duly authorized and are validly issued, fully paid and
nonassessable and are not subject to preemptive rights whether created by (i)
statute, (ii) the Organizational Documents of the Company or (iii) any agreement
or document to which the Company or any Affiliate thereof is a party or by which
it is bound. The Principal Shareholder holds of record and owns beneficially
good, valid and marketable title to all of the outstanding Shares of the Company
listed on SCHEDULE 3.4, free and clear of any restrictions on transfer (other
than restrictions under the Securities Act of 1933, as amended, and applicable
state securities Laws), Taxes, Liens, options, warrants, purchase rights,
contracts, agreements, commitments, equities, claims or demands.
(b) Except as set forth in SCHEDULE 3.4, there are no equity
securities, partnership or limited liability company interests or similar
ownership interests of any class of the Company, or any securities exchangeable
or convertible into or exercisable for such equity securities, partnership or
limited liability company interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except for securities the Company owns,
directly or indirectly, there are no equity securities, partnership interests or
similar ownership interests of any class of any subsidiary of the Company, or
any security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in SCHEDULE 3.4, there
are no outstanding or authorized options, warrants, equity securities,
partnership or limited liability company interests or similar ownership
interests, calls, rights (including purchase rights, subscription rights,
conversion rights, preemptive rights, exchange rights, rights related to stock
appreciation, phantom stock or profit participation, or similar rights), or any
commitments, contracts or agreements (all of the foregoing of which shall be
terminated on or before the Closing Date) of any character to which the Company
is a party or by which it is bound obligating the Company or the Principal
Shareholder to issue, deliver, sell, or cause to be issued, delivered or sold,
or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption
or acquisition, of any shares of capital stock, partnership interests or similar
ownership interests of the Company or obligating the Company to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment, contract or agreement.
(c) All Shares and all options, warrants, convertible or other
securities of the Company have been issued in compliance with all applicable
federal and state securities laws and any applicable pre-emptive rights.
(d) The Principal Shareholder has good title to his 34,050,000
Shares, free and clear from any Lien, preemptive right, voting trust or
shareholder agreement, exception, proxy, option, put, call, or any third-party
15
right of any kind or nature whatsoever except the Voting Agreement. The
Principal Shareholder has full and sole voting power (in the case of voting
Shares owned by such Person) over his Shares and has the full right, power and
authority to deliver his Shares to Merge in exchange for his pro rata share of
the Merger Consideration in the manner provided for in this Agreement.
3.5 FINANCIAL STATEMENTS; SEC FILINGS.
(a) The Company has on a timely basis filed all forms,
reports, and documents required to be filed by it with the Securities and
Exchange Commission ("SEC") since January 1, 2001. SCHEDULE 3.5 lists and
(except to the extent available in full without redaction on the SEC's web site
through the Electronic Data Gathering, Analysis and Retrieval System ("▇▇▇▇▇")
two days prior to the date of this Agreement) contains true and complete copies
in the form filed with the SEC of (i) the Company's Annual Reports on Form 10-K
SB for each fiscal year of the Company ending on or after December 31, 1999;
(ii) its Quarterly Reports on Form 10-Q SB for each of the first three fiscal
quarters in each of the fiscal years of the Company referred to in clause (i)
above; (iii) all proxy statements relating to the Company's meetings of
shareholders (whether annual or special) held, and all information statements
relating to shareholder consents since the beginning of the first fiscal year
referred to in clause (i) above; (iv) all certifications and statements required
by (A) Rule 13a-14 or 15d-14 under the Exchange Act or (B) 18 U.S.C. ss. 1350
(Section 906 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 ("SOX")) with respect to any
report referred to in clause (i) or (ii) above; (v) all other forms, reports,
registration statements, and other documents (other than preliminary materials
if the corresponding definitive materials are contained in Schedule 3.5) filed
by the Company with the SEC since the beginning of the first fiscal year
referred to in clause (i) above (the forms, reports, registration statements,
and other documents referred to in clauses (i), (ii), (iii), (iv), and (v) above
are, collectively, the "Company SEC Reports" and, to the extent available in
full without redaction on the SEC's web site through ▇▇▇▇▇ two days prior to the
date of this Agreement, are, collectively, the "Filed Company SEC Reports"); and
(vi) all comment letters received by the Company from the staff of the SEC since
January 1, 2001, and all responses to such comment letters by or on behalf of
the Company. All matters and statements made in the certifications and
statements referred to in clause (iv) above are accurate. The Company SEC
Reports (x) were or will be prepared in accordance with the requirements of the
Securities Act and the Exchange Act, as applicable, and the rules and
regulations thereunder and (y) did not at the time they were filed with the SEC,
or will not at the time they are filed with the SEC, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. The
Company maintains disclosure controls and procedures as required by Rule 13a-15
or 15d-15 under the Exchange Act. Schedule 3.5 contains true and complete copies
of all written descriptions of and all policies, manuals, and other documents
promulgating such disclosure controls and procedures. Except as disclosed in
Filed Company SEC Reports, each director and executive officer of the Company
has filed with the SEC on a timely basis complete and accurate versions of all
statements required by Section 16(a) of the Exchange Act and the rules and
16
regulations thereunder since January 1, 2001. As used in this Section 3.5, the
term "filed" shall be broadly construed to include any manner in which a
document or information is furnished, supplied, or otherwise made available to
the SEC, including, but not limited to, as may be required pursuant to Item 9 or
12 of Form 8-K.
(b) The financial statements of the Company included or
incorporated by reference in any Company SEC Reports (including the related
notes) complied as to form, as of the respective dates of filing of such Company
SEC Reports with the SEC, in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect thereto
(including, without limitation, Regulation S-B), have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, to
the extent permitted by Regulation SB for Quarterly Reports on Form 10-Q-SB)
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
condition of the Company at the dates thereof and the consolidated results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to notes and normal year-end audit adjustments that were
not, or with respect to any such financial statements contained in any Company
SEC Reports to be filed subsequent to the date hereof are not expected to be,
material in amount or effect). Schedule 3.5 lists copies of the documentation
creating or governing, all "off-balance sheet arrangements" (as defined in Item
303(c) of Regulation SB) in effect with respect to the Company during any period
covered by any of the Company SEC Reports that was required to be disclosed in
any Company SEC Report. Odenburg, Ullakko Murenishi & Company, LLP, which has
expressed its opinion with respect to the consolidated financial statements of
the Company included in Company SEC Reports (including the related notes) filed
after January 1, 2003, (x) is a registered public accounting firm (as defined in
Section 2(a)(12) of SOX), (y) to the Company's knowledge, after reasonable
inquiry, is and has been throughout the periods covered by such financial
statements "independent" with respect to the Company within the meaning of
Regulation S-X, and (z) to the Company's knowledge, after reasonable inquiry,
is, and has been throughout the periods covered by such financial statements,
with respect to the Company, in compliance with subsections (g) through (l) of
Section 10A of the Exchange Act. ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ & Company LLP, which
expressed its opinion with respect to the consolidated financial statements of
the Company included in Company SEC Reports (including the related notes) filed
prior to January 1, 2003, (y) to the Company's knowledge, after reasonable
inquiry, was throughout the periods covered by such financial statements
"independent" with respect to the Company within the meaning of Regulation S-X,
and (z) to the Company's knowledge, after reasonable inquiry, was throughout the
periods covered by such financial statements, with respect to the Company, in
compliance with subsections (g) through (l) of Section 10A of the Exchange Act.
SCHEDULE 3.5 lists all non-audit services performed by Odenburg, Ullakko
Murenishi & Company, LLP or ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ & Company LLP for the Company
since January 1, 2003.
(c) Except as and to the extent set forth on the audited
balance sheet of the Company as of September 30, 2004, including all notes
thereto (the "Year-end Balance Sheet") attached to this Agreement as SCHEDULE
17
3.5(c), the Company has no liabilities or obligations of any nature (whether
accrued, absolute, contingent, or otherwise) that would be required to be
reflected on a balance sheet, or in the notes thereto, prepared in accordance
with GAAP, except (i) for liabilities or obligations incurred in the ordinary
course of business since September 30, 2004, that would not have a material
adverse effect on the Company, or (ii) as otherwise reflected in the Filed
Company SEC Reports.
3.6 UNDISCLOSED LIABILITIES.
The Company has no material liabilities or obligations of a type
required to be disclosed on a balance sheet or in the related notes to the
combined financial statements prepared in accordance with GAAP (whether known or
unknown, absolute or contingent, liquidated or unliquidated, or due or to become
due) except for liabilities and obligations which are: (a) reflected or reserved
for on the Financial Statements or (b) that have arisen since the date of the
last Year-end Balance Sheet in the ordinary course of the operation of the
Company (all of which material liabilities and obligations are set forth on
SCHEDULE 3.6 and none of which results from, arises out of, relates to, is the
nature of or was caused by any breach of contract, breach of warranty, tort,
infringement or violation of Law) except as disclosed on such Schedule.
18
3.7 SUBSEQUENT EVENTS.
Since December 31, 2003, there has not been any material adverse change
in the business, condition, operations, properties, assets, results of
operations or prospects of the Company nor has any event occurred or
circumstance arisen that could reasonably be expected to result in such material
adverse change. Except as set forth in SCHEDULE 3.7, since the end of its last
fiscal year, the Company has conducted its business only in the ordinary course
of business and there has not been any:
(a) single transaction in an amount exceeding $10,000 or
series of related transactions that result in expenditures in excess of $25,000
(not including compensation paid in the ordinary course of business);
(b) change in the Company's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital stock of
the Company; issuance of any security convertible into such capital stock; grant
of any registration rights; purchase, redemption, retirement, or other
acquisition by the Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in
respect of shares of capital stock;
(c) amendment to the Organizational Documents of the Company;
(d) payment or increase by the Company of any bonuses,
salaries, or other compensation to any shareholder, director, officer, or
(except in the ordinary course of business) employee or entry into any
employment, severance, separation, or similar agreement with any director,
officer or employee, except for the salaries and bonuses set forth upon SCHEDULE
3.7, the amount of which bonuses is consistent with the past practices of the
Company;
(e) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement or other Employee Benefit Plan for or with any employees of
the Company;
(f) damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition or prospects of
the Company, taken as a whole;
(g) entry into, termination of, or receipt of notice of
termination of (i) any cooperative, marketing, license, distributorship, sales
representative, joint venture, credit or similar agreement, or (ii) any Contract
or transaction, or series of related Contracts or transactions, involving a
total commitment by or to the Company of more than $25,000.00, except for sales
(but not terminations) to customers in the ordinary course of business;
19
(h) sale (other than sales in the ordinary course of
business), lease or other disposition of any asset or property of the Company or
mortgage, pledge or imposition of any Lien on any material asset or property of
the Company;
(i) cancellation or waiver of any claims or rights with a
value to the Company in excess of $10,000;
(j) material change in the accounting methods, principles or
practices used by the Company;
(k) any revaluation by the Company of any of its assets,
including writing down the value of capitalized inventory or writing off notes
or Accounts Receivable (defined below) other than in the ordinary course of
business;
(l) agreement, whether oral or written, by the Company to do
any of the foregoing; or
(m) Contracts awarded to the Company, including those as to
which work has not yet commenced, that include prices at levels not reasonably
expected, to yield profits at the Company's usual and customary profitability
margins.
