EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
by and between
ELIXIS CORPORATION
as Target
and
▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ CORPORATION
as Subsidiary
Dated: March 12, 2000
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
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Page
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ARTICLE 1 DEFINITIONS........................................................................................ 2
1.1 Defined Terms...................................................................................... 2
1.2 Other Defined Terms................................................................................ 6
1.3 Knowledge.......................................................................................... 7
ARTICLE 2 THE MERGER AND CONVERSION OF SHARES................................................................ 7
2.1 The Merger......................................................................................... 7
2.2 Conversion of Shares............................................................................... 8
2.3 Shares of Subsidiary............................................................................... 8
2.4 Exchange of Certificates........................................................................... 8
2.5 Fractional Shares.................................................................................. 9
ARTICLE 3 CLOSING............................................................................................ 9
3.1 Closing............................................................................................ 9
3.2 Conveyances at Closing............................................................................. 9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF TARGET........................................................... 10
4.1 Organization of Target............................................................................. 10
4.2 Capitalization..................................................................................... 11
4.3 Authorization...................................................................................... 11
4.4 Absence of Certain Changes or Events............................................................... 12
4.5 No Undisclosed Liabilities......................................................................... 13
4.6 Assets............................................................................................. 13
4.7 Owned Real Property................................................................................ 14
4.8 Leased Property.................................................................................... 14
4.9 Material Contracts................................................................................. 15
4.10 Permits............................................................................................ 16
4.11 No Conflict or Violation........................................................................... 17
4.12 Financial Statements............................................................................... 17
4.13 Books and Records.................................................................................. 18
4.14 Litigation......................................................................................... 18
4.15 Employees; Labor Matters........................................................................... 18
4.16 Compliance with Law................................................................................ 19
4.17 No Brokers......................................................................................... 19
4.18 No Other Agreements to Sell the Assets............................................................. 20
4.19 Intellectual Property.............................................................................. 20
4.20 Employee Benefit Plans............................................................................. 22
4.21 Transactions with Certain Persons.................................................................. 24
4.22 Tax Matters........................................................................................ 24
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4.23 Insurance.......................................................................................... 26
4.24 Accounts Receivable................................................................................ 26
4.25 Inventory.......................................................................................... 26
4.26 Payments........................................................................................... 27
4.27 Customers and Suppliers............................................................................ 27
4.28 Environmental Matters.............................................................................. 27
4.29 Material Misstatements Or Omissions................................................................ 28
4.30 Warranties and Indemnities......................................................................... 28
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SUBSIDIARY....................................................... 29
5.1 Organization and Qualification..................................................................... 29
5.2 Capitalization..................................................................................... 29
5.3 Authorization of Agreement......................................................................... 29
5.4 Approvals.......................................................................................... 30
5.5 No Violation....................................................................................... 30
5.6 Reports............................................................................................ 31
5.7 Absence of Certain Changes or Events............................................................... 31
5.8 Absence of Litigation.............................................................................. 31
ARTICLE 6 COVENANTS OF TARGET, PARENT AND SUBSIDIARY......................................................... 32
6.1 Further Assurances................................................................................. 32
6.2 No Solicitation.................................................................................... 32
6.3 Notification of Certain Matters.................................................................... 33
6.4 Access; Investigation by Subsidiary................................................................ 33
6.5 Conduct of Business................................................................................ 34
6.6 Employee Matters................................................................................... 36
6.7 Third Party Consents............................................................................... 36
ARTICLE 7 CONDITIONS TO TARGET'S OBLIGATIONS................................................................. 37
7.1 Representations, Warranties and Covenants.......................................................... 37
7.2 No Actions or Court Orders......................................................................... 37
7.3 Consents; Regulatory Compliance and Approval....................................................... 37
7.4 Certificates....................................................................................... 38
7.5 Opinion of Counsel................................................................................. 38
7.6 No Material Adverse Change......................................................................... 38
7.7 Employee Matters................................................................................... 38
7.8 Board and Shareholder Approval..................................................................... 38
ARTICLE 8 CONDITIONS TO SUBSIDIARY'S OBLIGATIONS............................................................. 39
8.1 Representations, Warranties and Covenants.......................................................... 39
8.2 Consents; Regulatory Compliance and Approval....................................................... 39
8.3 No Actions or Court Orders......................................................................... 39
8.4 Opinion of Counsel................................................................................. 40
8.5 Employment......................................................................................... 40
8.6 No Material Adverse Change......................................................................... 40
8.7 Certificates....................................................................................... 40
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8.8 Convertible Notes and Warrants..................................................................... 40
8.9 Brokers' Fees...................................................................................... 41
8.10 Termination of Benefit and Stock Option Plans...................................................... 41
8.11 Covenants Not To Compete........................................................................... 41
8.12 Board and Shareholder Approval..................................................................... 41
ARTICLE 9 RISK OF LOSS; CONSENTS TO ASSIGNMENT............................................................... 41
9.1 Risk of Loss....................................................................................... 41
9.2 Consents to Assignment............................................................................. 42
ARTICLE 10 RESERVED........................................................................................... 42
ARTICLE 11 MISCELLANEOUS...................................................................................... 42
11.1 Termination........................................................................................ 42
11.2 Assignment; No Third Party Beneficiaries........................................................... 44
11.3 Notices............................................................................................ 45
11.4 Choice of Law; Venue............................................................................... 46
11.5 Entire Agreement; Amendment and Waiver............................................................. 46
11.6 Counterparts....................................................................................... 46
11.7 Severability....................................................................................... 46
11.8 Headings........................................................................................... 47
11.9 Press Releases and Public Announcements............................................................ 47
11.10 Cumulative Remedies................................................................................ 47
11.11 Specific Performance; Attorneys' Fees.............................................................. 47
11.12 Construction....................................................................................... 47
11.13 Incorporation of Exhibits and Disclosure Schedule.................................................. 48
11.14 Confidentiality.................................................................................... 48
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EXHIBITS
A Form of Indemnity - Escrow Agreement
B Form of Registration Rights Agreement
C Form of Opinion of Counsel to Subsidiary and Parent
D Form of Opinion of Counsel to Target
E Form of Tax Representations of Subsidiary
F Form of Tax Representations of Target
G Form of Employment Offer Letter
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of March 12,
2000, is by and among ELIXIS CORPORATION, a Washington corporation ("Target"),
DATA CRITICAL CORPORATION, a Delaware corporation ("Parent") and
▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware Corporation and wholly-owned subsidiary of
Parent ("Subsidiary"). Target, Subsidiary and Parent are referred to herein
individually as a "Party" and together as the "Parties."
RECITALS
WHEREAS, Subsidiary and Target desire to adopt a plan of reorganization
within the meaning of Section 368(a) of the 1986 Code, as amended;
WHEREAS, Subsidiary and Target deem it advisable that Target be merged into
Subsidiary pursuant to this Agreement and in accordance with the applicable
statutes of the States of Delaware and Washington;
WHEREAS, at or prior to the Effective Date as hereinafter defined,
Subsidiary will acquire from Parent 210,000 shares of Parent Common Stock
necessary to complete the merger provided for herein;
WHEREAS, the principal office of Subsidiary in the State of Washington is
located at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇;
WHEREAS, on the date of this Agreement, Data Critical Corporation has
authority to issue 210,000 shares of Common Stock, $.001 per share (the "Parent
Stock");
WHEREAS, on the date of this Agreement, Target has authority to issue
15,000,000 shares of Common Stock, no par value of which 3,450,000 shares are
issued and outstanding and 1,000,000 shares are reserved for issuance under the
1998 Stock Option Plan and 1999 Stock Option Plan (the "Target Common Stock")
and 5,000,000 shares of preferred stock of which 806,122 shares of Series A-1
Preferred Stock are issued and outstanding, 690,960 shares of Series A-2
Preferred Stock, and an additional 310,932 shares of Series A-2 Preferred Stock
are reserved for issuance pursuant to Series A-2 Preferred Stock warrants (the
"Target Preferred Stock") (collectively the Target Common Stock and Target
Preferred Stock are referred to as the "Target Shares"); and
WHEREAS, the respective Boards of Directors of Subsidiary, Parent and
Target Corporations deem it advisable and in the best interests of the
corporations' respective shareholders to effect the merger of Target with and
into Subsidiary and Parent shall acquire all of the business, assets and
goodwill, subject to the liabilities of Target and that shares of Target's
Common Stock shall be converted to shares of Parent's Common Stock on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and other agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
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1.1 Defined Terms
As used herein, the terms below shall have the following meanings. Any of
such terms, unless the context otherwise requires, may be used in the singular
or plural, depending upon the reference.
"Action" shall mean any action, claim, suit, litigation, proceeding, labor
dispute, arbitral action, governmental audit, inquiry, criminal prosecution,
investigation or unfair labor practice charge or complaint.
"Affiliate" shall have the meaning set forth in the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
"Assets" shall mean all of Target's right, title and interest in and to the
business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal and constituting, or used or useful in connection
with, or related to, Target's business that are owned by Target or in which
Target has any interest, including, without limitation, all of Target's right,
title and interest in the following:
(a) all accounts and notes receivable (whether current or non-
current), refunds, deposits, prepayments or prepaid expenses (including, without
limitation, any prepaid taxes, rentals or insurance premiums) of Target;
(b) all Contract Rights;
(c) all rights under Leases and Leasehold Estates;
(d) all Fixtures and Equipment and Leasehold Improvements;
(e) all Inventory;
(f) all Books and Records;
(g) all Intellectual Property;
(h) all Permits;
(i) the name "Elixis Corporation" and all variations thereof;
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(j) all available supplies, sales literature, promotional
literature, customer, supplier and distributor lists and purchasing records
related to Target's business;
(k) all insurance policies and all rights under or pursuant to all
warranties, representations and guarantees made by suppliers in connection with
the Assets or services furnished to Target pertaining to Target's business or
affecting the Assets, to the extent such warranties, representations and
guarantees are assignable;
(l) all deposits and prepaid expenses of Target;
(m) all claims, causes of action, credits, choses in action, rights
of recovery and rights of set-off of any kind against any person or entity,
including, without limitation, any liens, security interests, pledges or other
rights to payment or to enforce payment in connection with products delivered by
Target on or prior to the Closing Date;
(n) all goodwill associated with Target's business and the Assets,
together with the right to represent to third parties that Subsidiary is the
successor to Target's business; and
(o) all computer software programs, data and associated licenses
used in connection with Target's business.
"Books and Records" shall mean (a) all records and lists of Target
pertaining to the Assets, (b) all records and lists pertaining to Target's
business, customers, suppliers or personnel of Target, (c) all product, business
and marketing plans of Target and (d) all books, ledgers, files, reports, plans,
drawings and operating records of every kind maintained by Target, but excluding
the originals of Target's minute books, stock books and tax returns.
"Closing" shall mean consummation of the transactions set forth herein.
"Closing Date" shall mean as soon as possible, but no later than March 31,
2000, or, if all of the conditions to the obligations of the Parties to
consummate the transactions contemplated by this Agreement have not been
satisfied or waived by March 31, 2000, on such mutually agreed upon later date.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Contract" shall mean any agreement, contract, note, loan, evidence of
indebtedness, purchase, order, letter of credit, indenture, security or pledge
agreement, franchise agreement, undertaking, practice, covenant not to compete,
employment agreement, license, instrument, obligation or commitment to which
Target is a party or is bound and which relates to Target's business or the
Assets, whether oral or written, but excluding all Leases, including without
limitation those listed on Schedule 4.9.
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"Contract Rights" shall mean all of Target's rights under the Contracts.
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"Convertible Notes" shall mean Target's 6% Convertible Promissory Notes
having a maturity date of September 1, 2000.
"Court Order" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or Governmental
Entity that is binding on any person or its property under applicable law.
"Effective Date" shall mean the date on which the Certificates of Merger
are issued by the Secretary of State of the states of Washington and Delaware.
"Encumbrance" shall mean any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, conditional sales agreement, encumbrance or other right of
third parties, whether voluntarily incurred or arising by operation of law, and
includes, without limitation, any agreement to give any of the foregoing in the
future, and any contingent sale or other title retention agreement or lease in
the nature thereof.
"February 29, 2000 Balance Sheet" shall mean the unaudited balance sheet
dated February 29, 2000 of Target, prepared by Target and delivered to
Subsidiary prior to the date hereof.
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
furnishings, machinery, automobiles, trucks, spare parts, supplies, equipment,
and other tangible personal property owned by Target and used in connection with
Target's business, wherever located and including any such Fixtures and
Equipment in the possession of any of Target's suppliers, including all
warranty rights with respect thereto.
"Intellectual Property" shall mean the following, including without
limitation the items listed on Schedule 4.19: (a) all of Target's patents and
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patent applications and registered design and registered design applications,
registered trademarks, registered service marks, trademark and service ▇▇▇▇
applications and unregistered trademarks and service marks, registered
copyrights, copyright applications and unregistered copyrights, technology
rights and licenses, computer software (including, without limitation, any
source or object codes therefor or documentation relating thereto), trade
secrets, URLs and Internet domain names, schematics, franchises, know-how,
computer software programs or applications, inventions, designs, specifications,
plans, drawings and all other tangible or intangible proprietary rights,
information and material; (b) all things authored, discovered, developed, made,
perfected, improved, designed, engineered, acquired, produced, conceived or
first reduced to practice by Target or any of its employees or agents that are
embodied in, derived from or relate to Target's business, in any stage of
development, including, without limitation, modifications, enhancements,
designs, concepts, techniques, methods, ideas, flow charts, coding sheets, notes
and all other information relating to Target's business; and (c) any and all
design and code documentation, methodologies, processes, trade secrets,
copyrights, design information, product information, technology, formulae,
routines, engineering specifications, technical manuals and data, drawings,
inventions, know-how, techniques, engineering work papers, and notes,
development work-in-process, and other
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proprietary information and materials of any kind relating to, used in, or
derived from the Assets.
