EXHIBIT 99.2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 4, 2002 (this
"Agreement"), is by and among Advanced Neuromodulation Systems, Inc., a Texas
corporation ("Parent"), MicroNet Acquisition, Inc., a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"; Parent and Merger Sub are
referred to in this Agreement as the "Parent Companies"), MicroNet Medical,
Inc., a Minnesota corporation ("Company"), and the shareholders of Company
listed on the signature pages to this Agreement (the "Shareholders"). The Parent
Companies, Company and the Shareholders are collectively referred to in this
Agreement as the "parties."
RECITALS
The parties desire that Merger Sub, upon the terms and subject to the
conditions of this Agreement and in accordance with applicable provisions of the
Delaware General Corporation Law (the "DGCL") and the Minnesota Business
Corporation Act (the "MBCA"), merge with and into Company (the "Merger") with
Company to survive such Merger, and pursuant to this Agreement, the issued and
outstanding shares of common stock, $0.01 par value per share, of Company
("Company Common Stock"), other than those (a) constituting Dissenting Shares
(as defined herein), or (b) owned directly or indirectly by Company, Parent or
any of Parent's subsidiaries, be converted into the right to receive shares of
common stock, $0.05 par value, of Parent ("Parent Common Stock"), all as set
forth in this Agreement.
Prior to the completion of the Merger, Company will transfer
substantially all of the assets and all of the liabilities associated with
Company's assets other than the Microlead Assets (as defined herein), including
but not limited to substantially all of the assets and all of the liabilities
associated with Company's original equipment manufacturing and sterilization
assets (collectively, the "Other Assets") to a newly-formed Delaware limited
liability company controlled by the Shareholders ("Newco"). This transaction is
referred to herein as the "Restructuring Transaction."
The Board of Directors of Company has determined that the Merger is
fair to, and in the best interests of, Company and its shareholders and has
approved and adopted this Agreement and the transactions contemplated by this
Agreement.
The Board of Directors of Parent has determined that the Merger is fair
to, and in the best interests of, Parent and its shareholders and has approved
and adopted this Agreement and the transactions contemplated by this Agreement.
The Board of Directors of Merger Sub, and Parent, as the sole
shareholder of Merger Sub, have approved and adopted this Agreement.
The Shareholders, as the owners of 64.55% of the issued and outstanding
capital stock of Company, will receive substantial direct and indirect benefits
from the transactions contemplated by this Agreement, and the Parent Companies
have requested that the Shareholders enter into this Agreement as a condition to
the Parent Companies' execution of this Agreement.
For federal income tax purposes, the parties intend that the Merger
qualify as a reorganization under the provisions of the United States Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the applicable provisions of
the DGCL and the MBCA, at the Effective Time (as defined in Section 1.02),
Merger Sub will be merged with and into Company. As a result of the Merger, the
separate corporate existence of Merger Sub will cease and Company will continue
as the surviving corporation of the Merger (for periods after the Effective
Time, the Company is also referred to herein as the "Surviving Corporation") and
as a wholly-owned subsidiary of Parent. Certain terms used in this Agreement are
defined in Section 11.03.
SECTION 1.02. Closing; Closing Date; Effective Time. Unless this
Agreement is terminated pursuant to Section 10.01, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
consummation of the Merger and the closing of the transactions contemplated by
this Agreement (the "Closing") will take place on or before November 27, 2002,
or as soon as practicable thereafter. The date on which the Closing takes place
is referred to in this Agreement as the "Closing Date." As promptly as
practicable on the Closing Date, the parties to this Agreement will cause the
Merger to be consummated by filing a certificate of merger with the Delaware
Secretary of State and articles of merger with the Minnesota Secretary of State,
each in such form as required by, and executed in accordance with the relevant
provisions of, the DGCL or the MBCA, as applicable. The date and time of such
filings, or such later date or time agreed upon by Parent and Company and set
forth in the filings, will be the "Effective Time."