3.8 ACCOUNTS RECEIVABLE.
All accounts receivable of the Company that are included in the
Year-end Balance Sheet or on the accounting records of the Company as of the
Closing Date or the Preliminary Balance Sheet (collectively, the "ACCOUNTS
RECEIVABLE") represent or will represent valid obligations accounted for in
accordance with GAAP applied on a basis consistent with that used in the
preparation of the Financial Statements arising from sales actually made or
services actually performed in the ordinary course of business. All such
Accounts Receivable on the Preliminary Balance Sheet will be or have been
collected, net of the respective reserves shown on the Preliminary Balance
Sheet, within 90 days following the Closing Date. The reserves maintained by the
Company are adequate and calculated consistent with past practice and, in the
case of the reserve as of the Closing Date, will not represent a greater
percentage of the Accounts Receivable as of the Closing Date than the reserve
reflected in the Year-end Balance Sheet representing the Accounts Receivable
reflected therein and will not represent a material adverse change in the
composition of such Accounts Receivable in terms of aging). There is no contest,
claim or right of set-off, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable.
SCHEDULE 3.8 contains a complete and accurate list of all Accounts Receivable as
of the date hereof, which list sets forth the aging of such Accounts Receivable.
3.9 TAX MATTERS.
(a) The Company filed all Tax Returns that it was required to
file and all such Tax Returns relating to the Company were correct and complete
in all respects. Except as set forth on SCHEDULE 3.9(a)(1), all Taxes owed by
20
the Company, whether or not shown on any Tax Return, have been paid when due.
Except as set forth on SCHEDULE 3.9(a)(2), the Company is not currently the
beneficiary of any extension of time within which to file any Tax Return. No
claim with respect to the Company has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that any such entity is
or may be subject to taxation by that jurisdiction. There is no Lien affecting
the Shares or any of the assets or properties of the Company that arose in
connection with any failure or alleged failure to pay any Tax.
(b) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, the Principal Shareholder or other
party.
(c) No taxing authority will assess any additional Taxes for
any period for which Tax Returns relating to the Company have been filed. There
is no dispute or claim concerning any Tax liability of the Company claimed or
raised by any authority. SCHEDULE 3.9(c) lists all federal, state, local and
foreign income Tax Returns of the Company for the past six years, indicates
those Tax Returns that have been audited and indicates those Tax Returns that
currently are the subject of audit. The Company has delivered to Merge correct
and complete copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company for the
past three years.
(d) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) All material elections in effect as of the date hereof
with respect to Taxes affecting the Company are set forth on SCHEDULE 3.9. The
Company is not or will not be required to recognize positive adjustments to
income pursuant to Section 481 of the Code.
(f) There are no outstanding rulings of, or requests for
rulings from, any tax authority addressed to the Company that are, or if issued
would be, binding on the Company.
(g) Except as set forth on SCHEDULE 3.9, the Company is not a
party to any joint venture, partnership or other arrangement or contract which
could be treated as a partnership for federal income tax purposes.
(h) The Company has not filed a consent under Section 341(f)
of the Code concerning collapsible corporations. The Company has not made any
payments, is not obligated to make any payments and is not a party to any
agreement that under any circumstances could obligate it to make any payments
that will not be fully deductible under Section 280G of the Code. The Company
has not been a United States real property holding corporation with the meaning
of Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code. The Company has disclosed on its federal
21
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Section
6662 of the Code.
(i) None of the assets or properties of the Company secures
any debt the interest on which is tax-exempt under Section 103(a) of the Code.
None of the assets or properties of the Company are "tax-exempt use property"
within the meaning of Section 168(h) of the Code. The transactions contemplated
by this Agreement are not subject to Tax withholding pursuant to the provisions
of Section 3406 or Subchapter A of Chapter 3 of the Code or any other provision
of applicable Law. The Principal Shareholder is a United States Person within
the meaning of the Code.
(j) Except as set forth on SCHEDULE 3.9, the Company is not a
party to any Tax allocation or Tax sharing agreement. The Company (i) is not and
has not been a member of an Affiliated Group filing a consolidated federal
income Tax Return, and (ii) has not any liability for the Taxes of any Person
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local or foreign Law), as a transferee or successor, by contract or otherwise.
(k) No taxing authority will assess any additional income
Taxes against any Affiliated Group for any period during which the Company was a
member of such group. There is no dispute or claim concerning any income Tax
liability of any Affiliated Group for any taxable period during which the
Company was a member of such group either (i) claimed or raised by any authority
in writing or (ii) as to which the Company has knowledge based upon personal
contact with any agent of such authority. Except as set forth in SCHEDULE 3.9,
no Affiliated Group has waived any statute of limitations with respect to any
income Taxes or agreed to any extension of time with respect to an income Tax
assessment or deficiency for any taxable period during which the Company was a
member of such group.
(l) The unpaid taxes of the Company do not and will not as of
the Closing Date exceed the reserves for tax liability set forth on its Year-end
Balance Sheet.
(m) All net operating losses ("NOL's") set forth in the Tax
Returns are valid.
(n) No new material book deficiencies are expected for the
fiscal year ended September 30, 2004.
3.10 CONTRACTS.
(a) Except for the Contracts listed on SCHEDULE 3.10, the
Company is not a party to or otherwise bound by any written or oral: (i)
mortgage, indenture, credit agreement, security agreement, note, installment
obligation or other instrument relating to the borrowing of money; (ii)
guarantee of any obligation; (iii) letter of credit, bond or other indemnity
(including letters of credit, bonds or other indemnities as to which the Company
22
is the beneficiary but excluding endorsements of instruments for collection in
the ordinary course of the operation of the Company); (iv) currency or interest
rate swap, collar or hedge agreement; (v) offset, countertrade or barter
agreement; (vi) agreement for the sale, lease or other disposition by the
Company to any Person of any material amount of its assets other than the
retirement or other disposition of assets no longer useful to the Company or the
sale of finished products and spare parts in the ordinary course of the
operation of the Company; (vii) agreement requiring the payment by the Company
of more than $10,000 in any 12-month period for the purchase or lease of any
machinery, equipment or other capital assets; (viii) agreement providing for the
lease or sublease by the Company (as lessor, sublessor, lessee or sublessee) of
any real estate or personal property; (ix) distributor, representative, broker
or advertising agreement that is not terminable by the Company at will or by
giving notice of thirty (30) days or less, without liability; (x) collective
bargaining agreement, employment, change of control, severance or consulting
agreement or agreement providing for severance payments or other additional
rights or benefits (whether or not optional); (xi) joint venture agreement;
(xii) agreement requiring the payment to the Company by any other Person (other
than a division, unit or Affiliate of the Company) of more than $10,000 in any
12-month period for the purchase of goods or services; (xiii) any agreement,
contract or commitment currently in force relating to the acquisition by the
Company of assets not in the ordinary course of business or any ownership
interest in any corporation, partnership, joint venture or other business
enterprise; (xiv) agreement (including purchase orders, work assignment requests
and work assignment authorizations) between the Company and any other division,
unit or Affiliate of the Company or Shareholder requiring payments to or by the
Company of more than $10,000 in any 12-month period; (xv) license or sublicense
agreement with respect to any item of Intellectual Property (whether as
licensor, licensee, sublicensor or sublicensee); (xvi) agreement imposing
non-competition or exclusive dealing obligations on the Company which otherwise
contains any covenant that limits the freedom of the Company to engage in any
line of business anywhere in the world or compete with any Person or grants any
exclusive distribution rights; (xvii) Contract that is material to the
operations, financial condition or prospects of the Company and that is not
otherwise reflected on the Schedules; or (xviii) any Plan, including any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, the vesting of benefits of which will be
accelerated, or amounts which may become payable (whether currently or in the
future) to current or former employees, officers or directors of the Company by
the occurrence of, as a result of or in connection with any of the transactions
contemplated by this Agreement or the Ancillary Agreements, or the value of any
of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement or any of the Ancillary Agreements.
(b) The Company has delivered or made available to Merge
correct and complete copies of each written Contract listed on SCHEDULE 3.10, as
amended to date, and a written summary setting forth the terms and conditions of
each oral Contract referred to on such Schedule. Each Contract is a valid,
binding and enforceable obligation of the Company, and, to the knowledge of the
Principal Shareholder, the other party or parties thereto, and is in full force
and effect. Except as set forth on SCHEDULE 3.10: (i) neither the Company nor
23
any other party thereto has, to the knowledge of the Principal Shareholder,
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any Contract set forth on SCHEDULE 3.10; (ii) no
event, occurrence or condition exists that, with the lapse of time, the giving
of notice, or both, would constitute a breach, violation or default under any
Contract listed on SCHEDULE 3.10 by the Company or any other party thereto; and
(iii) the Company has not waived or released any of its material rights under
any Contract.
3.11 REAL PROPERTY.
(a) The Company does not own any real property.
(b) SCHEDULE 3.11 lists all lease and sublease agreements
relating to real property leased or subleased by the Company. With respect to
each such lease and sublease:
(i) such lease or sublease constitutes the entire
agreement to which the Company is a party with respect to the real property
leased thereunder;
(ii) there is no agreement, whether written or oral, to
which the Company is a party that will shorten the duration of the term of such
lease or sublease as a result of the consummation of the transaction pursuant to
this Agreement;
(iii) the Company has not assigned, subleased,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold;
(iv) all facilities leased or subleased thereunder have
received all approvals of Governmental Entities (including all Permits) required
in connection with the operation thereof and have been operated and maintained
in accordance with all applicable Laws to the extent operated and maintained by
the Company and to the knowledge of the Company and the Principal Shareholder by
any other party which has contracted with the Company;
(v) there is no action, suit or proceeding pending
against the Company or, to the any action, suit or proceeding pending or
threatened against the Company or any third party that would materially
interfere with the quiet enjoyment of such leased real property after the
Closing Date;
(vi) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the operation of such
facilities; and
(c) To the knowledge of the Company and the Principal
Shareholder, no fact or condition exists that is reasonably likely to result in
the discontinuation of presently available or otherwise necessary water, sewer,
gas, electric, telephone, drainage or other utilities or services relating to
the real property leased by the Company.
24
(d) All of the real property leased by the Company, and all
components of all improvements included within such leased real property,
including the roofs and structural elements thereof and the sprinkler and fire
protection, heating, ventilation, air conditioning, plumbing, electrical,
mechanical, sewer, waste water, storm water, paving and parking equipment,
systems and facilities included therein, are in good condition and repair,
working order and repair and do not require material repair or replacement in
order to serve their intended purposes in all material respects, including use
and operation consistent with their present use and operation, except for
scheduled maintenance, repairs and replacements conducted or required in the
ordinary course of the operation of such leased real property. The Company has
made all material repairs and replacements required to be made by it under the
real estate leases and subleases to which the Company is a party.
(e) Other than options, rights of first refusal or other
similar arrangements in favor of the Company under the leases and subleases
relating to the real property leased by the Company, the Company has not entered
into any contract, arrangement or understanding with respect to the future
ownership, development, use, occupancy or operation of any parcel of real
property leased by the Company.
(f) There are no pending or, to the knowledge of the Company
and the Principal Shareholder, threatened or contemplated condemnation or
eminent domain proceedings that affect the real property leased by the Company,
and the Company has not received any notice, oral or written, of the intention
of any Governmental Entity or other Person to take or use all or any part
thereof.
(g) During the Company' s occupancy, none of the real property
leased by the Company or any part thereof has suffered any material damage by
fire or other casualty that has not been completely restored.
(h) The Company has not received any written notice for any
insurance company that has issued a policy to the Company with respect to any
real property leased by the Company requiring the performance of any structural
or other repairs or alterations to such property.