"Inventory" shall mean all of Target's inventory held for resale and all of
Target's raw materials, work in process, finished products, wrapping, supply and
packaging items and similar items with respect to Target's business, in each
case wherever the same may be located.
"Leasehold Estates" shall mean all of Target's rights as lessee or
sublessee under the Leases.
"Leasehold Improvements" shall mean all leasehold improvements owned by
Target and situated in or on any real property subject to a Lease.
"Leases" shall mean all existing leases and subleases to which Target is a
party with respect to the lease of personal or real property, including without
limitation those listed on Schedule 4.8.
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"Liabilities" shall mean any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any person of any type, whether accrued, absolute, contingent, matured,
unmatured or other.
"Material Adverse Effect" or "Material Adverse Change" shall mean with
respect to any Party any adverse event, condition, change, circumstance or
effect that, individually or in the aggregate, is or is reasonably likely to be
materially adverse to the condition (financial or otherwise), properties,
business, results of operations, prospects, assets (including intangible
assets), Liabilities or operations or results of operations of such Party or
which would materially adversely affect the ability of such Party to consummate
the transactions contemplated hereby, or any such event or condition which
would, with the passage of time, constitute a Material Adverse Effect or
Material Adverse Change.
"Ordinary Course of Business" or "Ordinary Course" or any similar phrase
shall mean the ordinary course of Target's business and consistent with Target's
past custom and practice.
"Permits" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other person,
necessary or desirable for the past, present or anticipated conduct of, or
relating to the operation of Target's business.
"Regulations" shall mean any laws, statutes, ordinances, regulations,
rules, notice requirements, court decisions, agency guidelines, principles of
law and orders of any foreign, federal, state, local, municipal or foreign
government and any other governmental department or agency, including, without
limitation, Environmental Laws, energy, motor vehicle safety, public utility,
zoning, building and health codes, occupational safety and
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health and laws respecting employment practices, employee documentation, terms
and conditions of employment and wages and hours.
"Representative" shall mean any officer, director, principal, attorney,
agent, employee or other representative.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Tax" or "Taxes" shall mean all taxes, charges, fees, levies or other
similar assessments or liabilities, including, without limitation, income, gross
receipts, ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll and franchise
taxes imposed by the United States of America or any state, local or foreign
Governmental Entity, or other political subdivision of the United States or any
such government, and any interest, fines, penalties, assessments or additions to
tax resulting from, attributable to or incurred in connection with any tax or
any contest or dispute thereof.
"Tax Returns" shall mean all reports, returns, declarations, statements or
other information required to be supplied to a taxing authority in connection
with Taxes.
"Warrants" shall mean (a) agreements, rights to subscribe (including any
preemptive rights), options, warrants, calls, commitments or rights of any
character to purchase or otherwise acquire any common stock or other equity
securities of Target, and (b) outstanding securities of Target that are
convertible into or exchangeable for capital shares or other equity securities
of Target.
1.2 Other Defined Terms
The following terms shall have the meanings defined for such terms in the
sections of this Agreement set forth below:
Agreement.................................. Preamble
Subsidiary................................. Preamble
By-laws.................................... Section 4.1
CERCLA..................................... Section 4.28(a)
Charter.................................... Section 4.1
Claim...................................... Section 10.4(b)
Claim Notice............................... Section 10.4(b)
Closing.................................... Section 3.1
Damages.................................... Section 10.4(a)
Disclosure Schedule........................ Article IV
Employee Benefit Plan...................... Section 4.20(b)(i)
Employment Offer Letter.................... Schedule G
Environmental Law.......................... Section 4.28(a)
ERISA...................................... Section 4.20(b)(i)
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ERISA Affiliate............................ Section 4.20(b)(ii)
Escrow Agent............................... Exhibit A
Escrow Shares.............................. Exhibit A
Escrow Fund................................ Exhibit A
Exchange Agent............................. Section 2.4
Financial Statements....................... Section 4.12
GAAP....................................... Section 4.12
Governmental Entity........................ Section 4.11
Hazardous Materials........................ Section 4.28(b)
Indemnified Parties........................ Section 10.4(a)
Indemnity Escrow Agreement................. Exhibit A
Parent..................................... Preamble
Parent Common Stock........................ Recitals
Parent SEC Documents....................... Section 2.7(d)(ii)
Parent Stock Options....................... Section 6.6(c)
Party...................................... Preamble
Proposed Acquisition Transaction........... Section 6.2
Target Employees........................... Section 6.5(a)
Target Shares.............................. Section 2.2
Third Party Intellectual Property Rights... Section 4.19(a)
Transaction Documents...................... Section 4.2
1.3 Knowledge
Whenever a representation or warranty of Target set forth in this
Agreement is qualified by "to the best of Target's knowledge," or a similar
phrase, it is intended to refer to those matters which are actually known by the
persons listed on Schedule 1.3.
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ARTICLE 2
THE MERGER AND CONVERSION OF SHARES
2.1 The Merger
(a) Transfer of Property and Liabilities. Upon the Effective Date
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(as defined in Section 1.1 hereof) of the merger, the separate corporate
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existence of Target shall cease; all of the outstanding shares of stock of
Target shall be exchanged for and converted into shares of stock of Parent, as
hereinafter provided. Upon the filing of this Agreement, certified as to the
requisite stockholder approval, with the Secretary of State of the State of
Delaware and Articles of Merger with the Secretary of State of the State of
Washington, the Subsidiary of the Surviving Corporation shall possess all the
rights, privileges, immunities, powers, and purposes, and all the property, real
and personal, causes of action, and every other asset of Target and shall assume
and be liable for all the liabilities, obligations, and penalties of Target, in
accordance with RCW 23B.11.060 of the Business Corporation Law of the State of
Washington and Section 9 of the General Corporation Law of the State of
Delaware.
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(b) Surviving Corporation. Following the merger, the existence of
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the Subsidiary shall continue unaffected and unimpaired by the merger, with all
the rights, privileges, immunities, and powers, and subject to all the duties
and liabilities, of a corporation organized under the laws of the State of
Delaware. The Certificate of Incorporation and Bylaws of Subsidiary, as in
effect immediately prior to the Effective Date, shall continue in full force and
effect, and shall not be changed in any manner by the merger. The directors of
Subsidiary immediately prior to the Effective Date shall continue as the
directors of the surviving corporation, and the officers of Subsidiary
immediately prior to the Effective Date shall continue as the officers of the
surviving corporation.
2.2 Conversion of Shares
Each share of Target Common Stock and Target Preferred Stock issued
and outstanding immediately prior to the Effective Date (the "Target Shares")
shall, without any action on the part of Subsidiary, Parent or any holder of
such shares, be converted by the merger into an amount of Parent Common Stock
represented by 210,000 divided by the Target Shares.
2.3 Shares of Subsidiary
None of the issued shares of Subsidiary shall be converted as a result
of the merger, but all of such shares shall remain issued shares of capital
stock of the Surviving Corporation.
2.4 Exchange of Certificates
As promptly as practicable after the Effective Date, each holder of an
outstanding certificate or certificates that prior thereto represented shares of
Target Common Stock shall surrender the same to ChaseMellon Shareholder
Services, L.L.C., exchange agent for all such holders (the "Exchange Agent"),
and such holders shall be entitled upon such surrender to receive in exchange
therefor certificates representing the number of whole shares of Parent Common
Stock into which the shares theretofore represented by the certificate or
certificates so surrendered shall have been converted. Adoption of this
Agreement by the shareholders of Target shall constitute ratification of the
appointment of such Exchange Agent. Until so surrendered, each outstanding
certificate that, prior to the Effective Date, represented Target Common Stock,
shall be deemed for all corporate purposes (except the payment of dividends) to
evidence ownership of the number of whole shares of Parent Common Stock into
which the shares of Target Common Stock represented thereby prior to such
Effective Date shall have been converted. After the Effective Date and until
the outstanding certificates formerly representing shares of Target Common Stock
are so surrendered, no dividend payable to holders of record of the Parent
Common Stock shall be paid to the holders of such outstanding Target
certificates in respect thereof. Upon surrender of such outstanding
certificates, however, there shall be paid to the holders of the certificates
for Parent Common Stock issued in exchange therefor the amount of dividends, if
any, that theretofore became payable with respect to such full shares of Parent
Common Stock, but that have not theretofore been paid on such stock. No
interest shall be payable with respect
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to the payment of any dividends. The holder of a fractional share interest, as
such, shall only be entitled to receive a cash distribution as provided in
Section 2.5 and shall not be entitled to any dividends, or to any distribution
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in the event of a liquidation, or to any voting or other privileges of a
shareholder of Parent in respect of such fractional share interest.
2.5 Fractional Shares
Fractional shares of Parent Common Stock will not be issued. The
Exchange Agent will hold for the account of each holder of a certificate or
certificates formerly representing shares of Target Common Stock who would
otherwise be entitled to receive a fractional interest in a share of Parent
Common Stock, and upon surrender of such certificate or certificates shall
deliver to such holder (together with certificates representing the number of
whole shares of Parent Common Stock to which he is entitled), a cash
distribution in lieu of such fractional share in the amount obtained by
multiplying such fraction by $40.10.
ARTICLE 3
CLOSING
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3.1 Closing
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, commencing at 10:00 a.m. local time on the Closing Date.
3.2 Conveyances at Closing
(a) Consents. Subject to Section 9.2 of this Agreement, Target
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shall deliver all Permits and any other third party consents required for the
valid transfer of the Assets as contemplated by this Agreement.
(b) Target's Deliveries. To effect the merger referred to in
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Section 2.1 of this Agreement, upon the terms and subject to the conditions
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contained herein, at the Closing Target shall duly execute and deliver to
Subsidiary:
(i) all certificates and documents necessary to satisfy the
filing requirements of the states of Washington and Delaware;
(ii) executed form of Indemnity - Escrow Agreement as set
forth on Exhibit A;
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(iii) executed form of Registration Rights Agreement as set
forth on Exhibit B;
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(iv) form of Opinion of Counsel to Target as set forth on
Exhibit D;
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(v) form of Tax Representations of Target as set forth on
Exhibit F;
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(vi) such other instruments as shall be requested by
Subsidiary necessary to complete the transactions contemplated by this
Agreement; and
(vii) Covenants not to compete for two years incorporated
into Employment Agreements with ▇▇▇▇▇▇▇▇ Gold, M.D., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and into a
Consulting Agreement with ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., M.D., each in a form acceptable
to the respective individual and the Parent.
(c) Subsidiary's Deliveries to Target. Upon the terms and subject
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to the conditions contained herein, at the Closing, Subsidiary shall duly
execute and deliver to Target:
(i) all certificates and documents necessary to satisfy the
filing requirements of the states of Washington and Delaware;
(ii) executed form of Registration Rights Agreement as set
forth on Exhibit B;
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(iii) form of Opinion of Counsel to Subsidiary and Parent as
set forth on Exhibit C;
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(iv) form of Tax Representations of Subsidiary as set forth
on Exhibit E; and
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(v) such other instruments as shall be requested by Target
necessary to complete the transactions contemplated by this Agreement.
(d) Form of Instruments. To the extent that a form of any document
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to be delivered hereunder is not attached as an exhibit to this Agreement, such
documents shall be in form and substance, and shall be executed and delivered in
a manner, reasonably satisfactory to Subsidiary.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TARGET
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Target hereby represents and warrants to Subsidiary that, except as
otherwise set forth in the Disclosure Schedule (the "Disclosure Schedule")
delivered by Target to Subsidiary as of the date hereof (which shall list any
exceptions by specific reference to the applicable section and subsection of
this Article IV), the representations and warranties set forth in this Article
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IV are, as of the date hereof, and will be, as of the Closing Date, true and
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correct:
4.1 Organization of Target
Target is a corporation duly organized, validly existing and in
corporate good standing under the laws of the State of Washington. Target is
duly qualified to conduct business and is in corporate good standing under the
laws of each jurisdiction in which the
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nature of its businesses or the ownership or leasing of its properties requires
such qualification, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect on Target. Target has the
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. Target has furnished to
Subsidiary true and complete copies of its Articles of Incorporation and By-
laws, each as amended and as in effect on the date hereof (hereinafter "Charter"
and "By-laws," respectively). Target is not in default under or in violation of
any provision of its Charter or By-laws, each as amended to date. Target does
not have any direct or indirect subsidiaries or any other equity interest in any
other firm, corporation, partnership, joint venture, association or other
business organization.