SECTION 1.03. Effect of the Merger; Name. The effect of the Merger will
be as provided in the applicable provisions of the DGCL and the MBCA. The name
of the Surviving Corporation will be MicroNet Medical, Inc.
SECTION 1.04. Articles of Incorporation; Bylaws. The articles of
incorporation and bylaws of Company, each as in effect immediately prior to the
execution of this Agreement, will be amended and restated as of the Effective
Time as set forth in Annex 1 and, as so amended and restated, such articles of
incorporation and bylaws will be the articles of incorporation and bylaws of the
Surviving Corporation until thereafter amended as provided therein and in
accordance with the MBCA.
SECTION 1.05. Directors and Officers of Surviving Corporation. The
directors of Merger Sub immediately prior to the Effective Time will be the
directors of the Surviving Corporation, each to hold office in accordance with
the articles of incorporation and bylaws of the Surviving Corporation, and
Xxxxxxxxxxx X. Xxxxxx, F. Xxxxxx Xxxxxxx III and Xxxxxxx X. Xxxxxx will be the
officers of the Surviving Corporation, each to hold office in accordance with
the bylaws of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Merger Consideration; Conversion and Cancellation of
Securities. Upon the Effective Time, automatically and without further action of
the parties or the Company's shareholders:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time other than Dissenting Shares and Company
Common Stock described in Section 2.01(e) ("Converted Shares") will be converted
into the right to receive the Merger Consideration Per Share (as defined below).
As used herein, the following terms have the following meanings: (i) "Merger
Consideration" means a cash payment of $500,000 plus an aggregate number of
shares of Parent Common Stock with a value of up to $14,233,000, valued and
payable as set forth in this Section 2.01, consisting of: (v) a cash payment of
$500,000, plus (w) a number of shares of Parent Common Stock with an aggregate
value of $5,233,000 (together with the cash payment referred to in clause (v),
the "Closing Payment"), plus (x) a number of shares of Parent Common Stock, if
any, with an aggregate value of up to $3,000,000 (the "Escrow Payment"), plus
(y) a number of shares of Parent Common Stock, if any, with an aggregate value
of up to $3,000,000 (the "Progress Milestone Payments"), plus (z) a number of
shares of Parent Common Stock, if any, with an aggregate value of $3,000,000
(the "Sales Milestone Payment"); and (ii) "Merger Consideration Per Share" means
the Merger Consideration divided by the number of issued and outstanding shares
of Company Common Stock at the Effective Time (the "Outstanding Shares").
(b) The shares of Parent Common Stock that comprise a portion
of the Closing Payment and that comprise the Escrow Payment, if any, will be
valued at the Average Trading Price (as defined below) on the Closing Date, and
the shares of Parent Common Stock that make up the Progress Milestone Payments,
if any, and the Sales Milestone Payment, if any, will be valued at the Average
Trading Price on the applicable Progress Milestone Payment Date (as defined
below) or the payment date of the Sales Milestone Payment, as applicable. The
"Average Trading Price" is the per share average closing price of Parent Common
Stock on the Nasdaq National Market ("Nasdaq") for the 30 consecutive trading
days immediately prior to two business days before the Closing Date, the
applicable Progress Milestone Payment Date, the payment date of the Sales
Milestone Payment or a Change of Control (as defined below), as applicable.
(c) The Merger Consideration Per Share will be payable to the
shareholders of Company in accordance with their pro rata ownership of Company
Common Stock immediately prior to the Effective Time, as follows:
(i) Upon the exchange and surrender of certificates
representing Company Common Stock as set forth in Section 2.02, Parent will pay
the pro rata portion of the Closing Payment applicable to each surrendered
certificate in accordance with Section 2.02.