3.12 INVENTORY.
All inventory of the Company, consists of a quality and quantity usable
and salable in the ordinary course of business, except for obsolete items and
items of below-standard quality, all of which have been written-off or
written-down to net realizable value in the Year-end Balance Sheet or on the
accounting records of the Company as of the Closing Date, as the case may be.
All inventories not written-off have been priced at the lower of cost or market
on a first in, first out basis. The quantities of each item of inventory are not
excessive, but are reasonable in the present circumstances of the Company. All
work in progress of the Company existing as of the Closing, whether or not
reflected in any of the Year-end Balance Sheet, is billable and collectable at
25
the Company's usual and customary rates and carries the Company's usual and
customary profitability margins.
3.13 TITLE AND RELATED MATTERS.
Except as set forth on SCHEDULE 3.13, the Company has good and
marketable title, or, in the case of leased properties and assets, valid
leasehold interests in, to all the properties and assets purported to be owned
or leased, respectively, by it, free and clear of all Liens. The properties and
assets owned and leased by the Company include sufficient tangible personal
property to conduct the business and operations of the Company as presently
conducted. All material items of tangible personal property owned or leased by
the Company are in good operating condition and repair, ordinary wear and tear
excepted, and are suitable for the purposes for which they are presently being
used and presently proposed to be used. Each item of tangible personal property
owned or used by the Company immediately prior to the Closing will be owned or
available for use by the Company on identical terms and conditions immediately
subsequent to the Closing.
3.14 INTELLECTUAL PROPERTY.
(a) The Company owns or has the right to use pursuant to valid
license, sublicense, Contract or permission all Intellectual Property necessary
or desirable for their operations as presently conducted and as the Company
presently proposes to be conducted. Each item of Intellectual Property owned or
used by the Company immediately prior to the Closing will continue to be owned
or available for use by the Company as survivor of the Merger on identical terms
and conditions immediately subsequent to the Closing. The execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby and thereby, will not (i) constitute a breach of any
instrument or Contract governing any Intellectual Property, (ii) cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any Intellectual Property or (iii) impair the right of the Company or Merge
to use, sell or license any Intellectual Property or portion thereof.
(b) The Company has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of third parties. Neither the provision of any service nor the
manufacture, marketing, license, sale or intended use of any product or
technology currently licensed or sold or under development by the Company
violates any license or Contract between the Company and any third party or
infringes any third party intellectual property rights. The Company has not
received any charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or violation (including any claim
that the Company must license or refrain from using any Intellectual Property
rights of any third party). No third party has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of the Company. Except as set forth on SCHEDULE 3.14, the Company has not
licensed or permitted any third party to exploit any of the Intellectual
Property.
26
(c) SCHEDULE 3.14 identifies each patent or registration of
Intellectual Property owned by the Company or for which an application filed by
the Company is pending, and identifies each license, sublicense, Contract or
permission pursuant to which the Company uses any item of Intellectual Property.
(d) The Company and the Intellectual Property will not
interfere with, infringe upon, misappropriate or otherwise come into conflict
with any intellectual property rights of third parties as a result of the
continued operation of the business of the Company now or in the future as
presently conducted or as proposed to be conducted or as otherwise contemplated
by the Consulting Agreement.
3.15 LITIGATION.
Except as set forth on SCHEDULE 3.15, the Company is not (a)
subject to any unsatisfied judgment order, decree, stipulation, injunction or
charge or (b) a party to or is threatened to be made a party to, any charge,
complaint, action, suit, proceeding, hearing or investigation of or in any court
or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction. There are no judicial or administrative actions,
proceedings or investigations pending, or, to the knowledge of the Company and
the Principal Shareholder, threatened, that question the validity of this
Agreement or any of the Ancillary Agreements or any action taken or to be taken
by the Company or Principal Shareholder in connection with this Agreement or any
of the other agreements contemplated hereby or that, if adversely determined,
would have a material adverse effect upon the Company's or the Principal
Shareholder's ability to enter into or perform their obligations under this
Agreement or any of the other agreements to which they are a party.
3.16 EMPLOYEE BENEFITS.
Except for Plans of the Company disclosed on SCHEDULE 3.16, the
Company, which for purposes of this Section 3.16 shall include any Affiliate,
does not sponsor, maintain, have any obligation to contribute to or have
liability under, and is not otherwise a party to any Plan or other employee
benefit arrangements and payroll practices. With respect to each Plan of the
Company and to the extent applicable:
(a) Each Plan has been maintained and operated in compliance
in all material respects with its terms and with the applicable provisions of
ERISA, the Code, including Section 408 thereof, all regulations, rulings and
other authority issued thereunder, and all other applicable governmental laws
and regulations, including all tax rules for which favorable tax treatment is
intended;
(b) All contributions required by Law or any Plan or
applicable collective bargaining agreement (including all employer contributions
and employee salary reduction contributions for any period on or before the
Closing Date) have been made under any such Plan (without regard to any waivers
granted under Section 412 of the Code to any fund, trust, or account established
27
thereunder or in connection therewith) have been made or will have been made by
the due date thereof. All accrued contributions, premiums and other payments
that would be (without regard to the transactions contemplated hereby), but are
not yet, due from any of the Company or associates to (or under) any Plan have
been adequately and properly provided for on the Preliminary Balance Sheet;
(c) The SEP ▇▇▇ Plan set forth on SCHEDULE 3.16 qualified
under Section 401(a) of the Code prior to its termination in 2004;
(d) Except as set forth on SCHEDULE 3.16, no Plan that is an
Employee Welfare Benefit Plan provides for continuing benefits or coverage for
any participant or beneficiary of a participant after such participant's
termination of employment, except to the extent required by law; and there has
been no violation of Section 4980B of the Code or Sections 601-608 of ERISA with
respect to any such Plan that could result in any material liability;
(e) With respect to each such Plan, true, correct, and
complete copies of the applicable following documents have been filed or
distributed appropriately and made available to Merge: (i) all current Plan
documents, and any amendment thereto; (ii) Forms 5500, financial statements, and
actuarial reports for the last three (3) plan years; (iii) summary plan
descriptions; (iv) the most recent determination letter received from the IRS
and (v) the related trust agreements, insurance contracts and other funding
agreements that implement such Plans;
(f) The Company has never contributed to or been required to
contribute to any Multiemployer Plan;
(g) SCHEDULE 3.16 includes a workers' compensation paid loss
summary through October 31, 2004 on an accident year basis. SCHEDULE 3.16
additionally includes a listing through the Closing Date of all open workers
compensation claims showing claimant name, claim number, description, paid loss
and case reserve;
(h) The Company has never been nor is a party to or otherwise
bound by any advance agreement or similar arrangement with any Governmental
Entity or regulatory body relating to the allowability, allocation or
reimbursement of benefit costs or other matters in connection with any Company
Plan;
(i) Except as provided on SCHEDULE 3.16, no Plan contains any
provision that would prohibit the transactions contemplated by this Agreement
and the Ancillary Agreements or that would give rise to any severance,
termination or other payments solely as a result of the transactions
contemplated by this Agreement and the Ancillary Agreements;
(j) Any Plan (or prospective, unaccrued and unvested liability
related thereto) is by its terms able to be amended or terminated by the
Company;
28
(k) There are no liabilities or obligations relating to any
individual's current or former employment with the Company or its Affiliates
arising in connection with any violation of any applicable Law prior to the
Closing Date;
(l) There have been no Prohibited Transactions with respect to
such Plans, no fiduciary has any liability for breach of fiduciary duty or any
other failure to act or comply in connection with the administration or
investment of the assets of such Plans, and no action, suit, proceeding, hearing
or investigation with respect to the administration or the investment of the
assets of such Plans (other than routine claims for benefits) is pending or
threatened.
(m) Neither the Company nor the Principal Shareholder has
communicated to any employee (excluding internal memoranda to management) any
plan or commitment, whether or not legally binding, to create any additional
material Plan or materially modify or change any Plan that would affect any
employee or terminated employee of the Company or any of its Affiliates in a
material manner;
(n) No individual classified as a non-employee for purposes of
receiving employee benefits (such as an independent contractor, leased employee,
consultant or special consultant), regardless of treatment for other purposes,
is eligible to participate in or receive benefits under any Plan which does not
specifically provide for their participation. A list of all non-employees is set
forth on SCHEDULE 3.16.
(o) Except for the SEP ▇▇▇ Plan set forth on SCHEDULE 3.16,
the Company has never sponsored an Employee Pension Benefit Plan.
(p) The Company has never self insured any employee benefit,
including employees' health insurance program, except as disclosed in SCHEDULE
3.16.
3.17 LABOR RELATIONS; EMPLOYEES.
(a) None of the Company's employees are represented by a labor
union or similar collective bargaining organization in connection with their
employment by the Company. There are no controversies pending or, to the
knowledge of the Company and the Principal Shareholder, threatened between the
Company and any current or former employee of the Company or any labor or other
collective bargaining unit representing any current or former employee of the
Company that could reasonably be expected to result in a labor strike, lockout,
dispute, slow-down or work stoppage or otherwise have a material adverse effect
on the financial condition, operations or prospects of the Company. To the
knowledge of the Company and the Principal Shareholder, there is no
organizational effort presently being made or threatened by or on behalf of any
labor union or collective bargaining organization with respect to employees of
the Company. The Company is and has been in material compliance with all Laws
regarding employment practices, terms and conditions of employment, and wages
29
and hours (including ERISA, the Workers Adjustment and Retraining and
Notification Act or any similar state or local law).
(b) SCHEDULE 3.17(b) contains a complete and accurate list of
the following information for each employee or director of the Company,
including each employee on leave of absence or layoff status: name; job title;
current compensation paid or payable and any change in compensation since
December 31, 2003; vacation accrued; and service credited for purposes of
vesting and eligibility to participate under the Company's pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock bonus, stock
option, cash bonus, employee stock ownership (including investment credit or
payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other Employee Pension Benefit Plan or Employee Welfare Benefit
Plan, or any other employee benefit Plan or any director plan.
(c) No employee or director of the Company is a party to, or
is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or Intellectual Property or proprietary rights
agreement, between such employee or director and any other Person that in any
way adversely affects or will affect the performance of his or her duties as an
employee or director of the Company or the ability of the Company to conduct its
business. To the knowledge of the Company and the Principal Shareholder, no
director, officer, key employee or group of employees of the Company intends to
terminate his or her employment with the Company.
(d) Neither the Principal Shareholder nor the Company has
guaranteed or promised continuing employment to any employee, and the Principal
Shareholder and the Company understand that business conditions will dictate
appropriate employment levels after the Closing.
(e) SCHEDULE 3.17(e) contains a complete and accurate list of
the following information for each retired employee or director of the Company,
or their dependents, receiving benefits or scheduled to receive benefits in the
future: name; pension benefit; pension option election; retiree medical
insurance coverage; retiree life insurance coverage; and other benefits.
3.18 ENVIRONMENTAL MATTERS.
(a) The Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable under,
any Environmental Law. Neither the Company nor the Principal Shareholder has any
basis to expect, nor has either of them or any Person for whose conduct they are
or may be held to be responsible, received any actual or threatened order,
notice or other communication from (i) any Governmental Entity or private
citizen acting in the public interest, or (ii) the current or prior owner or
operator of any facilities used, owned or operated by the Company or the
property on which such facilities are, or were located, of any actual or
potential violation or failure to comply with any Environmental Law, or of any
30
actual or threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
facilities or any other properties or assets (whether real, personal, or mixed)
in which the Company has or had an interest, or with respect to any property or
facility at or to which Hazardous Materials were generated, manufactured,
refined, transferred, imported, used or processed by the Company or any Person
for whose conduct it is found to be responsible, or from which Hazardous
Materials have been transported, treated, stored, handled, transferred,
disposed, recycled or received.