4.2 Capitalization
As of the date hereof, the authorized capital stock of Target consists
of (i) 15,000,00 shares of Target Common Stock of which 3,450,000 shares of
Target Common Stock are issued and outstanding, and 1,000,000 shares of Target
Common Stock are reserved for future issuance pursuant to outstanding employee
stock options or other outstanding stock options, and (ii) 5,000,000 shares of
preferred stock, of which 806,122 shares are designated and known as "Series A-1
Preferred Stock", all of which are issued and outstanding, and of which
1,001,896 shares are designated and known as "Series A-2 Preferred Stock",
690,960 of which are issued and outstanding. Certain holders of Series A-2
Preferred Stock hold warrants to purchase an aggregate of 310,932 shares of
Series A-2 Preferred Stock outstanding as of the date of this Agreement. Target
has granted stock options to employees and consultants pursuant to qualified
stock options plans to purchase an aggregate of approximately 975,000 (subject
to adjustment for cashless exercise) shares of Target Common Stock as of the
date of this Agreement. All of the outstanding shares of Target Common Stock
and Target Preferred and all shares to be issued pursuant to the warrants and
the stock option plans will be, when issued in accordance with the terms
thereof, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights.
4.3 Authorization
Target has all requisite corporate power and authority to execute and
deliver this Agreement and the other documents, agreements, certificates and
other instruments to be executed, delivered and performed in connection with the
transactions contemplated by this Agreement (collectively the "Transaction
Documents") to which it is a party and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and each of the other
Transaction Documents to which Target is a party and the performance by Target
of its obligations hereunder and thereunder, and the consummation by Target of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Target. Each of
this Agreement and the other Transaction Documents has been duly and validly
executed and delivered by Target and, assuming the due authorization, execution
and delivery by Subsidiary and Parent, constitutes a valid and binding
obligation of Target, enforceable against Target in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency, fraudulent
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conveyance, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
4.4 Absence of Certain Changes or Events
Except as disclosed on Schedule 4.4, since February 29, 2000, Target
------------
has conducted its business in the Ordinary Course, including, without
limitation, so as to preserve intact Target's business, to keep available to
Subsidiary the services of Target's employees and to preserve the goodwill of
Target's customers and others having business relations with Target, and there
has not occurred any change, event or condition (whether or not covered by
insurance) that has resulted in, or might reasonably be expected to result in
any Material Adverse Effect (as defined) on Target. Since February 29, 2000,
Target:
(a) has not created, incurred or assumed (i) any borrowings under
capital leases, or (ii) any obligations which in any material way affect
Target's business, the Assets or Subsidiary's ability to conduct Target's
business in substantially the same manner and condition as conducted by Target
on the date of this Agreement;
(b) has not changed in any manner the compensation of, or agreed to
provide additional benefits to, or enter into any employment agreement with, any
employee;
(c) has maintained insurance coverage in amounts adequate to cover
the reasonably anticipated risks of the business conducted with the Assets;
(d) has not acquired or agreed to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
Target's business;
(e) has not sold, disposed of or encumbered any of the Assets or
licensed any Assets to any third party except for the sale of Inventory in the
normal course of business consistent with past practice;
(f) has not engaged in any special promotion which promotes the
sale of Inventory with highly discounted terms;
(g) has not entered into any agreements or commitments relating to
the business conducted with the Assets, except on commercially reasonable terms
in the Ordinary Course of Business;
(h) has complied in all material respects with all laws and
regulations applicable to Target's business;
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(i) has not entered into any agreement with any third party for the
distribution of any of the Assets;
(j) has not changed or announced any change to the products or
services sold by Target's business except with Subsidiary's written consent or
at Subsidiary's request;
(k) has not expanded the use of the Assets within the organization
of Target;
(l) has not violated, amended or otherwise changed in any way the
terms of any of the Contracts;
(m) has not commenced a lawsuit related to or involving the Assets
other than (i) for the routine collection of bills; or (ii) for a breach of this
Agreement;
(n) has not assigned, sold or otherwise conveyed to any third
party, any of its accounts receivable prior to the Closing Date; or
(o) made any agreement to do any of the foregoing.
4.5 No Undisclosed Liabilities
Except as disclosed on Schedule 4.5, Target has no liability (whether
------------
known or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or to become due), except for: (a) liabilities
accrued or reserved against on the February 29 Balance Sheet; (b) liabilities
which have arisen since February 29, 2000, in the Ordinary Course of Business
and which are similar in nature and amount to the liabilities which arose during
the comparable period of time in the immediately preceding fiscal period; and
(c) liabilities incurred in the Ordinary Course of Business which are consistent
with past practice and are not required by GAAP to be reflected on a balance
sheet.
4.6 Assets
Target has and will transfer good and marketable title, license to or
leasehold interest in the Assets and upon the consummation of the transactions
contemplated hereby, Subsidiary will acquire good and marketable title, license
to or leasehold interest in all of the Assets, free and clear of any
Encumbrances. The Assets include without limitation all assets necessary for
the conduct of Target's business as presently conducted and as presently
proposed to be conducted. Schedule 4.6 contains an accurate list and summary
------------
descriptions of all tangible Assets. None of the Assets that constitute tangible
personal property is held under any lease, security agreement, conditional sales
contract, lien, or other title retention or security arrangement. All tangible
assets and properties which are part of the Assets are in good operating
condition and repair and are usable in the Ordinary Course of Business and
conform in all material respects to all applicable Regulations (including
Environmental Laws) relating to their construction, use and operation. Except as
provided in this Agreement, or as disclosed on Schedule 4.5, no restrictions
------------
will exist on Subsidiary's right to sell, resell, license or sublicense any
material Assets or engage in Target's business, nor will
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any such restrictions be imposed on Subsidiary as a consequence of the
transactions contemplated by this Agreement or by any agreement referenced in
this Agreement.
4.7 Owned Real Property.
Target does not own any real property.
4.8 Leased Property
(a) Schedule 4.8(a) lists all Leases. Target has delivered to
---------------
Subsidiary correct and complete copies of such Leases (as amended to date).
With respect to each Lease:
(i) such Leases are legal, valid, binding, enforceable and
in full force and effect with respect to Target and, to Target's knowledge is
legal, valid, binding, enforceable and in full force and effect with respect to
each other party thereto, and will continue to be so following the Closing in
accordance with the terms thereof as in effect prior to the Closing, in each
case except as such enforcement may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally, and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought;
(ii) Target and, to Target's knowledge, no other party to
any Lease is in breach or default thereunder and no event has occurred which,
with notice or lapse of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(iii) there are no disputes, oral agreements or forbearance
programs in effect as to such Lease;
(iv) Target has not assigned, transferred, conveyed,
mortgaged, deeded in trust or imposed or granted any Encumbrance on any interest
in the Leasehold Estate;
(v) Target enjoys peaceful and undisturbed possession of
all the property subject to such Lease, subject to the rights of the fee owners;
and
(vi) No violation of any law, regulation or ordinance
(including without limitation, laws, regulations or ordinances relating to
zoning, environmental, city planning or similar matters) relating to Target's
business or any Asset currently exists or has existed at any time except for
violations which have not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Target's business
or the Assets. There are no developments affecting any of the Assets pending or,
to the knowledge of Target threatened, which might materially detract from the
value of such Assets, materially interfere with any present or intended use of
any such Assets or have a Material Adverse Effect on the marketability of the
Assets.
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4.9 Material Contracts
(a) Schedule 4.9(a) sets forth a complete and accurate list of the
---------------
all Contracts that are material to Target's business, including without
limitation the following:
(i) Contracts involving more than $10,000 over the term of
the Contract, not entered into in the Ordinary Course of Business or that cannot
be canceled without penalty or further payment of less than $10,000;
(ii) Contracts for the licensing or distribution of
software, products or other personal property or for the furnishing or receipt
of services: (i) which call for performance by Target over a period of more than
one year (excluding end users' contracts); (ii) which involve more than the sum
of $10,000; or (iii) in which Target has granted rights to license, sublicense
or copy, "most favored nation" pricing provisions or exclusive marketing or
distribution rights relating to any products or territory or has agreed to
purchase a minimum quantity of goods or services or has agreed to purchase goods
or services exclusively from a certain party;
(iii) Contracts relating to (A) the establishment of a
partnership or joint venture, (B) distribution, franchise, license, technical
assistance, support service, maintenance, sales, commission, consulting, agency
or advertising in connection with the Assets or Target's business, including any
commitment by Target to any third party with respect to any of the foregoing for
more than one year from the date of this Agreement, (C) options with respect to
any property, real or personal, whether Target shall be the grantor or grantee
thereunder, (D) commission arrangements with third parties, and (E)
confidentiality or non-competition or any other agreement limiting the freedom
of Target or any officer, director, shareholder or Affiliate of Target, to
engage in any line of business or compete with any person other than Target
(including a list of all parties to such agreements);
(iv) Employment contracts and severance agreements,
including, without limitation, Contracts (A) to employ or terminate executive
officers or other personnel and other contracts with present or former officers,
directors or shareholders of Target or (B) that will result in the payment by,
or the creation of any Liability to pay on behalf of Subsidiary or Target any
severance, termination, "golden parachute," or other similar payments to any
present or former personnel following termination of employment or otherwise as
a result of the consummation of the transactions contemplated by this Agreement;
(v) Promissory notes, loans, agreements, indentures,
evidences of indebtedness, letters of credit, guarantees, or other instruments
relating to an obligation to pay money, pursuant to which Target has created,
incurred, assumed, or guaranteed (or may create, incur, assume, or guarantee)
Liabilities (including capitalized lease obligations) involving more than $5,000
or under which it has granted or imposed (or may grant or impose) an Encumbrance
on any of its assets, tangible or intangible; and
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(b) Target has delivered to Subsidiary a correct and complete copy
of each Contract (as amended to date) listed in Schedule 4.9(a). With respect to
---------------
each Contract so listed: (i) the Contract is legal, valid, binding and
enforceable and in full force and effect with respect to Target and, to Target's
knowledge the written arrangement is legal, valid, binding and enforceable and
in full force and effect with respect to each other party thereto, in each case
except as such enforcement may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought; (ii) the
Contract will continue to be legal, valid, binding and enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect prior to the Closing and does not require the consent of
any party to the transactions contemplated hereby except as disclosed on
Schedule 4.9(b); and (iii) Target is not in breach or default, to Target's
---------------
knowledge, no other party thereto is in breach or default, and, to Target's
knowledge, no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification, or
acceleration, under the written arrangement. Target is not a party to any oral
contract, agreement or other arrangement which, if reduced to written form,
would be required to be listed on Schedule 4.9(a). There are no outstanding
---------------
powers of attorney executed on behalf of Target.
(c) To the best of Target's knowledge, each of the products and
services produced, sold or provided by Target in connection with Target's
business is, and at all times has been, in compliance in all material respects
with all applicable federal, state, local and foreign laws and regulations and
is, and at all relevant times has been, fit for the ordinary purposes for which
it is intended to be used and conforms in all material respects to any promises
or affirmations of fact made in connection with the sale of such product or
service. Except as set forth on Schedule 4.9(c), there is no material design
---------------
defect with respect to any of such products, and each of such products contains
adequate warnings, presented in a reasonably prominent manner, in accordance
with applicable laws and current industry practice with respect to its contents
and use. To the best of Target's knowledge Target has committed no act, and
there has been no omission, which may result in, and to Target's knowledge there
has been no occurrence which may give rise to, product liability or Liability
for breach of warranty (whether covered by insurance or not) on the part of
Target, with respect to products designed, manufactured, assembled, repaired,
maintained, delivered or installed or services rendered prior to or on the
Closing Date.
4.10 Permits
Schedule 4.10 sets forth a complete list of all Permits used in the
-------------
operation of Target's business or otherwise issued to or held by Target. Target
has, and at all times has had, all Permits required under any Regulation
(including Environmental Laws) in the operation of its business or in the
ownership of the Assets, and owns or possesses such Permits free and clear of
all Encumbrances. The Permits listed on Schedule 4.10 are the only Permits that
-------------
are required for Target to conduct its business as presently conducted, except
for
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those the absence of which would not have a Material Adverse Effect on
Target. Each such Permit is in full force and effect (and will continue in full
force and effect following the Closing) and Target is not in default, nor has it
received any notice of any claim of default, with respect to any such Permit.
Except as otherwise governed by law, all such Permits are renewable by their
terms or in the Ordinary Course of Business without the need to comply with any
special qualification procedures or to pay any amounts other than routine filing
fees and will not be adversely affected by the completion of the transactions
contemplated by this Agreement. No present or former shareholder, director,
officer or employee of Target or any Affiliate thereof, or any other person,
firm, corporation or other entity, owns or has any proprietary, financial or
other interest (direct or indirect) in any Permit which Target owns, possesses
or uses.
4.11 No Conflict or Violation
Except as provided in Schedule 4.11, subject to compliance with the
-------------
applicable requirements of the Securities Act and any applicable state
securities laws, neither the execution and delivery of this Agreement and the
other Transaction Documents by Target, nor the consummation by Target of the
transactions contemplated hereby or thereby, will: (a) upon receipt of required
shareholder approval, conflict with or violate any provision of the Charter or
By-laws of Target; (b) require on the part of Target any filing with, or any
permit, authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a "Governmental Entity"); (c) conflict with, result in a
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any Contract, Lease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness
or other arrangement to which Target is a party or by which Target is bound or
to which any of the Assets is subject; (d) result in the imposition of any
Encumbrance upon any of the Assets; or (e) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Target or any of the Assets.
No notice to, declaration, filing or registration with, or Permit from, any
domestic or foreign governmental or regulatory body or authority, or any other
person or entity (except as disclosed in Schedule 4.9(b) and except for approval
---------------
by Target's Shareholders), is required to be made or obtained by Target in
connection with the execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated hereby.