(ii) Provided that the products that comprise the
Milestone I Projects, the Milestone II Projects and the Milestone III Projects,
as applicable (each as defined below; collectively, the "Products"), meet and
comply with Parent's development and manufacturing requirements (as such
requirements are set forth in Schedule 2.01), and that Parent is provided with
product and related documentation that enables Parent to adequately validate and
verify the Products' design and manufacturing processes (and the standards for
such requisite documentation and processes are set forth in Schedule 2.01), the
Progress Milestone Payments will be paid as follows:
A. Milestone I Projects. With respect to the projects listed in Schedule
2.01 as Milestone I Projects (the "Milestone I Projects"), which
consist of four quadrapolar leads meeting the specifications described
in Schedule 2.01 that can be directly coupled with Parent's Renew radio
frequency neurostimulation receivers and Genesis fully implantable
pulse generating neurostimulation system, "Renew" and "Genesis,"
respectively, Parent will pay up to $1,000,000 in the aggregate in four
$250,000 Progress Milestone Payments, each payable on the applicable
Progress Milestone Payment Date related to the Milestone I Projects.
"Progress Milestone Payment Date" means, with respect to the Milestone
I Projects and the Milestone II Projects, a date within ten business
days following the applicable date upon which any of the following four
events occurs (each such event, a "Milestone"): (1) submission to
Parent of materials, in form and substance reasonably acceptable to
Parent as more fully set forth in the Regulatory Strategy Plan attached
hereto as Exhibit A (the "Regulatory Strategy Plan"), for submission to
the FDA of Parent's intention to market the applicable Products with
Renew (such submission to Parent, a "510(k) Submission"); (2) receipt
of a letter from the FDA stating that Renew, when coupled with the
applicable Products, is substantially equivalent to a device that was
or is already being marketed (a "510(k) Clearance"); (3) submission to
Parent of materials, in form and substance reasonably acceptable to
Parent as more fully set forth in the Regulatory Strategy Plan, for
submission to the FDA of a Premarket Approval Application requesting
approval to market the applicable Products with Genesis (such
submission to Parent, a "PMA Submission"); and (4) receipt of a letter
from the FDA approving the marketing of the applicable Products with
Genesis (a "PMA Approval Order"). Notwithstanding the foregoing, (x) if
the 510(k) Submission with respect to the Milestone I Projects is not
made within six months after the Closing Date, no Progress Milestone
Payment with respect to either the 510(k) Submission or the 510(k)
Clearance with respect to the Milestone I Projects will be payable; (y)
if the PMA Submission with respect to the Milestone I Projects is not
made within six months after the Closing Date, no Progress Milestone
Payment with respect to either the PMA Submission or the PMA Approval
Order with respect to the Milestone I Projects will be payable; and (z)
no Progress Milestone Payments with respect to the Milestone I Projects
will be payable following the fourth anniversary of the Closing Date.
B. Milestone II Projects. With respect to the projects listed in Schedule
2.01 as Milestone II Projects (the "Milestone II Projects"), which
consist of two octapolar leads meeting the specifications described in
Schedule 2.01 that can be directly coupled with Renew and Genesis and a
lead anchor, Parent will pay up to $1,000,000 in the aggregate in four
$250,000 Progress Milestone Payments, each payable on the applicable
Progress Milestone Payment Date related to the Milestone II Projects.
Notwithstanding the foregoing, (x) if the 510(k) Submission with
respect to the Milestone II Projects is not made within 12 months after
the Closing Date, no Progress Milestone Payment with respect to either
the 510(k) Submission or the 510(k) Clearance with respect to the
Milestone II Projects will be payable; (y) if the PMA Submission with
respect to the Milestone II Projects is not made within 12 months after
the Closing Date, no Progress Milestone Payment with respect to either
the PMA Submission or the PMA Approval Order with respect to the
Milestone II Projects will be payable; and (z) no Progress Milestone
Payments with respect to the Milestone II Projects will be payable
following the fourth anniversary of the Closing Date.