(b) There are no pending or threatened claims, encumbrances,
or other restrictions of any nature, resulting from any Environmental, Health
and Safety Liabilities or arising under or pursuant to any Environmental Law,
with respect to or affecting any of the facilities or any other properties and
assets (whether real, personal, or mixed) in which the Company has or had an
interest.
(c) Neither the Principal Shareholder nor the Company has any
basis to expect, nor has either of them or any Person for whose conduct they are
or may be held responsible, received, any citation, directive, inquiry, notice,
order, summons, warning or other communication that relates to Hazardous
Materials, Hazardous Activity or any alleged, actual or potential violation or
failure to comply with any Environmental Law, or of any alleged, actual or
potential obligations to undertake or bear the cost of any Environmental,
Health, and Safety Liabilities with respect to any of the facilities or any
other properties or assets (whether real, personal, or mixed) in which the
Company has or had an interest, or with respect to any property or facility to
which Hazardous Materials generated, manufactured, refined, transferred,
imported, used or processed by the Company or any Person for whose conduct it is
found to be responsible, have been transported, treated, stored, handled,
transferred, disposed, recycled or received.
(d) Neither the Principal Shareholder nor the Company, or any
Person for whose conduct they are or may be held responsible, has Environmental,
Health, and Safety Liabilities with respect to the facilities or with respect to
any other properties and assets (whether real, personal, or mixed) in which the
Company (or any predecessor) has or had an interest, or any such other property
or assets.
(e) There are no Hazardous Materials, except as properly
stored in compliance with Environmental Laws in commercial containers also in
compliance therewith for day-to-day use in the ordinary and usual course of the
Company's business, present on or in the environment at the facilities,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps or any other part of the facilities or such
adjoining property, or incorporated into any structure therein or thereon.
Neither the Principal Shareholder nor the Company, or any Person for whose
conduct they are or may be held responsible, or any other Person, has permitted
or conducted, or is aware of, any Hazardous Activity conducted with respect to
the facilities or any other properties or assets, (whether real, personal, or
mixed) in which the Company has or had an interest.
31
(f) There has been no Release or, to the knowledge of the
Company and the Principal Shareholder, threat of Release of any Hazardous
Materials at or from the facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, stored, distributed, handled, managed, Released, treated,
used or processed from or by the facilities, or from or by any other properties
and assets (whether real, personal, or mixed) in which the Company has or had an
interest, whether by the Company or any Person.
(g) The Company has delivered to Merge true and complete
copies and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by the Company pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the facilities, or concerning compliance
by the Company, or by any Person for whose conduct it are or may be held
responsible, with Environmental Laws.
3.19 LEGAL COMPLIANCE.
Except as set forth on SCHEDULE 3.19, the Company has fully complied
with all applicable Laws and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been filed or
commenced against or, to the knowledge of the Principal Shareholder, has been
threatened against the Company alleging any failure to so comply. No
investigation or review by any Governmental Entity is pending or threatened
against the Company and no Governmental Entity has indicated in writing or
orally, an intention to conduct the same. There is no agreement, judgment,
injunction, order or decree binding upon the Company, which has or could
reasonably be expected to have the effect of prohibiting or impairing (i) any
business practice of the Company, (ii) any acquisition by or property of the
Company or (iii) the conduct of business by the Company.
3.20 PERMITS.
SCHEDULE 3.20 contains a true and complete list and brief description
of all of the Permits required to allow, in accordance with the Laws of any
Governmental Entity, the continued operation of the business as now conducted
(or proposed to be conducted under existing Contracts), and the Company is the
authorized legal holder of the Permits. Each of the Permits is valid and in full
force and effect, the Company is in compliance with all the provisions of the
Permits in all material respects. The Company has not received notice that any
Governmental Entity has instituted any proceedings for the cancellation,
non-renewal or modification of any of the Permits; there is no reason why any of
such Permits will, upon their scheduled expiration or as a result of the
Closing, not be renewable or reissuable in the ordinary course or will be
issuable or reissuable only with the imposition of a material condition.
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3.21 AFFILIATE AGREEMENTS
SCHEDULE 3.21 sets forth: (i) a list of each and every written Contract
or arrangement; (ii) a brief description in reasonable detail of all oral
Contracts or arrangements in effect that relate to, in either case (x) the
provision of products or services to the Company by any Principal Shareholder of
the Company, officer, director or employee, or any Related Person or Affiliate
of the Company or any Principal Shareholder of the Company or (y) the provision
of products or services by the Company to the Principal Shareholder, officer,
director or employee, or any Related Person or Affiliate of any Principal
Shareholder of the Company, officer, director or employee. The Company has
delivered to Merge correct and complete copies of each such written Contract or
arrangement, as amended to date. Except as set forth on SCHEDULE 3.21, all such
Contracts and arrangements with Related Parties are on terms no less favorable
than those that could be obtained in arms-length transactions with non-related
parties. Except as set forth on SCHEDULE 3.21, no Shareholder of the Company,
officer, director or employee of the Company has any interest in any property,
real or personal, tangible or intangible, used in or pertaining to the business
of the Company.
3.22 INSURANCE.
SCHEDULE 3.22 contains a correct and complete list and description by
type of all policies of fire, liability, directors' and officers', errors and
omissions, workers' compensation and other forms of insurance, including all
group insurance programs, owned or held by the Company. All such policies are in
full force and effect, and no written notice of cancellation or termination has
been received with respect to any such policy. Except as noted on SCHEDULE 3.22,
all premiums with respect to all insurance policies covering all periods up to
and including the date hereof have been paid. Such policies, (a) are sufficient
for compliance with all material requirements of Law and of all material
Contracts to which the Company is a party, (b) are valid, outstanding and
enforceable policies as against the Company, (c) provide insurance coverage for
the assets and operations of the Company that, in the reasonable judgment of the
Principal Shareholder and the management of the Company, is adequate in light of
risks of the Company's business as heretofore conducted, (d) will remain in full
force and effect through the respective dates set forth in SCHEDULE 3.22 without
the payment of additional premiums and (e) will not in any way be affected by,
or terminate or lapse by reason of, the transactions contemplated by this
Agreement or the Ancillary Agreements. The Company has not been refused any
insurance with respect to its assets or operations, nor has any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance limited its coverage.
3.23 BANK ACCOUNTS AND POWERS.
SCHEDULE 3.23 lists each bank, trust company, savings institution,
brokerage firm, mutual fund or other financial institution with which the
Company has an account or safe deposit box relating to the Company and the names
and identification of all Persons authorized to draw thereon or to have access
thereto. SCHEDULE 3.23 lists the names of each Person holding powers of attorney
or agency authority from the Company and a summary of the terms thereof.
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3.24 BROKERS' FEES.
The Principal Shareholder, the Company and their agents have not, nor
will they incur, directly or indirectly, any liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to this
Agreement or any Ancillary Agreement or of any of the transactions contemplated
hereby or thereby.
3.25 CERTAIN PAYMENTS.
Neither the Company nor any director, officer, agent, or employee of
the Company, or to the knowledge of the Company and the Principal Shareholder,
any Person associated with or acting for or on behalf of the Company, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback or other payment to any Person, private or public,
regardless of form, whether in money, property or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Company or any Affiliate
of the Company, or (iv) in violation of any Law, or (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Company.
3.26 CUSTOMER RELATIONSHIPS.
Except as set forth in SCHEDULE 3.26, there has not been, and neither
the Company nor the Principal Shareholder has knowledge of circumstances giving
rise to cause either of them to reasonably believe that there will be, any
adverse change in the Company's relations with any of its customers since
December 31, 2003, whether as a result of the transactions contemplated by this
Agreement or the Ancillary Agreements, or otherwise. SCHEDULE 3.26 sets forth a
true and complete list of the Company's ten (10) largest customer accounts as of
the date hereof. No current customer of the Company has advised the Company
that, as a result of the transactions contemplated by this Agreement or any of
the Ancillary Agreements, it is terminating the handling of its business by the
Company, as a whole or in part, or reducing its future spending with the
Company. Except as set forth in SCHEDULE 3.26, the Company is not involved in
any material claim or controversy with any customer.
3.27 VENDORS.
SCHEDULE 3.27 contains an accurate and complete list of the Company's
ten (10) largest vendors as of the date hereof. No vendor has canceled or
otherwise terminated, modified or threatened to cancel or otherwise terminate,
or to modify, its relationship with the Company. Except as set forth on SCHEDULE
3.27, the Company is not involved in any material claim or controversy with any
vendor.
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3.28 BOARD APPROVAL.
The Board of Directors of the Company has determined that the
transactions contemplated by this Agreement are fair to, and in the best
interests of, the Company and the Shareholders, and the Board of Directors of
the Company has approved this Agreement and the Voting Agreement and the
transactions contemplated thereby.
3.29 BOOKS AND RECORDS.
Except as set forth on Schedule 3.29, all accounts, stock record books,
ledgers and other records related to the business of the Company have been
properly and accurately kept and completed in all material respects in
accordance with reasonable business practices, and there are no material
inaccuracies or discrepancies of any kind contained or reflected therein. Except
as set forth on Schedule 3.29, the minute books of the Company contain accurate
and complete records of all material corporate actions taken by the Shareholders
of the Company, the Board of Directors and committees of the Board of Directors
which are required to be approved by them. To the extent that any records
related to the Company are missing from or not included in the minute books of
the Company (the "Missing Records"), the Company represents and warrants that
the Missing Records contain or reflect no action, decisions or practices in any
way inconsistent with the business of the Company as currently conducted or with
the representations of the Company and the Principal Shareholder contained in
this Agreement.
3.30 ANTITRUST LAW COMPLIANCE.
The Company has not violated in any respect, received a notice or
charge asserting any violation, or engaged in conduct that may be construed as
price fixing or any other violation of the ▇▇▇▇▇▇▇ Act, the ▇▇▇▇▇▇▇ Act, the
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇ Act or the Federal Trade Commission Act, each as amended, or any
other federal or state Law related to antitrust or competition.
3.31 PRODUCT LIABILITY.
The Company has no liability, whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated and whether due or to
become due, and there exists no past or present fact, situation, circumstance,
status, condition, activity, practice, occurrence, event, incident, action,
failure to act or transaction that forms or could form the basis for any present
or future liability, charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand against the Company arising out of any injury to
persons or property as a result of the ownership, possession or use of any
product manufactured, sold, leased or delivered by the Company or as a result of
any service provided by the Company.
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3.32 FULL DISCLOSURE.
All documents and other papers delivered by or on behalf of the Company
or the Principal Shareholder in connection with this Agreement are true,
complete, correct and authentic in all respects. No representation or warranty
of any of the Principal Shareholder or the Company contained in this Agreement,
and no statement contained in any document or certificate required to be
delivered by the Company or the Principal Shareholder to Merge or any of its
representatives pursuant to the terms of this Agreement or the Ancillary
Agreements (including the Schedules hereto and thereto), contains any untrue
statement of a material fact or omits to state on an appropriate schedule a
material fact necessary to make the representation, warranty or statements
contained herein or therein not misleading. There is no fact that the Company or
the Principal Shareholder have not disclosed to Merge in writing that the
Company or Principal Shareholder reasonably believe has or will have a material
adverse effect on the financial conditions, operations or prospects of the
Company or a material adverse effect on the ability of the Company or the
Principal Shareholder of the Company to perform this Agreement or any other
agreements contemplated hereby to which any of them is a party.