4.12 Financial Statements
Target has delivered to Subsidiary (a) the unaudited balance sheets
and statements of operations, changes in shareholders' equity and cash flows for
the years ended December 31, 1998 and December 31, 1999, and (b) the February 29
Balance Sheet and the unaudited statement of operations and statement of cash
flows as of and for the two months ended February 29, 2000. Except as disclosed
on Schedule 4.12, to the best of Target's knowledge, such financial statements
-------------
(collectively, the "Financial Statements") have been prepared in
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accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods covered thereby, fairly
present the financial condition, Liabilities, results of operations and cash
flows of Target as of the respective dates thereof and for the periods referred
to therein and are consistent with the books and records of Target, provided,
however, that the Financial Statements referred to in clause (b) above are
subject to normal and recurring year-end adjustments (which will not in the
aggregate be material).
4.13 Books and Records
Target has made and kept in accordance with good business and
bookkeeping practices (and given Subsidiary access to) Books and Records and
accounts, which, in reasonable detail, accurately and fairly reflect in all
material respects the assets, Liabilities, business, financial condition and
results of operations of Target. The minute books and similar records of Target
accurately and adequately reflect all material actions taken by the
shareholders, board of directors and committees of the board of directors of
Target at any meetings thereof, and of all written consents executed in lieu of
a meeting, through the date of this Agreement.
4.14 Litigation
To the best of Target's knowledge, there is no Action pending,
threatened or anticipated (a) against, related to or affecting (i) Target, its
business or the Assets (including with respect to Environmental Laws), (ii) any
officers or directors of Target as such, or (iii) any shareholder of Target in
such shareholder's capacity as a shareholder of Target; (b) seeking to delay,
limit or enjoin the transactions contemplated by this Agreement; (c) that
involve the risk of criminal liability; or (d) in which Target is a plaintiff,
including any derivative suits brought by or on behalf of Target.
4.15 Employees; Labor Matters
Target has provided to Subsidiary a written list of all full-time
employees of Target, along with the position, the current rate of compensation
of each such person on an annual basis, commissions and bonuses. Except as set
forth in Schedule 4.15(a) or as provided by law, the employment of all persons
----------------
presently employed or retained by Target is terminable at will. Each such
employee has entered into a confidentiality/non-competition/assignment of
inventions agreement with Target, which has previously been delivered (or copies
thereof having been made available) to Subsidiary. Except for these
confidentiality/non-competition/assignment of inventions agreements, there are
no written or oral contracts of employment between Target and any of its
employees. Neither the execution nor the delivery of this Agreement, nor the
carrying on of Target's business by its employees and consultants, will conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
of such persons or entities are now obligated. Except as provided in Schedule
--------
4.15(b), it is currently not necessary nor will it be necessary for Target to
-------
utilize in Target's business any inventions of any of such persons or entities
(or people it currently intends to hire) made or owned prior
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to their employment by or affiliation with Target, nor is it or will it be
necessary to utilize any other assets or rights of any such persons or entities
(or people it currently intends to hire) made or owned prior to their employment
with or engagement by Target, in violation of any registered patents, trade
names, trademarks or copyrights or any other limitations or restrictions to
which any such persons or entity is a party or to which any of such assets or
rights may be subject. To the best of Target's knowledge, no key employee or
group of employees has informed Target of any plans to terminate employment with
Target within the next six (6) months. Target is in compliance in all material
respects with all currently applicable laws and regulations respecting wages,
hours, occupational safety, health and employment practices, and discrimination
in employment terms and conditions, and is not engaged in any unfair labor
practice. There are no pending claims against Target under any workers
compensation plan or policy. There are no proceedings pending or, to the
knowledge of Target, threatened, between Target and its employees, which
proceedings have or would reasonably be expected to have a Material Adverse
Effect on Target. Target has provided all employees with all relocation
benefits, stock options, bonuses and incentives, and all other compensation that
such employee has earned up through the date of this Agreement or that such
employee was otherwise promised in his or her employment agreements with Target.
4.16 Compliance with Law
To the best of Target's knowledge, Target and the conduct and
operations of its business have not violated and are in compliance with all
Regulations and Court Orders which (a) affect or relate to this Agreement or the
transactions contemplated hereby or (b) are applicable to Target or its business
or the Assets, except for any violation of or default which would not reasonably
be expected to have a Material Adverse Effect on Target. Target has not
received any notice to the effect that, or otherwise been advised that, it is
not in compliance with any such Regulations or Court Orders, and Target is not
aware of any existing circumstances which are likely to result in a violation of
any of the foregoing which failure or violation would reasonably be expected to
have a Material Adverse Effect on Target. There is no agreement, judgment,
injunction, order or decree binding upon Target which has or would reasonably be
expected to have the effect of prohibiting or materially impairing any current
or future business practice of Target as currently contemplated by Target, any
acquisition of property of Target or the conduct of Target's business as
currently conducted or as proposed to be conducted.
4.17 No Brokers
Neither Target nor its officers, directors, employees, shareholders or
Affiliates has employed or made any agreement with any broker, finder or similar
agent or any person or firm which will result in the obligation of Subsidiary or
any of its Affiliates to pay any finder's fee, brokerage fees or commission or
similar payment in connection with the transactions contemplated by this
Agreement, except as disclosed on Schedule 4.17.
-------------
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4.18 No Other Agreements to Sell the Assets
Neither Target nor its officers, directors, shareholders or Affiliates
have any commitment or legal obligation, absolute or contingent, to any other
person or firm other than Subsidiary to sell, assign, transfer or effect a sale
of any of the Assets (other than inventory in the Ordinary Course of Business),
to sell or effect a sale of any capital stock of Target, to effect any merger,
consolidation, liquidation, dissolution or other reorganization of Target, or to
enter into any agreement or cause the entering into of an agreement with respect
to any of the foregoing.
4.19 Intellectual Property
(a) Schedule 4.19(a) lists (i) all Intellectual Property owned by
----------------
Target or used in its business, and the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance or registration has been filed; (ii) all written
licenses, sublicenses and other agreements to which Target is a party and
pursuant to which any person is licensed under any Intellectual Property rights
of Target, except such licenses, sublicenses or other agreements with end-users
that grant non-exclusive rights to use a product of Target in accordance with
Target's unmodified standard form of end-user license agreement; (iii) all
written licenses, sublicenses and other agreements as to which Target is a party
and pursuant to which Target is licensed under any third party Intellectual
Property, including software ("Third Party Intellectual Property Rights") which
are necessary for the business of Target or which are required to allow Target
to sell or market any existing product or provide any existing service of
Target, excluding packaged commercially available licensed software programs
sold to the public; and (iv) all written agreements or other arrangements under
which Target has provided or agreed to provide source code of any product of
Target to any third party. Target has made available to Subsidiary correct and
complete copies of all such Intellectual Property and other documents set forth
on Schedule 4.19(a). Target is not a party to any oral license, sublicense or
----------------
agreement which, if reduced to written form, would be required to be listed on
Schedule 4.19(a) pursuant to the terms of this Section 4.19(a). Target owns, or
---------------- ---------------
has a license thereto from the owner to use, all Intellectual Property
necessary, to Target's knowledge, to conduct its business as currently conducted
or presently proposed to be conducted.
(b) With respect to each item of Intellectual Property that Target
owns: (i) subject to such rights as have been granted by Target under license
agreements entered into by Target (copies of which previously have been
delivered to Subsidiary), Target possesses all right, title and interest in and
to such item (free and clear of any liens or encumbrances) and has sole and
exclusive rights (and is not contractually obligated to pay any compensation to
any third party in respect thereof) except as described in Section 4.19(c), and
---------------
(ii) such item is not subject to any outstanding judgment, order, decree,
stipulation or injunction.
(c) With respect to each item of Third Party Intellectual Property
Rights: (i) the license, sublicense or other agreement covering such item is
legal, valid, binding, enforceable and in full force and effect with respect to
Target, and to Target's knowledge is legal, valid,
-20-
binding, enforceable and in full force and effect with respect to each other
party thereto, except as enforcement may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally, and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought; (ii) Target is not in material breach or default under, and to Target's
knowledge, no other party is in material breach or default under, any such
license or other agreement and no event has occurred which with notice or lapse
of time would constitute a material breach or default or permit termination,
modification or acceleration thereunder; (iii) the underlying item of Third
Party Intellectual Property is not subject to any outstanding judgment, order,
decree, stipulation or injunction to which Target is a party or has been
specifically named, nor to Target's knowledge subject to any other outstanding
judgment, order, decree, stipulation, or injunction; and (iv) no license or
other fee is payable upon any transfer or assignment of such license, sublicense
or other agreement.
(d) Target (i) has not been served in any suit, action or
proceeding which involves a claim of infringement or misappropriation of any
Intellectual Property right of any third party (ii) has not received any notice
alleging any such claim of infringement or misappropriation, and (iii) is not
aware of any basis for any such claim. Target has previously delivered to
Subsidiary correct and complete copies of all such suits, actions or proceedings
or written notices to the extent Target is not prohibited from disclosing the
same under applicable court orders. The manufacturing, marketing, licensing or
sale of the products or service offerings of Target do not currently materially
infringe, and have not within the past four years materially infringed, any
Intellectual Property right of any third party; and the Intellectual Property
rights of Target are not being infringed by activities, products or services of
any third party.
(e) To the best of Target's knowledge, the execution and delivery
of this Agreement by Target, and the consummation of the transactions
contemplated hereby, will neither cause Target to be in violation or default
under any license, sublicense or agreement, nor terminate nor modify nor entitle
any other party to any such license, sublicense or agreement to terminate or
modify such license, sublicense or agreement, nor limit in any way Target's
ability to conduct its business or use or provide the use of the Intellectual
Property or Third Party Intellectual Property Rights.
(f) To the best of Target's knowledge, Target has taken reasonable
security measures to safeguard and maintain the secrecy, confidentiality and
value of, and its property rights in, all Intellectual Property. All officers,
employees and consultants of Target who have access to proprietary information
or Intellectual Property have executed and delivered to Target an agreement
regarding the protection of proprietary information and the assignment to Target
of all Intellectual Property arising from the services performed for Target by
such persons. No current or prior officers, employees or consultants of Target
have made any written claim to any ownership interest in any Intellectual
Property as a result of having been involved in the development of such property
while employed by or consulting to Target, or otherwise. Except as set forth in
Schedule 4.19(f), to Target's
----------------
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knowledge all of the Intellectual Property has been developed by employees of
Target within the scope of their employment.
(g) To the best of Target's knowledge, Target has the right, title
and interest in and to all software development tools, used by it in the
development of any of the computer software included in the Intellectual
Property, excluding packaged commercially available licensed software programs,
operating systems and development tools sold or made available to the public.
(h) As of the date hereof, there are no defects in Target's
commercially available software products, and there are no errors in any
documentation, specifications, manuals, user guides, promotional material,
technical documentation, drawings, flow charts, diagrams, source language
statements, and demo disks related to, associated with or used or produced in
the development of Target's commercially available software products, which
defects or errors would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the value of such software products or
make them unsuitable for their intended purpose. Target's commercially available
products operate as represented in the specifications, manuals, user guides,
promotional materials and demo disks for such products, except where the failure
to so operate would not have a Material Adverse Effect on the value of such
products or make them unsuitable for their intended purpose. For all products
sold by Target since its inception, the occurrence in or use by the commercially
available products of dates on or after January 1, 2000 (the "Millennial Dates")
will not adversely affect the performance of the software with respect to date
dependent data, computations, output or other functions (including, without
limitation, calculating, computing and sequencing) and the software will create,
sort and generate output data related to or including Millennial Dates without
errors or omissions, provided, however, in each case, each software or hardware
product used in conjunction with the computer software products are also able to
create, generate, sort, output and otherwise process Millennial Dates.
(i) Except as set forth on attached Schedule 4.19(c), no government
----------------
funding or university or college facilities were used in the development of
Target's commercially available products and the software was not developed
pursuant to any contract or other agreement (except employment agreements) with
any person or entity.
4.20 Employee Benefit Plans.
(a) Schedule 4.20(a) contains a complete and accurate list of all
----------------
Employee Benefit Plans maintained, or contributed to, by Target, or any ERISA
Affiliate. Complete and accurate copies of: (i) all Employee Benefit Plans
which have been reduced to writing; (ii) written summaries of all unwritten
Employee Benefit Plans; (iii) all related trust agreements, insurance contracts
and summary plan descriptions, and (iv) the most recent determination letter
issued by the Internal Revenue Service with respect to each Employee Benefit
Plan which is a pension plan (as defined in Section 3(2) of ERISA), have been
made available to Subsidiary. Each Employee Benefit Plan has been administered
in accordance
-22-
with its terms and each of Target and the ERISA Affiliates has met its
obligations with respect to such Employee Benefit Plan and has made all required
contributions thereto within the timeframes required by applicable law and the
terms of such Employee Benefit Plans. Target and all Employee Benefit Plans are
in compliance with the currently applicable provisions of ERISA, the Code and
the regulations thereunder, except for any such failures that are not reasonably
expected to result in a Material Adverse Effect.
(b) For purposes of this Agreement:
(i) "Employee Benefit Plan" means any "employee pension
benefit plan" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), any "employee welfare benefit plan"
(as defined in Section 3(1) of ERISA), and any other written or oral plan,
agreement or arrangement involving direct or indirect compensation, including,
without limitation, insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase, phantom stock,
stock appreciation or other forms of incentive compensation or post-retirement
compensation.
(ii) "ERISA Affiliate" means any entity which is a member
of: (A) a controlled group of corporations (as defined in Section 414(b) of the
Code); (B) a group of trades or businesses under common control (as defined in
Section 414(c) of the Code); or (C) an affiliated service group (as defined
under Section 414(m) of the Code or the regulations under Section 414(o) of the
Code), any of which includes Target.
(c) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Employee Benefit Plans and proceedings with respect
to qualified domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability to Target.
(d) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Employee Benefit Plans
are qualified as of the date hereof and the plans and the trusts related thereto
are exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code. No such determination letter has been revoked and
revocation has not been threatened, and no fact exists which could adversely
affect the qualified status of any such plan.
(e) Neither Target nor any ERISA Affiliate has ever maintained or
been obligated to contribute to an Employee Benefit Plan subject to Section 412
of the Code or Title IV of ERISA. Neither Target nor any plan fiduciary of any
Employee Benefit Plan has engaged in any transaction in violation of Sections
404 or 406 of ERISA or any "prohibited transaction" as defined in Section
4975(c)(1) of the Code. Target has never been assessed any civil penalty under
Section 502(l) of ERISA.
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(f) No Employee Benefit Plan is funded by, associated with, or
related to a "voluntary employees' beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(g) Schedule 4.20(g) discloses each: (i) agreement with any
----------------
director, executive officer or other key employee of Target (A) the benefits of
which are contingent, or the terms of which are altered, upon the occurrence of
a transaction involving Target of the nature of any of the transactions
contemplated by this Agreement; (B) providing any term of employment or
compensation guarantee; or (C) providing severance benefits or other benefits
after the termination of employment of such director, executive officer or key
employee; (ii) agreement, plan or arrangement under which any person may receive
payments from Target that may be subject to the tax imposed by Section 4999 of
the Code or included in the determination of such person's "parachute payment"
under Section 280G of the Code; and (iii) agreement or plan binding Target,
including, without limitation, any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan, or any
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
4.21 Transactions with Certain Persons
Except as reflected in Schedule 4.21, no Affiliate of Target is, or
-------------
within the past five (5) years has been, a party to any transaction with Target
relating to Target's business, including, without limitation, any contract,
agreement or other arrangement (a) providing for the furnishing of services by,
(b) providing for the rental of real or personal property from, or (c) otherwise
requiring payments to (other than for services as officers, directors or
employees of Target) any such person or corporation, partnership, trust or other
entity in which any such person has an interest as a shareholder, officer,
director, trustee or partner. No Affiliate of Target owns any property or
right, tangible or intangible, which is used in Target's business, has any claim
or cause of action against Target; or owes any money to Target.
4.22 Tax Matters
(a) Target has timely filed with the appropriate taxing authorities
all Tax Returns (including, without limitation, information returns and other
material information) required to be filed through the date hereof and will
timely file any such Tax Returns required to be filed on or prior to the Closing
Date. The Tax Returns and other information filed were complete and accurate in
all respects. Except as specified in Schedule 4.22(a), neither Target, nor any
----------------
group of which Target now or was a member, has requested any extension of time
within which to file Tax Returns (including, without limitation, information
returns) in respect of any Taxes. Target has delivered to Subsidiary complete
and accurate copies of
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Target's federal, state and local Tax Returns filed, examination reports and
statements of deficiencies assessed against or agreed to by Target since
inception.
(b) All Taxes in respect of periods beginning before the Closing
Date have been timely paid prior to the Closing, or will be timely paid by
Target, or an adequate reserve has been established therefor set forth on the
February 29 Balance Sheet and Target does not have any Liability for Taxes in
excess of the amounts so paid or reserves so established. All Taxes attributable
to the period January 1, 2000 through the Closing Date are attributable to the
conduct by Target of its operations in the Ordinary Course of Business. Target
has no actual or, to its knowledge, potential liability for any Tax obligation
of any taxpayer other than Target.
(c) Except as set forth in Schedule 4.22(c), the federal income Tax
----------------
Returns of Target have been filed with the Internal Revenue Service for all
periods to and including those set forth in the Disclosure Schedule, and except
to the extent shown therein, no material deficiencies for Taxes, have been
claimed, proposed or assessed by any taxing or other Governmental Entity against
Target. Except as set forth in Schedule 4.22(c), there are no pending, or, to
----------------
the best of Target's knowledge, threatened or contemplated, examinations or
audits of any Tax Returns of Target, and there are no matters under discussion
with any Governmental Entity with respect to Taxes that in the reasonable
judgment of Target, or its counsel, is likely to result in a material additional
Liability for Taxes. Target has not waived any statute of limitations with
respect to Taxes or agreed to an extension of time with respect to a tax
assessment or deficiency. There are no liens for Taxes (other than for current
Taxes not yet due and payable) on the Assets.
(d) None of the Assets (i) is property that is required to be
treated as being owned by any other person pursuant to the so-called safe harbor
lease provisions of former Section 168(f)(8) of the Code, (ii) directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code, or (iii) is "tax-exempt use property" within the meaning of
Section 168(h) of the Code.
(e) Target (i) is not a person other than a United States person
within the meaning of the Code, (ii) is not and has never been a member of an
"affiliated group" of corporations (within the meaning of Section 1504 of the
Code), and (iii) is not a party to any Tax allocation or sharing agreements.
(f) All Taxes that Target is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity, except such as are being contested
in good faith by appropriate proceedings (to the extent any such proceedings are
required) and with respect to which Target is maintaining reserves adequate for
their payment. The transaction contemplated herein is not subject to the tax
withholding provisions of Section 3406 of the Code or of Subchapter A of Chapter
3 of the Code.
(g) No agreement or arrangement regarding compensation of any
employee providing services to Target's business provides for any payments which
could result in a
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nondeductible expense to the Subsidiary pursuant to Section 280G of the Code or
an excise tax to the recipient of such payment pursuant to Section 4999 of the
Code.
4.23 Insurance
Schedule 4.23 lists each insurance policy (including fire, theft,
-------------
casualty, general liability, workers compensation, business interruption,
environmental, product liability and automobile insurance policies and bond and
surety arrangements) to which Target is a party, a named insured, or otherwise
the beneficiary of coverage at any time within the past year. Schedule 4.23
-------------
lists each person or entity required to be listed as an additional insured under
each such policy. Each such policy is in full force and effect and by its terms
and with the payment of the requisite premiums thereon will continue to be in
full force and effect following the Closing. Except as reflected on Schedule
--------
4.23, Target is not in breach or default (including with respect to the payment
----
of premiums or the giving of notices) under such policy, and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default or permit termination, modification or acceleration, under such
policy; and Target has not received any notice from the insurer disclaiming
coverage or reserving rights with respect to a particular claim or such policy
in general. Target has not incurred any material loss, damage, expense or
liability covered by any such insurance policy for which it has not properly
asserted a claim under such policy. Target is covered by insurance in scope and
amount customary and reasonable for the businesses in which it is engaged.
4.24 Accounts Receivable
The accounts receivable set forth on the February 29 Balance Sheet,
and all accounts receivable arising since February 29, 2000, represent bona fide
claims of Target against debtors for sales, services performed or other charges
arising on or before the date hereof, and all the goods delivered and services
performed which gave rise to said accounts were delivered or performed in
accordance with the applicable orders, Contracts or customer requirements. Said
accounts receivable are subject to no defenses, counterclaims or rights of
setoff and are fully collectible in the Ordinary Course of Business without cost
in collection efforts therefor, except to the extent of the appropriate reserves
for bad debts on accounts receivable as set forth on the February 29 Balance
Sheet and, in the case of accounts receivable arising since February 29, 2000,
to the extent of a reasonable reserve rate for bad debts on accounts receivable
which is not greater than the rate reflected by the reserve for bad debts on the
February 29 Balance Sheet.
4.25 Inventory
The Inventory as set forth on the February 29 Balance Sheet or arising
since February 29, 2000 was acquired and has been maintained in accordance with
the regular business practices of Target, consists of new and unused items of a
quality and quantity usable or saleable in the Ordinary Course of Business, and
is valued at reasonable amounts based on the normal valuation policy of Target
at prices equal to the lower of cost or market value on a first-in-first-out
basis. None of such Inventory is obsolete, unusable, slow-
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moving, damaged or unsalable in the Ordinary Course of Business, except for such
items of Inventory which have been written down to realizable market value, or
for which adequate reserves have been provided, in the February 29 Balance
Sheet.
4.26 Payments
Neither Target nor, to Target's knowledge, any director, officer,
agent, or employee of Target or any other person or entity associated with or
acting for or on behalf of Target, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any person or entity, 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 Target or any of its Affiliates; or (iv) in violation of any
Regulation, or (b) established or maintained any fund or asset that has not been
recorded in the Books and Records.
4.27 Customers and Suppliers
Schedule 4.27 sets forth all customers of Target which individually
-------------
accounted for more than ten percent (10%) of Target's gross revenues during the
twelve (12) month period preceding the date hereof. As of the date hereof,
except as set forth on Schedule 4.27, no customer or supplier of Target has
-------------
canceled or otherwise terminated, or indicated either orally or in writing to
Target that it will cancel or otherwise terminate, its relationship with Target
or decrease materially its services or supplies to Target or its purchase or
usage of Target's services or products, as the case may be.
4.28 Environmental Matters
(a) Target is, and at all times has been, in compliance with all
applicable Environmental Laws. There is no pending or, to Target's knowledge,
threatened civil or criminal litigation, notice of violation, formal
administrative proceeding, or, to the knowledge of Target, any investigation,
inquiry or information request by any Governmental Entity, relating to any
Environmental Law involving Target. For purposes of this Agreement,
"Environmental Law" means any federal, state or local law, statute, rule or
regulation relating to the environment or occupational health and safety,
including, without limitation, any statute, regulation or order pertaining to:
(i) treatment, storage, disposal, generation and transportation of industrial,
toxic or hazardous substances or toxic or hazardous waste; (ii) air, water and
noise pollution; (iii) groundwater and soil contamination; (iv) the release or
threatened release into the environment of industrial, toxic or hazardous
substances, or solid or hazardous waste, including, without limitation,
emissions, discharges, injections, spills, escapes or dumping of pollutants or
contaminants; (v) the protection of wild life, marine sanctuaries and wetlands,
including, without limitation, all endangered and threatened species; (vi)
storage tanks, vessels and containers; (vii) underground and other storage tanks
or vessels, abandoned, disposed or discarded barrels, containers and other
closed receptacles; (viii) health and safety of employees and other persons; and
(ix) manufacture, processing, use, distribution, treatment, storage, disposal,
transportation or
-27-
handling of pollutants, contaminants, toxic or hazardous substances or oil or
petroleum products or toxic or hazardous waste. As used above, the terms
"release" and "environment" shall have the meaning set forth in the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA").
(b) Target has not released any Hazardous Materials into the
environment at any parcel of real property or any facility during the time when
such real property or facility was leased, operated or controlled by Target.
Target is not aware of any other releases of Hazardous Materials that could
reasonably be expected to have an impact on the real property or facilities
owned, leased, operated or controlled by Target. For purposes of this
Agreement, "Hazardous Materials" means any pollutants or contaminants, hazardous
substances (as such term is defined under CERCLA), hazardous wastes (as such
terms are defined under the federal Resources Conservation and Recovery Act),
toxic materials, oil or petroleum and petroleum products, or any other material
subject to regulation under any Environmental Law.
(c) Target is not aware of any environmental reports,
investigations and audits relating to premises currently or previously leased or
operated by Target (whether conducted by or on behalf of Target or a third
party, and whether done at the initiative of Target or directed by a
Governmental Entity or other third party) being issued or conducted during the
past five (5) years.
4.29 Material Misstatements Or Omissions
No representations or warranties of Target in this Agreement, nor any
document, exhibit, statement, certificate or schedule heretofore or hereinafter
furnished to Subsidiary pursuant hereto, or in connection with the transactions
contemplated hereby, including, without limitation, the Disclosure Schedule,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact necessary to make the statements or facts
contained therein not misleading. Target has disclosed all events, conditions
and facts materially affecting its business, prospects and financial condition.
Disclosures on one schedule are deemed disclosures as to any other schedule to
which the subject matter relates.
4.30 Warranties and Indemnities
Attached as Schedule 4.30 are copies of all material agreements in
-------------
which Target has made warranties and indemnities, express or implied, relating
to products sold or services rendered by Target, and no warranty or indemnity
has been given by Target which is not listed on Schedule 4.30 or which differs
-------------
therefrom in any respect. Target is in compliance with all warranties described
in Schedule 4.30. Schedule 4.30 also indicates all warranty and indemnity
------------- -------------
claims currently pending against Target.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SUBSIDIARY
Subsidiary hereby represents and warrants, which representations and
warranties are, as of the date hereof, and will be, as of the Closing Date, true
and correct, to Target as follows:
5.1 Organization and Qualification
Each of Subsidiary and Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all the requisite corporate power and authority, and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Subsidiary and Parent Approvals") necessary
to own, lease and operate its properties and to carry on its business as it is
now being conducted, except where the failure to be so qualified, existing and
in good standing or to have such power, authority and Subsidiary and Parent
Approvals would not, individually or in the aggregate, have a Material Adverse
Effect. Each of Subsidiary and Parent is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not, either individually or in the aggregate, have a
Material Adverse Effect.