3.33 INTERNAL CONTROL OVER FINANCIAL REPORTING.
The Company maintains books of account which accurately and validly
reflect all loans, mortgages, collateral, and other business transactions and
maintain proper and adequate internal control over financial reporting which
provide assurance that (a) receipts and expenditures are made and access to the
Company's assets is permitted only in accordance with management's
authorization; (b) the books and records of the Company accurately and fairly
reflect in reasonable detail the transactions and dispositions of the assets of
the Company; (c) the reporting of the assets of the Company is compared with
existing assets at regular intervals; (d) transactions are recorded as necessary
to permit preparation of financial statements of the Company in accordance with
GAAP and to maintain accountability for the assets of the Company; (e)
unauthorized acquisition, use, or disposition of the assets of the Company is
prevented; and (f) accounts, notes, and other transactions are recorded
accurately, and proper and adequate procedures are implemented to effect the
collection thereof on a current and timely basis. Schedule 3.33 identifies all
significant deficiencies or material weaknesses in the internal control over
financial reporting of the Company.
3.34 COMPLIANCE WITH SOX.
The Company is in compliance with the provisions of SOX applicable to
it as of the date hereof and has implemented such programs and has taken
reasonable steps, upon the advice of the Company's independent auditors and
outside counsel, respectively, to ensure the Company's future compliance (not
later than the relevant statutory and regulatory deadlines therefor) with all
provisions of SOX which shall become applicable to the Company after the date
hereof.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF MERGE
Merge and Acquisition Sub represent and warrant to, and covenant with,
the Company and the Principal Shareholder as of the date of this Agreement and
as of the Closing Date, as follows:
4.1 ORGANIZATION.
Merge and Acquisition Sub are each a corporation duly organized,
validly existing and in good standing under the laws of the State of Wisconsin
and the State of Nevada, respectively.
4.2 AUTHORIZATION OF TRANSACTION.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Board of Directors of Merge and Acquisition Sub. Merge
and Acquisition Sub have the absolute and unrestricted right, power, authority
and capacity (including full corporate power and authority) or have taken all
requisite action to enable Merge and Acquisition Sub to execute and deliver this
Agreement and to perform their obligations hereunder. This Agreement has been
duly executed and delivered by Merge and Acquisition Sub. When duly executed and
delivered, this Agreement constitutes the valid and legally binding obligation
of Merge and Acquisition Sub, enforceable in accordance with its terms, subject
to (i) laws of general application relating to bankruptcy insolvency, and the
relief of debtors, and (ii) general equitable principles.
4.3 NONCONTRAVENTION; CONSENTS.
Neither the execution and the delivery of this Agreement, nor the
consummation by Merge and Acquisition Sub of the transactions contemplated
hereby, will violate any Law to which Merge or Acquisition Sub is subject or any
provision of the charter or bylaws of Merge or Acquisition Sub. Neither the
execution and delivery of this Agreement or any of the Ancillary Agreements by
Merge and Acquisition Sub, nor the consummation by Merge and Acquisition Sub of
the transactions contemplated hereby or thereby, will constitute a violation of,
be in conflict with or constitute or create a default under, any agreement or
commitment to which Merge or Acquisition Sub is a party or by which Merge,
Acquisition Sub or any of their properties is bound or to which Merge,
Acquisition Sub or any of such properties is subject. Merge and Acquisition Sub
have given all required notice and obtained all Permits, consents, approvals,
authorizations, qualifications and orders of Governmental Entities as are
required in order to enable Merge and Acquisition Sub to perform their
obligations under this Agreement and each of the Ancillary Agreements.
37
SECTION 5. PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period between the
date of this Agreement and the Closing Date:
5.1 GENERAL.
Each of Merge, the Company and the Principal Shareholder will use its
reasonable best efforts to take all actions and to do all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement (including satisfying the closing conditions set
forth in Section 7).
5.2 NOTICES AND CONSENTS.
Beginning on the date hereof, the Company will give all required
notices to third parties and will obtain all third party consents that are
required in connection with the transactions contemplated by this Agreement,
each in form and substance reasonably acceptable to Merge. A copy of such notice
or consent shall be provided to Merge as soon as practicable.
5.3 CARRY ON IN ORDINARY COURSE.
(a) Between the date of this Agreement and the Closing Date,
the Company will conduct and carry on its business only in the ordinary course
consistent with past practices. Until such time, the Company also shall use its
commercially reasonable efforts to preserve the Company's assets, relationships,
customers, clients and employees and to preserve for Merge the integrity and
reputation of the Company, and shall not take any of the following actions
without the prior written consent of Merge, which consent shall not be
unreasonably withheld:
(i) form or cause to be formed any subsidiary;
(ii) make any change in any executive management
personnel;
(iii) enter into any contract of employment with, or
increase the compensation paid or payable to, or enter
into any new arrangements with, any of its officers,
directors, employees or agents or pay or become
committed to pay any of the foregoing any bonuses or
other special compensation except for non-management
employees in the ordinary course of business;
(iv) amend its charter or bylaws;
(v) authorize, issue or sell, repurchase, or become
committed to authorize, issue or sell, or repurchase,
any shares of capital stock or any rights or options to
acquire capital stock except pursuant to the
acceleration or exercise of rights or options
previously granted by the Company;
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(vi) make any single expenditure in an amount exceeding
ten thousand dollars ($10,000), or expenditures which
in the aggregate exceed twenty-five thousand dollars
($25,000), or agree to sell, transfer, assign or
encumber, any of the Company's assets except in the
ordinary course of business;
(vii) pay or declare any dividends to its shareholders;
or
(viii) pay, declare or announce any capital
distribution.
(b) Between the date of the Agreement and the Closing Date,
the Company and the Principal Shareholder further agree to:
(i) use their reasonable best efforts to preserve
intact the current business of the Company, keep
available the services of the current officers,
employees and agents of the Company, and maintain the
relations and goodwill with customers, vendors,
landlords, creditors, employees, agents and others
having business relationships with the Company;
(ii) confer with Merge concerning operational matters
of a material nature; and
(iii) otherwise report periodically to Merge concerning
the status of the business, operations, finances and
prospects of the Company.
(c) Neither the Company, the Principal Shareholder
nor Merge shall take any action
that could reasonably be expected to adversely affect its ability to perform
this Agreement.
(d) The Principal Shareholder will not transfer,
pledge or otherwise dispose of any of
his Shares owned on the date hereof.
(e) The Company will not make a voluntary bankruptcy
filing, an assignment for the
benefit of creditors or take any other similar action.
5.4 NO DEFAULT.
The Company will not commit or omit to take any act which will cause a
termination of or material breach or default under any Contract or obligation to
which the Company is a party or by which its assets are bound.
39
5.5 FULL ACCESS.
Until the Closing Date and the consummation of the transactions
contemplated by this Agreement, the Company and the Principal Shareholder agree
to give reasonable access to Merge and Merge's agents and representatives to all
assets, properties, contracts, personnel, key customers, suppliers, agents,
books and records of the Company and/or any other data and information related
to the Company as Merge and/or its agents or representatives may reasonably deem
necessary, and further agree to cause Company's executive employees and legal
and financial representatives to meet with Merge at mutually agreeable times and
locations and answer Merge's questions to the best of their ability, including
but not limited to their assessment of all pending, threatened or contingent
claims or lawsuits against the Company. The Company shall also afford
unrestricted access to all its audit papers and allow Merge and its
representatives the opportunity to ask questions and receive answers, to the
best of their ability, of the appropriate officers and agents of the Company.
5.6 NOTICE OF DEVELOPMENTS.
The Company and the Principal Shareholder will each give prompt written
notice to Merge of any material development affecting the Company. Each party
will give prompt written notice to the other of any material development
affecting the ability of the parties to consummate the transactions contemplated
by this Agreement or any of the Ancillary Agreements. No such written notice of
a material development will be deemed to have amended the Schedules, to have
qualified the representations and warranties contained herein or in the
Ancillary Agreements, or to have cured any misrepresentation or breach of
warranty that otherwise might have existed hereunder by reason of such material
development.
5.7 NO SOLICITATION OF TRANSACTIONS.
(a) The Company agrees that it shall not, and shall not
authorize or permit any of its directors, officers, employees or representatives
to, directly or indirectly:
(i) solicit, initiate, encourage, knowingly facilitate or
induce any inquiry with respect to, or the making, submission or announcement
of, any Acquisition Proposal;
(ii) participate or engage in any discussions or
negotiations regarding, or furnish to any Person any nonpublic information with
respect to, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes or may reasonably be expected to lead to, any
Acquisition Proposal, except to notify such Person as to the existence of these
provisions (except to the extent permitted pursuant to this Section 5.7);
(iii) approve, endorse or recommend any Acquisition
Proposal with respect to the Company (except to the extent permitted by this
Section 5.7); or
40
(iv) enter into any letter of intent or similar document
or any agreement, commitment or understanding contemplating or otherwise
relating to any Acquisition Proposal or a transaction contemplated thereby
(except for confidentiality agreements permitted pursuant to Section 5.7(c)).
The Company shall immediately terminate all discussions or
negotiations, if any, with any third party with respect to, or any that could
reasonably be expected to lead to or contemplate the possibility of, an
Acquisition Proposal. The Company shall as soon as practicable demand that each
Person which has executed, since January 1, 2003, a confidentiality agreement
with the Company or any of its Affiliates or any of its or their representatives
with respect to such Person's consideration of a possible Acquisition Proposal
to immediately return or destroy (which destruction shall be certified in
writing by such Person to the Company) all confidential information heretofore
furnished by the Company or any of its Affiliates or subsidiaries or any of its
or their representatives to such Person or any of its Affiliates or any of its
or their representatives.
(b) Promptly (but in any event within 36 hours) after receipt
of any Acquisition Proposal or any request for nonpublic information or inquiry
which it reasonably believes could lead to an Acquisition Proposal, the Company
shall provide Merge with written notice of the material terms and conditions of
such Acquisition Proposal, request or inquiry, and the identity of the Person or
group making any such Acquisition Proposal, request or inquiry, and a copy of
all written materials provided in connection with such Acquisition Proposal,
request or inquiry. After receipt of the Acquisition Proposal, request or
inquiry, the Company shall promptly keep Merge informed in all material respects
of the status and details (including material amendments or proposed material
amendments) of any such Acquisition Proposal, request or inquiry and shall
promptly provide to Merge a copy of all written materials subsequently provided
in connection with such Acquisition Proposal, request or inquiry.
(c) If the Company receives an Acquisition Proposal which (i)
constitutes a Superior Proposal or (ii) which the Board of Directors of the
Company in good faith concludes could reasonably be expected to result in a
Superior Proposal, the Company shall promptly provide to Merge written notice
that shall state expressly (A) that it has received an Acquisition Proposal
which constitutes a Superior Proposal or which could reasonably be expected to
result in a Superior Proposal, and (B) the identity of the party making such
Acquisition Proposal and the material terms and conditions of the Acquisition
Proposal (the "Superior Proposal Notice" ) and may then take the following
actions (either directly or through its subsidiaries or any of their respective
directors, officers, employees or representatives):
(i) furnish nonpublic information to the third party
making such Acquisition Proposal, provided, that (A) prior to so furnishing, the
Company receives from the third party an executed confidentiality agreement
containing customary standstill provisions and other terms and conditions that
are no less restrictive to such third party than the terms and conditions of the
nondisclosure agreement entered into between Merge and the Company dated
September 22, 2004 and (B) contemporaneously with furnishing any such nonpublic
information to such third party, the Company furnishes a copy of such nonpublic
41
information to Merge (to the extent such nonpublic information has not been
previously so furnished); and
42
(ii) participate or engage in any discussions or
negotiations with the third party with respect to the Acquisition Proposal.