5.2 Capitalization
As of the date hereof, the authorized capital stock of Parent consists
of (i) 28,000,000 shares of Parent Common Stock of which 10,685,415 shares of
Parent Common Stock are issued and outstanding, and 2,290,423 shares of Parent
Common Stock are reserved for future issuance pursuant to outstanding employee
stock purchase plans, employee stock options or director stock options, and (ii)
3,000,000 shares of undesignated preferred stock, par value $.001 per share, of
which none are issued or outstanding. Parent has warrants to purchase an
aggregate of 360,445 shares of Parent Common Stock outstanding as of the date of
this Agreement. All of the outstanding shares of Parent Common Stock are, and
all shares to be issued as part of the Purchase Price will be, when issued in
accordance with the terms hereof, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights.
5.3 Authorization of Agreement
Each of Subsidiary and Parent has all requisite corporate power and
authority to execute and deliver the Transaction Documents and each instrument
required hereby to be executed and delivered by it at the Closing, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Subsidiary and
Parent of the Transaction Documents and each instrument required hereby to be
executed and delivered by it at the Closing, the performance
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of obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by the
respective Boards of Directors of Subsidiary and Parent and no other corporate
proceedings on the part of Subsidiary or Parent are necessary to authorize the
Transaction Documents or to consummate the transactions contemplated hereby. The
Transaction Documents have been duly executed and delivered by Subsidiary and
Parent and, assuming due authorization, execution and delivery hereof by the
Company, constitute legal, valid and binding obligations of Subsidiary and
Parent, enforceable against Subsidiary and Parent in accordance with their
terms, in each case except to the extent that the enforcement hereof may be
limited by (A) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (B) general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law). No other corporate proceedings
are required by Subsidiary and Parent other than the approval of the Board of
Directors of Subsidiary and Parent.
5.4 Approvals
The execution and delivery of the Transaction Documents or any
instrument required by the Transaction Documents to be executed and delivered by
Subsidiary and/or Parent at the Closing do not, and the performance by
Subsidiary and Parent of their respective obligations under the Transaction
Documents or any instrument required by the Transaction Documents to be executed
and delivered by Subsidiary at the Closing shall not require Subsidiary or
Parent to obtain any consent, approval, authorization, license, waiver,
qualification, order or permit of, observe any waiting period imposed by, or
require Subsidiary or Parent to make any filing with or notification to, any
Governmental Entity, except for (A) compliance with applicable requirements, if
any, of the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or blue sky laws, (B) the filing of appropriate documents as
required by the NASDAQ or (C) where the failure to obtain such consent,
approvals, authorizations, licenses, waivers, qualifications, orders or permits,
or to make such filings or notifications, would not have, in the aggregate, a
Material Adverse Effect.
5.5 No Violation
Assuming effectuation of all filings, notifications, and registrations
with, termination or expiration of any applicable waiting periods imposed by and
receipt of all Permits or orders of Governmental Entities set forth in Section
-------
5.4(A) or (B) above, the execution and delivery by Subsidiary and Parent of the
-------------
Transaction Documents or any instrument required by the Transaction Documents to
be executed and delivered by Subsidiary and Parent at the Closing do not, and
the performance of the Transaction Documents by Subsidiary and Parent of their
respective obligations under the Transaction Documents or any instrument
required by the Transaction Documents to be executed and delivered by Subsidiary
and Parent at the Closing will not (i) conflict with or violate the Certificate
of Incorporation or By-laws of Subsidiary or Parent, (ii) conflict with or
violate any law, order or regulation in each case applicable to Subsidiary or
Parent or by which their respective properties are bound or
-30-
affected, or (iii) result in any breach or violation of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Subsidiary or
Parent is a party or by which Subsidiary or Parent or any of their respective
properties are bound or affected, except in the case of clause (ii) or (iii)
above, for any such conflicts, breaches, violations, defaults or other
occurrences that would not (a) individually, or in the aggregate, have a
Material Adverse Effect or (b) prevent or materially impair or delay the
consummation of the Merger.
5.6 Reports
(a) As of the date of this Agreement, Parent has timely filed all
reports and schedules required to be filed with the SEC (collectively, the
"Parent SEC Reports") pursuant to the Exchange Act and the regulations
promulgated thereunder. The Parent SEC Reports were prepared in accordance, and
complied as of their respective dates in all material respects, with the
requirements of the Exchange Act and the regulations promulgated thereunder and
did not as of their respective dates (or if amended by a filing prior to the
date hereof, then as of the date of such amendment) 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 therein, in the light of
the circumstances under which they were made, not misleading, except to the
extent superseded by a Parent SEC Report filed subsequently and prior to the
date hereof.
(b) The consolidated financial statements (including, in each case,
any related notes thereto) contained in Parent SEC Reports (i) complied in all
material respects with applicable accounting requirements and the published
regulations with respect thereto, (ii) were prepared in accordance with GAAP
(except in the case of interim balance sheets, as permitted by Regulation S-X
promulgated by the SEC) applied on a consistent basis throughout the periods
involved (except as may be expressly described in the notes thereto), and (iii)
fairly present the consolidated financial position of the Parent at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated.
5.7 Absence of Certain Changes or Events
Since February 29, 2000, Parent has conducted its business only in the
ordinary and usual course and in a manner consistent with past practice and,
since such date, there has not occurred any event, development or change which,
individually or in the aggregate, has resulted in or is reasonably likely to
result in a Material Adverse Effect.
5.8 Absence of Litigation
Except as set forth in the Parent SEC Reports, there is no litigation
pending, or to Subsidiary's or Parent's knowledge, threatened against the
Subsidiary or Parent, that have or would have a Material Adverse Effect on
Subsidiary or Parent. Neither Subsidiary nor Parent is subject to any
outstanding claim or order other than as set forth in the Parent SEC
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Reports, which, individually or in the aggregate, has, or in the future might
have, a Material Adverse Effect on the business or results of operations of
Subsidiary or Parent.
ARTICLE 6
COVENANTS OF TARGET, PARENT AND SUBSIDIARY
------------------------------------------
Target, Parent and Subsidiary each covenant with the other as follows:
6.1 Further Assurances
Upon the terms and subject to the conditions contained herein, the
Parties agree, both before and after the Closing, (i) to use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement, (ii) at the reasonable request
of another Party, to execute and deliver any documents, instruments or
conveyances of any kind which may be necessary, proper or advisable to carry out
any of the transactions contemplated hereunder, and (iii) to cooperate with each
other in connection with the foregoing. Without limiting the foregoing, the
Parties agree to use their respective commercially reasonable best efforts (A)
to obtain all necessary waivers, consents and approvals from other parties to
the Contracts and Leases to be assumed by Subsidiary; provided, however that
Subsidiary shall not be required to make any payments, commence litigation or
agree to modifications of the terms thereof in order to obtain any such waivers,
consents or approvals, (B) to obtain all necessary Permits as are required to be
obtained under any Regulations, (C) to give all notices to, and make all
registrations and filings with third parties and Governmental Entities as may be
required with respect to Target or Subsidiary in connection with the
transactions contemplated by this Agreement, and (D) to fulfill all conditions
to this Agreement.
6.2 No Solicitation
From the date hereof through the Closing or the earlier termination of
this Agreement, Target shall not, and shall cause its shareholders and
Representatives (including, without limitation, investment bankers, attorneys
and accountants) to not, directly or indirectly, (i) enter into, solicit,
initiate or continue any discussions or negotiations with, or encourage the
submission of, or respond to any inquiries or proposals by, any person or entity
(other than Subsidiary and its Representatives), concerning any sale of all or
any portion of the Assets of Target's business, or of any shares of capital
stock of Target, or any merger, consolidation, liquidation, dissolution or
similar transaction involving Target (each such transaction being referred to
herein as a "Proposed Acquisition Transaction"), or (ii) participate in any
negotiations with, or furnish any non-public information concerning Target or
its business, properties or assets to, any person or entity (other than
Subsidiary and its Representatives). Target hereby represents that it is not
now engaged in discussions or negotiations with any party other than Subsidiary
with respect to any Proposed Acquisition Transaction. Target shall notify
Subsidiary promptly (orally and in writing) if any offer, or any inquiry or
contact with any person with respect thereto, is made and shall provide
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Subsidiary with a copy of such offer (if in writing) and shall disclose to
Subsidiary all details of any inquiries, discussions or negotiations of the
nature described in this Section 6.2. Target agrees not to release any third
-----------
party from, or waive any provision of, any confidentiality or standstill
agreement to which Target is a party.
6.3 Notification of Certain Matters
(a) From the date hereof through the Closing, Target shall give
prompt notice to Subsidiary of the occurrence, or failure to occur, of any event
which would (a) cause any representation or warranty of Target contained in this
Agreement (including the Disclosure Schedule) that is qualified as to
materiality or Material Adverse Effect to be untrue or inaccurate or any
representation or warranty that is not so qualified to be untrue or inaccurate
in any material respect, or (b) constitute or result in a default or breach by
Target or any of its Affiliates of any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
such disclosure shall not be deemed to cure any breach of a representation,
warranty, covenant or agreement or to satisfy any condition. Target shall
promptly notify Subsidiary of any default, the threat or commencement of any
Action, or any development that occurs before the Closing that could reasonably
be likely to have a Material Adverse Effect on Target.
(b) From the date hereof through the Closing, Subsidiary shall give
prompt notice to Target of the occurrence, or failure to occur, of any event
which would (a) cause any representation or warranty of Subsidiary contained in
this Agreement that is qualified as to materiality or Material Adverse Effect to
be untrue or inaccurate or any representation or warranty that is not so
qualified to be untrue or inaccurate in any material respect, or (b) constitute
or result in a default or breach by Subsidiary or any of its Affiliates of any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that such disclosure shall not be deemed to
cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition. Subsidiary shall promptly notify Target of any default
or the threat or commencement of any Action.
6.4 Access; Investigation by Subsidiary
Target shall, and shall cause its officers, directors, employees and
agents to, afford Subsidiary and its Affiliates and Representatives, upon
reasonable notice, full and complete access at all reasonable times to the
Assets for the purpose of inspecting the same, and to the officers, employees,
agents, attorneys, accountants, properties, Books and Records, Contracts and
Leases of Target, and shall furnish Subsidiary all financial, accounting,
personnel, operating and other data and information (subject to applicable
confidentiality obligations of Target) as Subsidiary or its Affiliates or
Representatives, may reasonably request, including, promptly upon request,
furnishing an unaudited balance sheet and the related statements of income,
retained earnings and cash flow to Subsidiary for each month from the date
hereof through the Closing Date which financial statements shall be true and
correct and in accordance with the Books and Records and shall accurately set
forth the assets, Liabilities
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and financial condition, results of operations and other information purported
to be set forth therein in accordance with GAAP consistently applied as
disclosed on Schedule 4.12.
-------------
6.5 Conduct of Business
Except as contemplated by this Agreement, from the date hereof through
the Closing, Target shall operate its business in the Ordinary Course of
Business in compliance with all applicable Regulations and, to the extent
consistent therewith, use all reasonable efforts to preserve intact its current
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it, and shall not take any action inconsistent with this Agreement or with the
consummation of the Closing. Without limiting the generality of the foregoing,
from the date hereof through the Closing, Target shall not, except as
specifically contemplated by this Agreement or as consented to by Subsidiary in
writing:
(a) change or amend its Charter or Bylaws in any manner that would
adversely affect Target's ability to transfer the Assets to Subsidiary
hereunder;
(b) enter into, extend, materially modify, terminate or renew any
Contract or Lease, except in the Ordinary Course of Business, or take any action
that would constitute a default under, or waive, release or assign any rights
under, any Contract or Lease, or willingly allow or permit any of Target's
insurance policies to be suspended, impaired or canceled;
(c) sell, assign, transfer, convey, lease, license, mortgage,
pledge or otherwise dispose of or grant or impose any Encumbrance on any of the
Assets, including, without limitation, the Intellectual Property, or any
interests therein, except in the Ordinary Course of Business;
(d) create, incur or assume any Liability not currently outstanding
(including obligations in respect of capital leases); assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity, in each case, except in the Ordinary Course of Business;
(e) (i) take any action with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or agreements
of Target in effect on the date hereof that are described on the Disclosure
Schedule) or with respect to any increase of benefits payable under its
severance or termination pay policies or agreements in effect on the date hereof
or increase in any manner the compensation or fringe benefits of any employee or
pay any benefit not required by any existing Employee Benefit Plan or policy;
(ii) adopt, enter into or amend any Employee Benefit Plan, agreement (including,
without limitation, any collective bargaining or employment agreement), trust,
fund or other arrangement for the benefit or welfare of any employee, except for
any such amendment as
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may be required to comply with applicable Regulations; (iii) fail to maintain
all Employee Plans in accordance with applicable Regulations; or (iv) hire,
terminate or discharge any employee or engage or terminate any consultant,
except for the hiring of persons for whom offers of employment are outstanding
on the date hereof as set forth on Schedule 6.5 or in the Ordinary Course of
------------
Business;
(f) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any Liabilities in the
Ordinary Course of Business, or discharge or satisfy any Encumbrance or pay any
obligation or Liability when due other than in the Ordinary Course of Business,
or collect its accounts receivable in the Ordinary Course of Business;
(g) make or commit to make any capital expenditure in excess of
$10,000 per item;
(h) merge or consolidate with, or purchase substantially all of the
assets of, or otherwise acquire any material assets or business of any
corporation, partnership, association or other business organization or division
thereof;
(i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock;
(j) fail to maintain the Assets in substantially their current
state of repair, excepting normal wear and tear, or fail to replace inoperable,
worn-out or obsolete or destroyed Assets in the Ordinary Course of Business;
(k) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP or as required by Subsidiary;
(l) make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, file any material Tax
Return or any amendment to a material Tax Return (in which case, the written
consent of Subsidiary shall not be unreasonably withheld), enter into any
closing agreement, settle any claim or assessment in respect of Taxes (except
settlements effected solely through payment of immaterial sums of money), or
consent to any extension or waiver of the limitation period applicable to any
material claim or assessment in respect of Taxes;
(m) fail to comply in any material respect with all Permits and
Regulations applicable to Target or its business or to the Assets;
(n) commence any litigation other than (i) for the routine
collection of bills, (ii) for software piracy, or (iii) in such cases where
Target in good faith determines that failure to commence suit would result in
the material impairment of a valuable aspect of Target's business, provided that
Target consults with Subsidiary prior to the filing of such a suit;
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(o) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of Target set forth in
this Agreement becoming untrue or (ii) any of the conditions set forth in
Article VIII not being satisfied; or
------------
(p) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
6.6 Employee Matters
(a) Subsidiary shall extend offers of employment to each of
Target's employees identified on Schedule 6.6 (such employees are hereinafter
------------
referred to as the "Target Employees"), which offers shall be on terms and
conditions which Subsidiary shall determine in its sole discretion but shall be
substantially on the same terms of similarly situated employees of Subsidiary.
The offer shall be substantially in the form of Employment Offer Letter attached
as Exhibit G.
---------
(b) At or immediately following the Closing, Subsidiary shall set
aside 17,500 Parent Shares, from which Subsidiary shall pay stay bonuses to any
person who is a Target Employee and accepts employment pursuant to Section
-------
6.6(a). The amount and the terms of the stay bonus payable to each Target
------
Employee shall be determined by the Subsidiary and Target and shall be payable
on the dates and to the persons identified on Schedule 6.6. Notwithstanding the
------------
dates set forth on Schedule 6.6, if the Parent or Subsidiary terminates one of
------------
these Target Employees without cause, such Target Employee shall be paid the
number of shares he/she would have received had he/she been employed for a full
18 months multiplied by a fraction equal to the number of days he/she was
employed by Parent or Subsidiary divided by 540. Should any Target Employee
incur a tax expense in connection with receipt of Parent Shares as a stay bonus,
the Parent will make a thirty (30) day loan on commercially reasonable terms on
April 14, 2001 to pay the tax.
(c) Parent shall offer each Target Employee a stock option (the
"Parent Stock Options") for Parent Common Stock for the amount of shares
identified on Schedule 6.6.
------------
(d) Nothing contained in this Agreement shall confer upon any
Target Employee any right with respect to continuance of employment by
Subsidiary, nor shall anything herein interfere with the right of Subsidiary to
terminate the employment of any of the Target Employees at any time, with or
without cause, nor shall anything herein restrict Subsidiary in the exercise of
its independent business judgment in modifying any of the terms and conditions
of the employment of the Target Employees; provided, however, that Subsidiary
shall be obligated to pay the Target Employee's applicable stay bonus if such
person is terminated without cause prior to the date such stay bonus would
otherwise be payable.
6.7 Third Party Consents
Target and Subsidiary shall use commercially reasonable efforts to
obtain, within the applicable time periods required, all required, waivers,
permits, consents and approvals and
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to effect all registrations, filings and notices with or to third parties or
Governmental Entities which are necessary to consummate the transactions
contemplated by this Agreement so as to preserve all rights of, and benefits to,
the Subsidiary in the Assets.
ARTICLE 7
CONDITIONS TO TARGET'S OBLIGATIONS
----------------------------------
The obligations of Target to consummate the transactions provided for
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions, any of which may be waived by Target:
7.1 Representations, Warranties and Covenants
All representations and warranties of Subsidiary and Parent contained
in this Agreement that are qualified as to materiality or Material Adverse
Effect shall be true and correct as of the date hereof and shall be true and
correct as of the Closing Date as if made as of the Closing Date (except for (i)
representations and warranties which by their terms are made as of a specific
date, which shall be true and correct as of such date, and (ii) changes
contemplated by this Agreement), and all representations and warranties of
Subsidiary and Parent that are not so qualified shall be true and correct in all
material respects as of the date hereof and as of the Closing Date as if made as
of the Closing Date (except for (i) representations and warranties which by
their terms are made as of a specific date, which shall be true and correct as
of such date, and (ii) changes contemplated by this Agreement), and Subsidiary
and Parent shall have performed and satisfied in all material respects all of
the agreements and covenants required to be performed or satisfied by Subsidiary
and Parent prior to or on the Closing Date.
7.2 No Actions or Court Orders.
No temporary restraining order, preliminary or permanent injunction or
other Court Order issued by any court of competent jurisdiction or other legal
or regulatory restraint or prohibition preventing the consummation of, or
questioning the validity or legality of, the transactions contemplated by this
Agreement or limiting or restricting Subsidiary's conduct or operation of the
business of Target upon consummation of the transactions contemplated hereby
shall have been issued, nor shall any Action brought by any Governmental Entity
or any third party seeking any of the foregoing be pending; nor shall there be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the transactions contemplated by this Agreement
which makes the consummation of such transactions illegal.
7.3 Consents; Regulatory Compliance and Approval
All consents, approvals and waivers from, registrations and filings
with and notices to Governmental Entities and other third parties necessary to
permit Target to transfer the Assets to Subsidiary as contemplated hereby shall
have been obtained, unless the failure to
-37-
obtain any such consent, approval or waiver or make such registration or filing
or give such notice would not have a Material Adverse Effect upon Target.
7.4 Certificates
At the Closing, each of Subsidiary and Parent shall furnish to Target
a certificate of a duly authorized officer to the effect that each of the
conditions set forth in Sections 7.1, 7.2 (to the extent Subsidiary and/or
-----------------
Parent is a party or is named therein) and 7.3 of this Agreement are satisfied
---
in all respects and certifying as to the resolutions adopted by the respective
boards of directors of Subsidiary and Parent approving this Agreement, the
Ancillary Agreements and the transactions contemplated hereby or thereby.
7.5 Opinion of Counsel
Subsidiary and Parent shall have delivered to Target an opinion of
Venture Law Group, outside counsel to Subsidiary and Parent, dated as of the
Closing Date, with respect to the matters set forth on Exhibit C attached hereto
and otherwise in form and substance reasonably satisfactory to Target, including
an opinion regarding validity of shares of Parent Common Stock in the
Transaction and exemption of offering.
7.6 No Material Adverse Change
Since February 29, 2000, there shall not have been any Material
Adverse Change in the condition (financial or otherwise), properties, business,
results of operations, prospects, assets (including intangible assets),
Liabilities or operations or results of operations of Subsidiary or Parent.
7.7 Employee Matters
Simultaneous with, or prior to, Closing, Parent shall have delivered
and executed Stock Option Agreements and Employment Offer Letters to the Target
Employees pursuant to Section 6.6(c).
--------------
7.8 Board and Shareholder Approval
This Agreement and the transactions it contemplates shall have been
approved and adopted by such vote of the holders of the outstanding shares of
Subsidiary's capital stock entitled to vote thereon as is required to approve
such transactions, and shall have otherwise been approved as required by law and
the charter documents of Subsidiary.
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ARTICLE 8
CONDITIONS TO SUBSIDIARY'S OBLIGATIONS
--------------------------------------
The obligations of Subsidiary and Parent to consummate the transactions
provided for hereby are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions, any of which may be waived by
Subsidiary or Parent:
8.1 Representations, Warranties and Covenants
All representations and warranties of Target contained in this
Agreement that are qualified as to materiality or Material Adverse Effect shall
be true and correct as of the date hereof and shall be true and correct as of
the Closing Date as if made as of the Closing Date (except for (i)
representations and warranties which by their terms are made as of a specific
date, which shall be true and correct as of such date, and (ii) changes
contemplated by this Agreement), and all representations and warranties of
Target that are not so qualified shall be true and correct in all material
respects as of the date hereof and as of the Closing Date as if made as of the
Closing Date (except for (i) representations and warranties which by their terms
are made as of a specific date, which shall be true and correct as of such date
and (ii) changes contemplated by this Agreement), and Target shall have
performed and satisfied in all material respects all of the agreements and
covenants required to be performed or satisfied by Target prior to or on the
Closing Date.
8.2 Consents; Regulatory Compliance and Approval
All Permits, consents, approvals and waivers from governmental
authorities and other parties necessary for the consummation of the transactions
contemplated by this Agreement and for the operation of Target's business by
Subsidiary following the Closing (including, without limitation, all required
third party consents to the assignment of the Leases and Contracts to be assumed
by Subsidiary) shall have been obtained by Target. Subsidiary shall be
satisfied that all approvals required under any Regulations to consummate the
transactions contemplated by this Agreement shall have been obtained and that
the Parties shall have complied with all Regulations applicable to the
Acquisition.
8.3 No Actions or Court Orders
No temporary restraining order, preliminary or permanent injunction or
other Court Order issued by any court of competent jurisdiction or other legal
or regulatory restraint or prohibition preventing the consummation of, or
questioning the validity or legality of, the transactions contemplated by this
Agreement or limiting or restricting Subsidiary's conduct or operation of the
business of Target upon consummation of the transactions contemplated hereby
shall have been issued, nor shall any Action brought by any Governmental Entity
or any third party seeking any of the foregoing be pending; nor shall there be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the transactions contemplated by this Agreement
which makes the consummation of such transactions illegal.
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8.4 Opinion of Counsel
Target shall have delivered to Subsidiary an opinion of ▇▇▇▇, ▇▇▇▇
▇▇▇▇ & Freidenrich, LLP, outside counsel to Target, dated as of the Closing
Date, with respect to the matters set forth on Exhibit F attached hereto and
---------
otherwise in form and substance reasonably satisfactory to Subsidiary.
8.5 Employment
A minimum of 70% of the Target Employees shall have accepted the terms
and conditions of their respective employment offers. Each of ▇▇▇▇▇▇▇▇ ▇. Gold,
M.D. ("Gold") and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("Angelel") shall have executed a letter
substantially in a form reasonably acceptable to Subsidiary and such agreement
shall be in full force and effect ("Employment Offer Letter") that includes a
provision for minimum lock up on shares issued to Gold and Angelel at the
Closing (not including shares subsequently issued pursuant to stock options or
otherwise) that shall release such shares in equal one-third lots on the 6th,
12th and 18th month anniversary of the Effective Date. Notwithstanding this
Section 8.5, the shares of either Gold or Angelel shall be released immediately
-----------
upon (i) his death or disability, (ii) upon his termination (except for cause)
by Subsidiary, or (iii) upon the sale or change of control by Parent except to
an Affiliate.
8.6 No Material Adverse Change
Since February 29, 2000, there shall not have been any Material
Adverse Change in the condition (financial or otherwise), properties, business,
results of operations, prospects, assets (including intangible assets),
Liabilities (other than Excluded Liabilities) or operations or results of
operations of Target.
8.7 Certificates
At the Closing, Target shall furnish to Subsidiary a certificate of a
duly authorized officer to the effect that each of the conditions set forth in
Sections 8.1, 8.2 and 8.3 (to the extent Target is a party or is named therein)
-------------------------
of this Agreement are satisfied in all respects and certifying as to the
resolutions adopted by the board of directors of Subsidiary approving this
Agreement, the Ancillary Agreements and the transactions contemplated hereby or
thereby.
8.8 Convertible Notes and Warrants
Target shall have provided Subsidiary with evidence, reasonably
satisfactory to Subsidiary, that holders of Convertible Notes will waive, on or
prior to Closing, their conversion rights under all provisions of the Notes and
instead accept prepayment of principal and all accrued interest under the Notes
at or immediately following the Closing. In addition, Target shall use its best
efforts to have all outstanding warrants exercised on or prior to the Closing.
-40-
8.9 Brokers' Fees
Target shall have provided Subsidiary with evidence, reasonably
satisfactory to Subsidiary, that an agreement has been reached with ▇▇▇▇▇▇▇▇▇ 4
▇▇▇▇▇, LLC to accept payment for brokers' fees not to exceed $400,000. Target
shall have provided Subsidiary with evidence, reasonably satisfactory to
Subsidiary, that an agreement has been reached with ▇.▇. ▇▇▇▇▇▇▇ & Sons, Inc. to
accept payment for brokers' fees not to exceed $107,000.
8.10 Termination of Benefit and Stock Option Plans
Target shall have provided Subsidiary with evidence, reasonably
satisfactory to Subsidiary, as to the termination of all benefit plans, stock
option plans and other payments owing by Target relating to all of its
employees. The stock options shall terminate by their terms by virtue of the
steps taken by the Board.
8.11 Covenants Not To Compete
At Closing, Target shall have delivered covenants not to compete
incorporated into Employment Agreements and a Consulting Agreement executed by
▇▇▇▇▇▇▇▇ Gold, M.D., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, and ▇▇▇▇▇▇ ▇▇▇▇▇, M.D. as described in
Section 3.2(b)(vii).