(d) For a period of not less than five Business Days after
Merge's receipt from the Company of each Superior Proposal Notice, the Company
shall, if requested by Merge, negotiate in good faith with Merge to revise this
Agreement so that the Acquisition Proposal that constituted a Superior Proposal
no longer constitutes a Superior Proposal.
(e) Notwithstanding anything in this Agreement to the
contrary, in response to the receipt of a Superior Proposal that has not been
withdrawn and continues to constitute a Superior Proposal after the Company's
compliance with Section 5.7(d), the Board of Directors of the Company may
withhold, withdraw or modify the Company Recommendation and, in the case of a
Superior Proposal that is a tender or exchange offer made directly to its
stockholders, may recommend that its stockholders accept the tender or exchange
offer (any of the foregoing actions, whether by the Board of Directors or a
committee thereof, a "Change of Recommendation" ) and, pursuant to Section
9.1(d), may terminate this Agreement, if both of the following conditions in
Sections 5.7(e)(i) and 5.7(e)(ii) are met:
(i) the approval of the Merger by the Company's
stockholders has not been obtained; and
(ii) the Board of Directors of the Company has concluded
in good faith, following the receipt of advice of its outside legal counsel,
that, in light of such Superior Proposal, the failure of the Board of Directors
to effect a Change of Recommendation would result in a breach of its fiduciary
obligations to its stockholders under applicable Law.
(f) Nothing contained in this Agreement shall be deemed to
restrict the Company from complying with Rules 14d-9 or 14e-2.
5.8 TAX MATTERS.
No new elections with respect to Taxes, or any changes in current
elections with respect to Taxes, relating to or affecting the Company will be
made by the Company after the date of this Agreement without the prior written
consent of Merge.
5.9 NEW OEM CONTRACTS.
The Company and the Principal Shareholder shall have used their best
efforts to secure new OEM and distribution contracts, upon such terms as shall
be approved by Merge in its reasonable discretion.
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5.10 PROXY STATEMENT.
(a) As promptly as practicable after the execution of this
Agreement, the Company shall prepare a proxy statement relating to the Company
Stockholders' Meeting (as defined herein) (together with any amendments thereof
or supplements thereto, the "Proxy Statement"). The Company shall use reasonable
best efforts to cause the Proxy Statement to comply with any requests of the SEC
and to be mailed to the Company's stockholders as promptly as practicable after
the Proxy Statement shall have been cleared by the SEC. No filing of, or
amendment or supplement to, the Proxy Statement shall be made by the Company
without providing Merge a reasonable opportunity to review and comment thereon,
which comments shall be considered in good faith. The Company shall advise
Merge, promptly after it receives notice thereof, of any request by the SEC for
amendment of the Proxy Statement or comments thereon and responses thereto or
requests by the SEC for additional information.
(b) The information supplied by Merge to the Company for
inclusion in the Proxy Statement shall not, at (i) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to the
stockholders of the Company, and (ii) the time of the Company Stockholders'
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. If at any time prior to the Closing any event
or circumstance relating to Merge or any of its Subsidiaries, or their
respective officers or directors, should be discovered by Merge which should be
set forth in an amendment or a supplement to the Proxy Statement, Merge shall
promptly inform the Company and, to the extent required by applicable Law, an
appropriate amendment or supplement describing such event or circumstance shall
be promptly filed with the SEC and disseminated to stockholders of the Company.
All documents that Merge is responsible for filing with the SEC in connection
with the transactions contemplated herein will comply as to form and substance
in all material respects with the applicable requirements of the Securities Act
and the rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
(c) The information supplied by the Company for inclusion in
the Proxy Statement shall not, at (i) the time the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to the stockholders of
the Company, and (ii) the time of the Company Stockholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Closing any event or circumstance
relating to the Company or any of its Subsidiaries, or their respective officers
or directors, should be discovered by the Company which should be set forth in
an amendment or a supplement to the Proxy Statement, the Company shall promptly
inform Merge, and, to the extent required by applicable Law, an appropriate
amendment or supplement describing such event or circumstance shall be promptly
filed with the SEC and disseminated to stockholders of the Company. All
documents that the Company is responsible for filing with the SEC in connection
with the transactions contemplated herein will comply as to form and substance
in all material respects with the applicable requirements of the Securities Act
44
and the rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
5.11 COMPANY SHAREHOLDERS' MEETING.
(a) The Company shall duly call and hold a meeting of its
stockholders (the "Company Stockholders' Meeting") as promptly as practicable in
accordance with applicable Law following the date the Proxy Statement is cleared
by the SEC and after coordination with Merge, provided that the meeting shall be
held not later than March 20, 2005, for the purpose of voting upon the adoption
of this Agreement and approval of the Merger. In connection with the Company
Stockholders' Meeting and the transactions contemplated hereby, the Company will
(i) subject to applicable Law, use its reasonable best efforts (including
postponing or adjourning the Company Stockholders' Meeting to obtain a quorum or
to solicit additional proxies) to obtain the necessary approvals by its
stockholders of this Agreement and the Merger and (ii) otherwise comply with all
legal requirements applicable to the Company Stockholders' Meeting.
(b) The Board of Directors of the Company shall recommend
adoption of this Agreement and approval of the Merger by the stockholders of the
Company (the "Company Recommendation"). Subject to Section 5.7, the Company
shall not withdraw or adversely modify (or propose to withdraw or adversely
modify) such recommendation, and the Proxy Statement shall contain such
recommendation.
5.12 MISSING RECORDS.
The Company shall use its best efforts to locate and deliver to Merge
the Missing Records.
5.13 OPTIONS; WARRANTS.
The Company shall use its best efforts to resolve, in a manner
reasonably satisfactory to Merge, any outstanding options and warrants
for Shares.
SECTION 6. POST-CLOSING COVENANTS
The parties agree as follows with respect to the period following the
Closing Date:
6.1 GENERAL.
In case at any time after the Closing Date any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
parties will take such further action (including the execution and delivery of
such further instruments and documents) as the other parties reasonably may
request, at the sole cost and expense of the requesting party (unless the
requesting party is entitled to indemnification therefor under Section 8).
45
6.2 LITIGATION SUPPORT.
(a) In the event and for so long as any party hereto is
actively contesting or defending against any charge, complaint, action, audit,
suit, proceeding, hearing, investigation, claim or demand in connection with (i)
any transaction contemplated under this Agreement, or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the Closing Date
involving the Company, the other parties will cooperate with the contesting or
defending parties and its counsel in the contest or defense, make available its
personnel and provide such testimony and access to its books and records as may
be necessary in connection with the contest or defense, at the sole cost and
expense of the contesting or defending party (unless the contesting or defending
party is entitled to indemnification therefor under Section 8).
(b) Merge will cause the Surviving Corporation or its
successor to maintain all original books, records, files, documents, papers and
agreements pertaining to the operations of the Company as conducted prior to the
Closing Date for at least four years following the Closing Date or such longer
period as may be required by Law.
6.3 AGREEMENTS REGARDING TAX MATTERS.
(a) Merge shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company for all periods ending on or
prior to the Closing Date which are filed after the Closing Date. The Company
will ensure that there is an adequate accrual for the liability set forth in
such Tax Returns, including the cost of preparation thereof, on the Closing
Balance Sheet.
(b) Merge, the Company and the Principal Shareholder shall
cooperate fully, as and to the extent reasonably requested by the other parties,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon request by one of the other parties) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding.
(c) All tax sharing agreements or similar agreements with
respect to or involving the Company shall be terminated as of the Closing Date,
and after the Closing Date, the Company shall not be bound thereby or have any
liability thereunder.
6.4 CONFIDENTIAL INFORMATION.
For a period of ten years after the Closing Date, the Principal
Shareholder and his Affiliates will treat and hold as such, and will not use for
the benefit of himself or others, any confidential information, in whatever form
or medium, concerning the operations and affairs of the Company, except as
required by them to bring or defend any lawsuit or other proceeding relating to
the Company's operations prior to the Closing Date or relating to the
transactions contemplated herein in accordance with the provisions of this
46
Section 6.4 and Section 8.4. In the event that the Principal Shareholder or his
Affiliates is requested or required (by oral request or written request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand or similar process) to disclose any confidential
information, then the Principal Shareholder will notify Merge promptly in
writing of the request or requirement so that Merge may seek an appropriate
protective order or waive compliance with this Section 6.4. If, in the absence
of a protective order or receipt of a waiver hereunder, the Principal
Shareholder or his Affiliates is, on the advice of outside counsel, compelled to
disclose any confidential information to any Governmental Entity or else stand
liable for contempt, then the Principal Shareholder or Affiliate may disclose
such confidential information to such Governmental Entity, provided that the
Principal Shareholder or his Affiliates will use their reasonable best efforts
to obtain, at the request of Merge, an order or other assurance that
confidential treatment will be accorded to such confidential information.
6.5 COVENANT NOT TO COMPETE; SOLICITATION.
The Principal Shareholder agrees that for a period of five years from
and after the Closing Date, he will not engage directly or indirectly in the
Business that the Company conducts. The "Business", for purposes of this
Agreement, is defined in Recital A set forth at the beginning of this Agreement.
In addition, for such five (5) year period, the Principal Shareholder will not
solicit the employment of or hire any current employee of the Company.
6.6 PAYMENT OF PRINCIPAL SHAREHOLDER'S NOTE.
At the Closing, Merge will cause the Company to repay the $1,000,000
aggregate principal amount demand notes issued by the Company to the Principal
Shareholder, including all accrued and unpaid interest thereon.
SECTION 7. CLOSING CONDITIONS
7.1 CONDITIONS TO OBLIGATION OF MERGE.
The obligation of Merge and Acquisition Sub to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction, or waiver, in Merge's sole discretion, at or prior to Closing, of
each of the following conditions:
(a) There being no material adverse change in the Company's
business, operations or prospects.
(b) There being no uncovered material adjustments in the
Company's 2003 financial performance (revenues and net income) or the Company's
year to date 2004.
(c) There being no uncovered material changes in the Company's
balance sheet between the date hereof and the Closing Date, including but not
limited to Accounts Receivable collections, increases in debt other than debt to
finance working capital needs, and the like.
47
(d) The Company obtaining all required consents to change in
control of the Company and assignment as it relates to all client, product,
licensing, service and asset Contracts of the Company as set forth on SCHEDULE
3.3.
(e) Merge securing employment agreements with those employees
of the Company set forth on the schedule previously delivered by Merge to the
Company at a compensation level consistent with similarly situated employees of
Merge.
(f) Merge shall have satisfied itself that all employees of
the Company have executed confidentiality and employee invention agreements in
form satisfactory to Merge consistent with Merge's current form of agreement.
(g) At the Closing, the Principal Shareholder or the Company,
as the case may be, shall deliver to Merge the following agreements, instruments
or documents (collectively the "Closing Documents"):
(1) Certified Articles and Bylaws.
(2) Certificate of Chief Executive Officer of the Company
as to representations and warranties.
(3) Certificate of the Principal Shareholder as to
representations and warranties.
(4) Certificate of Merger for filing in Nevada.
(5) Good Standing Certificates from the Secretaries of
State of Nevada and California.
(6) A consent from the Company's independent accountants
to include the Company's financial statements with any and all filing by Merge
after the Closing.