-------------------
8.12 Board and Shareholder Approval
This Agreement and the transactions it contemplates shall have been
approved and adopted by such vote of the holders of the outstanding shares of
Target's capital stock entitled to vote thereon as is required to approve such
transactions, and shall have otherwise been approved as required by law and the
charter documents of Target.
ARTICLE 9
RISK OF LOSS; CONSENTS TO ASSIGNMENT
------------------------------------
9.1 Risk of Loss
From the date hereof through the Closing Date, all risk of loss or
damage to the property included in the Assets shall be borne by Target, and
thereafter shall be borne by Subsidiary. If any portion of the Assets is
destroyed or damaged by fire or any other cause on or prior to the Closing Date,
other than use, wear or loss in the Ordinary Course of Business, Target shall
give written notice to Subsidiary as soon as practicable, but in any event
within five (5) calendar days, after discovery of such damage or destruction,
the amount of insurance, if any, covering such Assets and the amount, if any,
which Target is otherwise entitled to receive as a consequence. Prior to the
Closing, Subsidiary shall have the option, which shall be exercised by written
notice to Target within ten (10) calendar days after receipt of Target's notice
or if there is not ten (10) calendar days prior to the Closing Date, as soon as
practicable prior to the Closing Date, of (a) accepting such Assets in their
destroyed or damaged condition, in which event Subsidiary shall be entitled to
the proceeds
-41-
of any insurance or other proceeds payable with respect to such
loss, and the full Purchase Price shall be paid for such Assets, (b) excluding
such Assets from this Agreement, in which event the Purchase Price shall be
reduced by the amount allocated to such Assets, as mutually agreed between the
Parties or (c) terminating this Agreement in accordance with Section 11.1
------------
hereof. If Subsidiary accepts such Assets, then, after the Closing, any
insurance or other proceeds shall belong, and shall be assigned to, Subsidiary
without any reduction in the Purchase Price; otherwise, such insurance proceeds
shall belong to Target.
9.2 Consents to Assignment.
Notwithstanding anything in this Agreement to the contrary, this
Agreement shall not constitute an agreement to assign any Contract, Lease,
Permit or any claim or right or any benefit arising thereunder or resulting
therefrom if an attempted assignment thereof, without the consent of a third
party thereto, would result in a breach of, constitute (with or without due
notice or lapse of time or both) a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify or cancel, or in
any way adversely affect the rights of Subsidiary thereunder. If such consent
is not obtained, or if an attempted assignment thereof would be ineffective or
would affect the rights thereunder so that Subsidiary would not receive all such
rights, Target will cooperate with Subsidiary, in all reasonable respects, to
provide to Subsidiary the benefits under any such Contract, Lease, Permit or any
claim or right, including, without limitation, enforcement for the benefit of
Subsidiary of any and all rights of Target against a third party thereto arising
out of the breach, default, acceleration, termination or cancellation by such
third party or otherwise. Nothing in this Section 9.2 shall affect any of
-----------
Subsidiary's rights to terminate this Agreement pursuant to Section 11.1 hereof.
------------
ARTICLE 10
RESERVED
--------
ARTICLE 11
MISCELLANEOUS
-------------
11.1 Termination.
(a) Termination. This Agreement shall automatically terminate if
-----------
the Closing has not occurred on or prior to March 31, 2000, unless extended by
mutual agreement. In addition, this Agreement may be terminated at any time
prior to the Closing:
(i) by mutual written consent of Subsidiary and Target; or
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(ii) by Subsidiary or Target by giving written notice if the
Closing shall not have occurred on or before March 31, 2000; provided however,
that the right to terminate this Agreement pursuant to this Section 11.1(a)(ii)
-------------------
shall not be available any Party whose failure to fulfill any obligation under
this Agreement has been the cause of or resulted in the failure of the Closing
to occur on or before such date; or
(iii) by either Subsidiary or Target if a court of competent
jurisdiction or other Governmental Entity shall have issued a final order,
decree or ruling, or taken any other action, having the effect of permanently
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby, and all appeals with respect to such order,
decree, ruling or action have been exhausted or the time for appeal of such
order, decree, ruling or action shall have expired; or
(iv) by Subsidiary upon written notice if there is a material breach
of any representation or warranty of Target set forth in Article IV hereof or
----------
any covenant or agreement to be performed or complied with by Target pursuant to
the terms of this Agreement or the failure of a condition set forth in Article
-------
VIII to be satisfied except the condition set forth in Section 8.5 relating to
---- -----------
the percentage of the Target Employees required to accept employment offers (and
such condition is not waived in writing by Subsidiary) on or prior to the
Closing Date, or the occurrence of any event which results or could result in
the failure of a condition set forth in Article VIII to be satisfied on or prior
------------
to the Closing Date; provided, however, that Subsidiary may only terminate this
Agreement pursuant to this Section 11.1(a)(iv) if, within ten (10) business days
-------------------
following written notice thereof, such failure shall not have been cured; or
(v) by Target upon written notice if there is a material breach of
any representation or warranty of Subsidiary set forth in Article V hereof or
---------
any covenant or agreement to be performed or complied with by Subsidiary
pursuant to the terms of this Agreement or the failure of a condition set forth
in Article VII to be satisfied (and such condition is not waived in writing by
-----------
Target) on or prior to the Closing Date, or the occurrence of any event which
results or could result in the failure of a condition set forth in Article VII
-----------
to be satisfied on or prior to the Closing Date; provided, however, that Target
may only terminate this Agreement pursuant to this Section 11.1(a)(v) if, within
------------------
ten (10) business days following written notice thereof, such failure shall not
have been cured; or
(b) Termination Costs and Expenses. Whether or not the Closing
------------------------------
occurs, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby including, without limitation, filing fees
and the fees and expenses of advisors, accountants, legal counsel and financial
printers, shall be paid by the Party incurring such expense; provided, however,
that (i) if this Agreement is terminated by Subsidiary pursuant to Section
-------
11.1(a)(iv), then Target shall reimburse Subsidiary for all out-of-pocket costs
-----------
and expenses incurred by Subsidiary in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, filing fees and
the fees and expenses of its advisors, accountants, legal counsel and financial
printers) or (ii) if this Agreement is terminated by Target pursuant to Section
-------
11.1(a)(v), then Subsidiary shall reimburse Target
----------
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for all out-of-pocket costs and expenses incurred by Target in connection with
this Agreement and the transactions contemplated hereby (including, without
limitation, filing fees and the fees and expenses of its advisors, accountants,
legal counsel and financial printers). In addition, because the extent of actual
damages would be difficult to determine, the parties agree that the breaching
party shall pay the other party the sum of $500,000 as liquidated damages within
sixty (60) days. In the event Target is the breaching party, all principal
amounts (plus accrued interest) of any indebtedness of Target to Parent or
Subsidiary shall become immediately due and payable, in accordance with the
terms of such indebtedness.
(c) Topping Fee. If, without mutual consent, the Closing has not
-----------
occurred on or prior to the Closing Date, and if prior to the Closing Date:
(i) Target, or its shareholders, publicly announce, enter
into a letter of intent relating to, enter into a definitive agreement providing
for, or consummate, a transaction which, as announced, or as provided in such
letter or agreement or as consummated, provides for or relates to (including all
prior distributions to shareholders after the date hereof) the disposition of a
controlling interest in Target, or the sale, transfer or other distribution of
assets constituting a majority (measured by fair market value) of the
consolidated assets of Target, Target agrees to pay Parent the sum of
$2,000,000. If the Closing has not occurred on or prior to the Closing Date
because Subsidiary, or its shareholders, have entered into a letter of intent
relating to, entered into a definitive agreement providing for, or consummated,
a transaction which prohibits the merger contemplated herein, Parent agrees to
pay Target the sum of $4,500,000.
(ii) Subsidiary is prepared to close but Target does not
close and all conditions of closing by Target have been either met by Target or
waived by Subsidiary and/or Parent, Target agrees to pay Parent the sum of
$2,000,000 in addition to any amounts owing pursuant to subsection (b) above IF,
within six months of the scheduled Closing Date, Target or its shareholders,
directly or indirectly (in one or a series of transactions), enters into an
agreement with either ▇▇▇▇▇▇ CVG or a party that was in contact with Target on
or after the date of this Agreement and prior to the scheduled Closing Date,
pursuant to which: (a) Target sells substantially all of its assets, (b) Target
merges with or has more than fifty percent (50%) of its issued and outstanding
shares sold or exchanged, or (c) Target undertakes any debt or equity financing
(including prepaid royalties) or any combination thereof, of at least $500,000.
11.2 Assignment; No Third Party Beneficiaries
Neither this Agreement nor any of the rights or obligations hereunder
may be assigned by any Party without the prior written consent of the other
Party. Subject to the foregoing, this Agreement shall be binding upon and inure
to the benefit of the Parties hereto and their respective successors and
permitted assigns. This Agreement shall not confer any right, benefit or
remedies upon any person as a third party beneficiary or otherwise other than
the Parties and their respective successors and permitted assigns.
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11.3 Notices
All notices, requests, demands and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express); and
----
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent as follows:
If to Target, to:
Elixis Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Its President
with a copy to:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
If to Subsidiary, to:
▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Its President
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇.▇.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
or to such other place and with such other copies as either Party may designate
by written notice to the other Party. Notwithstanding the foregoing, any Party
may give any notice, request, demand, claim, or other communication hereunder
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be
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deemed to have been duly given unless and until it actually is received by the
Party for whom it is intended.
11.4 Choice of Law; Venue
This Agreement shall be construed, interpreted and the rights of the
parties determined in accordance with the laws of the State of Washington
(without reference to choice of law provisions), except with respect to matters
of law concerning the internal corporate affairs of any corporate entity which
is a party to or the subject of this Agreement, and as to those matters, the law
of the jurisdiction under which the respective entity derives its powers shall
govern. Each of the parties to this Agreement consents to the exclusive
jurisdiction and venue of the state and federal courts located in King County,
Washington.
11.5 Entire Agreement; Amendment and Waiver
This Agreement, the Transaction Documents, together with all exhibits
and schedules hereto and thereto (including the Disclosure Schedule) and the
Promissory Note and the Confidentiality and Exclusivity Agreement, each dated
March 8, 2000, constitute the entire agreement between the Parties pertaining to
the subject matter hereof and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the Parties. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the Parties hereto. At any time prior the Closing Date, any Party
may, to the extent legally allowed: (a) extend the time for the performance of
any of the obligations of the other Party; (b) waive any inaccuracies in the
representations and warranties made to such Party contained herein or in any
document delivered pursuant hereto; and (c) waive compliance with any of the
agreements or conditions for the benefit of such Party contained herein. Any
agreement on the part of a Party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such Party.
No waiver shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver be deemed to extend to
any prior or subsequent default, misrepresentation or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent default, misrepresentation, breach of such warranty, or
covenant.
11.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
11.7 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction; provided, that, this Agreement shall not then
substantially deprive any Party of the bargained-for performance of any other
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Party. If the final judgment of a court of competent jurisdiction declares that
any term or provision hereof is invalid or unenforceable, the Parties agree that
the court making the determination of invalidity or unenforceability shall have
the power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
11.8 Headings
The titles, captions or headings of the articles and sections herein
are for convenience of reference only and are not intended to be a part of or to
affect or restrict the meaning or interpretation of this Agreement.
11.9 Press Releases and Public Announcements
Target shall not issue any press release or make any public disclosure
relating to the subject matter of this Agreement without the prior written
approval of Subsidiary, which written approval shall not be unreasonably
withheld; provided, however, that Target may make any public disclosure it
believes in good faith is required by law or regulation (in which case Target
shall advise Subsidiary and provide Subsidiary with a copy of the proposed
disclosure prior to making the disclosure).
11.10 Cumulative Remedies
All rights and remedies of either Party hereto are cumulative with,
and not exclusive of, any other right or remedy such Party may otherwise have at
law or in equity, and the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other rights or
remedies.
11.11 Specific Performance; Attorneys' Fees
The Parties acknowledge and agree that damages would be an inadequate
remedy for any breach of the provisions of this Agreement and agree that the
obligations of the Parties hereunder shall be specifically enforced in
accordance with the terms of this Agreement. If any Party brings an action to
enforce its rights under this Agreement, including, without limitation, for
specific performance, the prevailing Party shall be entitled to recover its
costs and expenses, including, without limitation, reasonable attorneys' fees,
incurred in connection with such action, including any appeal of such action.
11.12 Construction
The Parties agree that they have been represented by counsel during
the negotiation, preparation and execution of this Agreement and, therefore,
waive the application of any law, regulation, holding or rule of construction
providing that ambiguities in an agreement or
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other document will be construed against the party drafting such agreement or
document. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
11.13 Incorporation of Exhibits and Disclosure Schedule
The exhibits and Disclosure Schedule identified in this Agreement are
incorporated herein by reference and made a part hereof.
11.14 Confidentiality
The Parties acknowledge that the transaction described in this
Agreement is of a confidential nature and shall not be disclosed to any person
other than any consultant, advisor, Representative or Affiliates of either such
Party, or as required by law, until such time as a public announcement regarding
the transaction is made as provided in Section 11.9 of this Agreement.
------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
ELIXIS CORPORATION,
a Washington corporation
By: /s/ ▇▇▇▇▇▇▇▇ ▇. Gold, M.D.
---------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. Gold, M.D.
-------------------------
Title: President/CEO
------------------------
DATA CRITICAL CORPORATION,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------
Title: President/CEO
------------------------
▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------
Title: President/CEO
------------------------
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