(7) The Consulting Agreement with Principal Shareholder.
(8) Certified resolutions of the Board of Directors and
the Shareholders of the Company, approving the merger and other transactions
contemplated herein.
(9) a certificate executed by the Company and the
Principal Shareholder, dated as of the Closing Date, to the effect that each of
the conditions specified above, are satisfied in all respects;
48
(10) the Company shall have delivered to Merge an opinion
of counsel dated as of the Closing Date from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, with
respect to the matters set forth in EXHIBIT D attached hereto;
(h) the representations and warranties of the Company and the
Principal Shareholder set forth in this Agreement will, individually and
collectively, be true and correct in all material respects at and as of the
Closing Date and such parties shall have delivered a certificate to such effect;
(i) the Company and the Principal Shareholder will have
performed and complied with all of their covenants and obligations hereunder in
all material respects through the Closing Date;
(j) there will not be any action, suit or proceeding pending
or threatened before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
interfered with, prevented, delayed or rescinded following consummation, (iii)
affect materially and adversely the right of Merge following the Closing Date to
control the Company as survivor of the merger with Acquisition Sub or (iv)
affect materially and adversely, including through the imposition of any
divestiture requirement, the right of the Company to own its assets or to
operate its business as presently operated and as presently proposed to be
operated (and no such injunction, judgment, order, decree, ruling or charge will
be in effect);
(k) there must not have been made or threatened by any Person
other than as disclosed on the stock transfer records of the Company, any claim
asserting that such Person (i) is the holder or the beneficial owner of or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other equity, voting or ownership interest in, the Company, or (ii) is entitled
to all or any portion of the Merger Consideration payable for any Shares if the
amount in controversy exceeds $25,000;
(l) all actions to be taken by the Company and the Principal
Shareholder in connection with consummation of the transactions contemplated by
this Agreement, and all certificates, instruments and other documents required
to effect the transactions contemplated hereby and thereby, will be reasonably
satisfactory in form and substance to Merge;
(m) holders of no more than five percent (5%) of the
outstanding Shares shall have exercised dissenters' rights
under the Nevada Statute and not waived such rights prior
to Closing;
49
(n) all outstanding options and warrants for Shares (other
than in the Voting Agreement) shall have been resolved in
a manner reasonably satisfactory to Merge;
(o) that certain Consulting Arrangement between the Company
and Health Care Technology Group dated January 28, 2004
shall have been terminated on or before December 15, 2004;
and
(p) the Company shall have entered into a consulting or
similar agreement with ▇▇▇▇ ▇▇▇▇▇▇▇ covering the period
since expiration of his prior agreement with the Company
on the same terms and conditions as such prior agreement.
50
7.2 CONDITIONS TO OBLIGATION OF THE COMPANY AND ITS SHAREHOLDERS.
The obligation of the Company and the Principal Shareholder to
consummate the transactions to be performed in connection with the Closing is
subject to satisfaction of the following conditions (any of which may be waived,
in whole or in part, by the Company and the Principal Shareholder):
(a) the representations and warranties of Merge set forth in
Section 4 will be true and correct in all material respects at and as of the
Closing Date;
(b) Merge will have performed and complied with all of its
covenants hereunder in all respects through the Closing Date;
(c) there will not be any action, suit or proceeding pending
or threatened before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or (ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation;
(d) Merge will have delivered a certificate to the effect that
each of the conditions specified above is satisfied in all respects;
(e) Merge will have delivered the Merger Consideration (other
than the portion for Dissenting Shareholders and any amount deducted due to a
deficiency in Net Asset Value set forth in the Preliminary Balance Sheet) due at
Closing to the Transfer Agent and the Holdback to the Escrow Agent;
(f) Merge shall have delivered to the Company and the
Principal Shareholder an opinion of counsel dated as of the Closing Date from
counsel for Merge with respect to the matters set forth in EXHIBIT E attached
hereto;
(g) the Certificate of Merger as provided in Section 2.3
hereof; and
(h) Merge shall have executed and delivered the Consulting
Agreement.
(i) holders of no more than five percent (5%) of the
outstanding Shares shall have exercised dissenters' rights under the Nevada
Statute and not waived such rights prior to Closing.
(j) Company Shareholder approval shall be obtained.
51
SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT
8.1 SURVIVAL
Except as otherwise set forth in Section 8.5(c), all of the
representations and warranties of the Company and the Principal Shareholder
contained in Section 3 of this Agreement or in any certificate delivered by the
Company or the Principal Shareholder pursuant to this Agreement will survive the
Closing and continue in full force and effect until the fourth anniversary of
the Closing Date in the case of the representations and warranties set forth in
Sections 3.9 (Tax Matters), 3.14 (Intellectual Property), 3.15 (Litigation) and
3.17 (Labor Relations; Employees). All other representations and warranties will
continue in full force and effect until the first anniversary of the Closing
Date.
8.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF MERGE
Prior to the Closing, the Company and the Principal Shareholder and
following the Closing, the Principal Shareholder will indemnify and hold
harmless Merge, its representatives, shareholders, and controlling persons and,
after the Closing, the Acquisition Sub and its representatives, shareholders,
and controlling persons (collectively, the "INDEMNIFIED BUYERS") for, and will
pay to the Indemnified Buyers the amount of, any loss, liability, claim, damage,
expense (including costs of investigation and defense and reasonable attorneys'
fees) or diminution of value, whether or not involving a third-party claim
(collectively, "DAMAGES"), arising, directly or indirectly, from or in
connection with: (i) any breach of any representation or warranty or covenant
made by the Company or Principal Shareholder in this Agreement, the Schedules,
or any other certificate or document delivered by the Company or the Principal
Shareholder pursuant to this Agreement; (ii) any amounts paid to the holders of
Dissenting Shares in excess of their proportionate share of the Merger
Consideration and the costs of all proceedings, including attorneys' and expert
witness fees, in resolving the claim of any Dissenting Shareholder, (iii) any
amount by which the Net Asset Value is less than the Target Amount (which
payments shall be made pursuant to Section 2.8(a) and not otherwise subject to
this Section 8.2 if made in accordance with Section 2.8(a)), (iv) any
52
outstanding options or warrants for securities of the Company that are not
identified or resolved to the satisfaction of Merge as of the Closing, (v) the
termination of any employees of the Company occurring at any time prior to the
Closing including any failure to provide or deficiency in providing
post-employment benefits and/or insurance, (vi) any rights of any landlord of
any property leased or used by the Company to recapture such property or impose
any penalty or charge in connection with the Company's performance of it's
obligations under this Agreement, or (vii) any claim by any Person for brokerage
or finder's fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with any of the
Principal Shareholder or the Company (or any Person acting on their behalf) in
connection with the transactions set forth herein. The remedies set forth in
Section 8 are exclusive of any other remedy available to Merge and the other
Indemnified Persons for a breach of this Agreement or a claim under Section 8.2
other than an injunction for violation of Section 6.4 (Confidentiality) and
Section 6.5 (Non-Competition) and Section 9 (Termination), and other than in the
case of fraud or a willful breach by the Company or the Principal Shareholder of
any representations, warranties or covenants under this Agreement or the
Ancillary Agreements.
8.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY
Merge will indemnify and hold harmless the Company, and its successors,
assigns, and the Principal Shareholder, and will pay to the Company or the
Principal Shareholder, as the case may be, the amount of any Damages of the
Company or the Principal Shareholder arising, directly or indirectly, from or in
connection with any breach of any representation or warranty or covenant made by
Merge or Acquisition Sub in this Agreement or in any certificate or document
delivered by Merge or Acquisition Sub pursuant to this Agreement. Such
representations and warranties shall not survive the Closing. The
indemnification provisions of this Section 8 are the exclusive remedy available
to the Company and the Principal Shareholder for breaches of representations or
warranties contained in this Agreement, except in the case of fraud or a willful
breach by Merge or Acquisition Sub of any representations, warranties or
covenants under this Agreement.
8.4 INDEMNIFICATION PROCEDURES
(a) Promptly after discovery or receipt of notice by an
Indemnified Buyer or the Company or the Principal Shareholder (in each case an
"INDEMNIFIED PERSON") under this Section 8 of a claim for which indemnity may be
sought, such Indemnified Person will, if a claim is to be made against an
indemnifying party, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any Indemnified
Person, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the Indemnified Person's failure to give
such notice.
(b) If any proceeding referred to in Section 8 is brought
against an Indemnified Person and it gives notice to the indemnifying party of
the commencement of such proceeding, the indemnifying party will pay the costs
of defending such proceeding including costs of counsel selected by the
Indemnified Person, which counsel shall be reasonably satisfactory to the
indemnifying party. The Indemnified Person shall control the defense and
settlement of the proceeding provided that the Indemnified Person shall consult
with the indemnifying party. The indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such proceeding unless the
indemnifying party is also or could become a party to such proceeding and the
Indemnified Person determines in good faith that such participation would be
inappropriate.
53
8.5 BASKET; CAP; SOLE SOURCES OF INDEMNIFICATION
(a) No Indemnified Person will be entitled to indemnification
pursuant to Sections 8.2 or 8.3 unless and until the aggregate amount of Damages
with respect to which such Indemnified Person would otherwise be entitled to
assert thereunder exceeds $10,000 (the "BASKET AMOUNT"). When the aggregate
amount of Damages exceeds the Basket Amount, the indemnified party will be
entitled to indemnification for all Damages, including those within the Basket
Amount.
(b) Except as otherwise set forth in Section 8.5(c), the
aggregate amount of all payments made by the Principal Shareholder to all
Indemnified Buyers in satisfaction of claims hereunder after Closing shall not
exceed the aggregate of (i)the Holdback, (ii)an additional $1,000,000 (not part
of the Holdback), and (iii) any amounts paid or payable by Merge under the
Consulting Agreement (collectively the "Cap"). Principal Shareholder will assume
100% of Damages in all cases, up to the amount of the Cap, except in the case of
Damages for a breach of Section 3.14 (Intellectual Property), Merge and the
Principal Shareholder shall assume Damages in the ratio of 80% for the Principal
Shareholder and 20% for Merge until the amounts under (i) and (ii) above have
been exhausted, and thereafter 100% for the Principal Shareholder up to the
remainder of the Cap until Principal Shareholder has paid the entire Cap. Once
Principal Shareholder has paid the entire Cap, Principal Shareholder thereafter
will have no further liability, other than in the case of fraud or a willful
breach by the Company or the Principal Shareholder of any representations,
warranties or covenants under this Agreement or the Ancillary Agreements.
(c) In addition to all other indemnification by the Principal
Shareholder hereunder, Principal Shareholder agrees that the indemnification for
damages incurred in connection with the matters set forth in Section 8.2(iv)
shall: (i) survive for a period of five years following the date on which the
final payment is made to Principal shareholder under the Consulting Agreement
(the "Final Payment") and (ii) the indemnification obligation therefor shall not
exceed the amount of the Final Payment once the Company's obligations under the
Cap have expired in accordance with Section 8.1.
8.6 RIGHT OF SET-OFF
During or after the expiration of the Holdback referred to in Section
2.9, Merge upon written notice to a Principal Shareholder specifying in
reasonable detail the basis for such set-off, Merge may set off any amount to
which it reasonably believes in good faith to be entitled under this Agreement
against amounts otherwise payable to the Principal Shareholder under this
Agreement or the Ancillary Agreements.
8.7 DISPUTE RESOLUTION
ARBITRATION.ERROR! BOOKMARK NOT DEFINED. Any controversy, dispute or
claim arising out of or relating to this Agreement (including, but not limited
to, any claim regarding the scope or effect of this Section and any claim that
54
this Section is invalid or unenforceable) or the Ancillary Agreements, or the
breach hereof or thereof, shall be settled by a single arbitrator in binding
arbitration conducted in Milwaukee, Wisconsin in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"), and judgment
upon the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The arbitrator's decision shall be in writing.
The arbitrator's authority shall include the ability to render
equitable types of relief and, in such event, any aforesaid court may enter an
order enjoining and/or compelling such actions or relief ordered or as found by
the arbitrator. The arbitrator also shall make a determination regarding which
party's legal position in any such controversy or claim is the more
substantially correct (the "PREVAILING PARTY") and the arbitrator shall require
the other party to pay the legal and other professional fees and costs incurred
by the Prevailing Party in connection with such arbitration proceeding and any
necessary court action. However, notwithstanding the foregoing, the parties
expressly agree that a court of competent jurisdiction may enter a temporary
restraining order or an order enjoining a breach of this Agreement (including a
breach of Sections 6.4 and 6.5) pending a final award or further order by the
arbitrator. Such remedy, however, shall be cumulative and nonexclusive, and
shall be in addition to any other remedy to which the parties may be entitled.
SECTION 9. TERMINATION
9.1 TERMINATION
This Agreement may be terminated at any time prior to the Closing, by
action taken or authorized by the Board of Directors of the terminating party or
parties, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of the Company:
(a) by mutual written consent of Merge and the Company;
(b) by written notice of either the Company or Merge, if the
Merger shall not have been consummated prior to March 31, 2005; provided,
however, the right to terminate this Agreement under this Section 9.1(b) shall
not be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or results in, the failure of the Merger to
occur on or before such date; provided, further, that in the event the failure
of the Merger to be consummated by such date is caused by a pending
investigation or review by a Governmental Entity, either Merge or the Company
(unless such extending party or such extending party's failure to fulfill any
obligation under this Agreement has been the cause of, or results in, the
existence or continuance of the pending investigation or review) may extend such
date to April 30, 2005;
(c) by written notice of either the Company or Merge, if any
Governmental Entity shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
Merger, and such order, decree, ruling or other action shall have become final
and nonappealable;
55
(d) by written notice of either the Company or Merge, if (i)
the Board of Directors of the Company shall have withdrawn or adversely
modified, or shall have adopted resolutions to withdraw or adversely modify, the
Company Recommendation; or (ii) the Board of Directors of the Company shall have
approved or recommended, or shall have adopted resolutions to approve or
recommend, to the stockholders of the Company, an Acquisition Proposal other
than that contemplated by this Agreement;
(e) by written notice of Merge, if there has been a breach by
the Company or the Principal Shareholder of any representation, warranty,
covenant or agreement contained in this Agreement which (i) would result in a
failure of the condition set forth in Section 7.1(a) or 7.1(b) and (ii) cannot
be cured prior to March 31, 2005, provided that Merge shall have given the
Company written notice, delivered at least ten days prior to such termination,
stating Merge's intention to terminate this Agreement pursuant to this Section
9.1(e) and the basis for such termination;
(f) by written notice of the Company, if there has been a
breach by Merge of any representation, warranty, covenant or agreement contained
in this Agreement which (i) would result in a failure of a condition set forth
in Section 7.2(a) or 7.2(b) and (ii) cannot be cured prior to the March 31,
2005, provided that the Company shall have given Merge written notice, delivered
at least ten days prior to such termination, stating the Company's intention to
terminate this Agreement pursuant to this Section 9.1(f) and the basis for such
termination; or
(g) by written notice of either Merge or the Company if the
Company Stockholder Approval shall not have been obtained at the Company
Stockholders' Meeting duly convened therefor (or at any adjournment or
postponement thereof) at which a quorum is present and the vote to adopt and
approve this Agreement is taken.
9.2 EFFECT OF TERMINATION.
(a) Limitation on Liability. In the event of termination of
this Agreement by either the Company or Merge as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Merge, Merger Sub or the Company or their respective
Subsidiaries, officers or directors, except with respect to Articles 8 and 9 and
with respect to any liabilities or damages incurred or suffered by a party as a
result of the willful and material breach by the other party of any of its
representations, warranties, covenants or other agreements set forth in this
Agreement.
(b) Termination Fee. In the event that this Agreement is
terminated pursuant to Section 9.1(d), (e) or (g), and an Acquisition Proposal
with respect to the Company is consummated or the Company enters into a
definitive agreement with respect to an Acquisition Proposal, in either case,
within twenty-four months following the termination of this Agreement, then the
Company shall pay an amount equal to the greater of (x) five percent (5%) of the
56
aggregate consideration received in such Acquisition Proposal; or (y)
twenty-five percent (25%) of the difference between the aggregate consideration
received in such Acquisition Proposal and Six Million Dollars ($6,000,000) (such
amount, the "Termination Fee") to Merge within two Business Days after the
earlier of the consummation of such Acquisition Proposal or execution of a
definitive agreement with respect to such Acquisition Proposal. In addition to
the foregoing, if (i) this Agreement is terminated pursuant to Section 9.1(e) or
(ii) this Agreement is terminated pursuant to Sections 9.1 (b),(d) or (g) under
circumstances in which a Termination Fee is not due pursuant to the preceding
sentence, then the Company shall pay Merge an amount equal to the sum of Merge's
reasonable documented expenses incurred in connection with the Merger. Payment
of expenses pursuant to the foregoing sentence shall be made not later than two
Business Days after delivery of notice of demand for payment and a documented
itemization setting forth in reasonable detail all expenses (which itemization
may be supplemented and updated from time to time by such party until the
ninetieth day after such party delivers such notice of demand for payment).
(c) All payments under this Section 9.2 shall be made by wire
transfer of immediately available funds to an account designated by Merge. The
Company acknowledges that the agreements contained in this Section 9.2 are an
integral part of the transactions contemplated by this Agreement and that,
without these agreements, Merge would enter into this Agreement. Accordingly, if
the Company fails promptly to pay any amount due pursuant to this Section 9.2
and, in order to obtain such payment, Merge commences a suit which results in a
judgment against the other party for the fee and expenses set forth in this
Section 9.2, such defaulting party shall pay to the prevailing party its costs
and expenses (including reasonable attorneys' fees and expenses) in connection
with such suit, together with interest on the amount of the fee at eight percent
(8%) per annum from the date such payment was required to be made.
SECTION 10. MISCELLANEOUS
10.1 PRESS RELEASES AND ANNOUNCEMENTS
No party will issue any press release or announcement relating to the
subject matter of this Agreement prior to the Closing Date without the prior
approval of the other party (which approval will not be unreasonably withheld);
PROVIDED, HOWEVER, that any party may make any public disclosure it believes in
good faith is required by Law (in which case the disclosing party will advise
the other parties prior to making such disclosure).
10.2 EXPENSES; TRANSFER TAXES
Except as otherwise set forth in Sections 8 and 9 hereof, the parties
hereto will each bear all their own legal, accounting, investment banking and
other expenses incurred by them or on their behalf in connection with the
transactions contemplated by this Agreement, whether or not such transactions
are consummated. The Principal Shareholder will pay and hold Merge harmless from
57
payment of all sales, use, transfer, documentary or stamp taxes and recording
and filing fees applicable to the assignment of the their Shares to Merge or to
any other transaction contemplated by this Agreement or any of the Ancillary
Agreements. No expenses incurred by or on behalf of the Principal Shareholder or
any of their Affiliates (including the Company) in connection with the
transactions contemplated by this Agreement will be paid by or charged to the
Company.
10.3 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right, power or
privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. To the maximum
extent permitted by applicable Law, (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement or the Ancillary
Agreements can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement, the Ancillary Agreements or the
documents referred to herein or therein.
10.4 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the purposes and intent of
this Agreement, the Ancillary Agreements and the documents referred to herein
and therein.
10.5 NO THIRD-PARTY BENEFICIARIES
This Agreement will not confer any rights or remedies upon any Person
other than the Company, the Shareholders and Merge, and their respective
successors and permitted assigns.
10.6 SUCCESSORS AND ASSIGNS
No party hereto may assign or delegate any of such party's rights or
obligations under or in connection with this Agreement or any Ancillary
Agreement without the written consent of the other parties hereto; PROVIDED,
HOWEVER, that Merge may without consent assign its rights under this Agreement
after the Closing to any Person acquiring all or substantially all of the stock
or assets of Acquisition Sub from Merge. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement or in any
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Ancillary Agreement by or on behalf of any of the parties hereto or thereto will
be binding upon and enforceable against the respective successors and assigns of
such party and will be enforceable by and will inure to the benefit of the
respective successors and permitted assigns of such party.
10.7 SEVERABILITY
Whenever possible, each provision of this Agreement and any of the
Ancillary Agreements, respectively, will be interpreted in such manner as to be
effective and valid under applicable Law, but if any provision hereof or thereof
is held to be prohibited by or invalid under applicable Law, such provision will
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement or the particular Ancillary
Agreement, respectively.
10.8 COUNTERPARTS; FACSIMILE SIGNATURES
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
Agreement. Facsimile signatures shall be deemed to be original signatures for
all purposes under this Agreement.
10.9 DESCRIPTIVE HEADINGS; CONSTRUCTION
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 of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement. The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement. The language
used in this Agreement will be deemed to be the language chosen by the parties
to express their mutual intent and no rule of strict construction will be
applied against any party. The use of the word "including" in this Agreement
means "including without limitation" and is intended by the parties to be by way
of example rather than limitation.
10.10 NOTICES
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement will be in writing and
will be deemed to have been given (i) when delivered personally to the recipient
or when sent to the recipient by telecopy (receipt confirmed), (ii) one business
day after the date sent, when sent to the recipient by reputable express courier
service (charges prepaid) or (iii) three business days after the date mailed,
when mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
will be sent to the parties at the addresses indicated below:
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If to the Company or Principal Shareholder:
AccuImage Diagnostics Corporation
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy (which shall not constitute notice) to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Merge Companies:
Merge Technologies Incorporated
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, CEO
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With copies (which shall not constitute notice)to:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Suite 800
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
or to such other address or to the attention of such other party as the
recipient party has specified by prior written notice to the other parties.
10.11 ENTIRE AGREEMENT
This Agreement (including the Exhibits and Schedules referred to
herein) constitutes the entire agreement among the parties and supersedes any
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prior understandings, agreements or representations by or among the parties,
written or oral, that may have related in any way to the subject matter hereof.
10.12 AMENDMENTS
The provisions of this Agreement may be amended or waived only by a
written agreement executed and delivered by each of the parties hereto. No
course of dealing between the parties to this Agreement or any delay in
exercising any rights hereunder will operate as a waiver of any rights of such
parties.
10.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
10.14 INCORPORATION OF EXHIBITS AND SCHEDULES
The Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
10.15 ATTORNEYS' FEES; GOVERNING LAW
Except as otherwise specifically provided herein, the prevailing party
in any action or proceeding shall be entitled to receipt of reasonable
attorneys' fees from the non-prevailing party in such action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO WILL BE
GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
WISCONSIN.
IN WITNESS WHEREOF, the parties hereto have executed and deliver
this Agreement on the date first written above.
ACCUIMAGE DIAGNOSTICS MERGE TECHNOLOGIES
CORP. INCORPORATED
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------- ------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇, President and CEO ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, President and CEO
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇ ADI ACQUISITION CORP.
-------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇, as By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Principal Shareholder ------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, President