C. Milestone III Projects. With respect to the projects listed in Schedule
2.01 as Milestone III Projects (the "Milestone III Projects"), Parent
will pay up to $1,000,000 in the aggregate in three $333,333.33
Progress Milestone Payments, each payable on the applicable Progress
Milestone Payment Date related to the Milestone III Projects. With
respect to the Milestone III Projects, "Progress Milestone Payment
Date" means a date within ten business days following the applicable
date upon which any of the following three events occurs (each such
event, a "Milestone"): (1) submission to Parent of materials, in form
and substance reasonably acceptable to Parent as more fully set forth
in the Regulatory Strategy Plan, for submission to the FDA of a request
for Investigational Device Exemption (such submission to Parent, an
"IDE Submission"), which, when granted, would permit Parent to conduct
clinical trials to evaluate the safety and efficacy of the applicable
Products; (2) submission to the FDA of a PMA Submission requesting
approval to market the applicable Products; and (3) receipt of a PMA
Approval Order from the FDA approving the marketing of the applicable
Products. Notwithstanding the foregoing, (x) if the IDE Submission with
respect to the Milestone III Projects is not made within 18 months
after the Closing Date, no Progress Milestone Payment with respect to
the Milestone III Projects will be payable; and (y) no Progress
Milestone Payments with respect to the Milestone III Projects will be
payable following the fourth anniversary of the Closing Date.
Notwithstanding anything to the contrary contained herein, if Newco and its
microlead team are using good faith and commercially reasonable efforts and
taking all action necessary to achieve the applicable 510(k) Submission, PMA
Submission or IDE Submission, as the case may be, by the applicable Milestone
dates designated above, but the applicable submission has not been made, Parent
will grant Newco and its microlead team an additional 30 days to make the
applicable 510(k) Submission, PMA Submission or IDE Submission. Additionally, if
the FDA requires that clinical trials be conducted to support the safety or
efficacy of any of the above-
described Milestone I or Milestone II Products, the applicable deadline for the
affected submission, as well as the applicable deadline for the related 510(k)
Clearance or PMA Approval Order, will be extended to allow time for the
completion of such clinical trials, including the planning, performance,
documentation/analysis and submission of clinical data to the FDA for and from
such clinical trials; provided however, that no Progress Milestone Payments will
be payable following the fifth anniversary of the Closing Date.
(iii) On the Closing Date, Parent will deposit the
maximum Escrow Payment into an escrow account (the "Escrow Account") in
accordance with the terms and conditions of an escrow agreement substantially in
the form of Exhibit B (the "Escrow Agreement"). The shares of Parent Common
Stock that comprise the Escrow Payment will be issued in the names of the
shareholders of Company in accordance with their pro rata ownership immediately
prior to the Effective Time, and all dividends or other economic benefits (but
no other benefits, including but not limited to voting or transfer rights)
associated with such shares will accrue to such shares for the benefit of such
shareholders from the Closing Date, will be deposited into the Escrow Account
and will be subject to forfeiture together with the underlying shares, as
provided in this Section 2.01. Concurrently with the payment of any Progress
Milestone Payment, the applicable number of the Shares comprising the Escrow
Payment, together with any accrued and unpaid dividends related thereto or other
shares resulting from stock splits or similar actions thereupon, will be
released from the Escrow Account and delivered to the applicable shareholders of
Company. Notwithstanding the foregoing, and as more particularly described and
provided in the Escrow Agreement, if any shares of Parent Common Stock that have
not been earned by the achievement of Milestones remain in the Escrow Account
following the fifth anniversary of the Closing Date, the Escrow Agent will
return such unearned shares to Parent for cancellation, any accrued dividends or
other economic benefits arising therefrom will revert to Parent and the
shareholders of Company will have no rights with respect thereto.
(iv) The Sales Milestone Payment will be paid in one
installment after the achievement of $5 million in cumulative net sales by
Parent and its subsidiaries of lead products that comprise part of the Products
(the "Leads") during the four years following the Closing Date, in accordance
with the Sales Milestone Payment Terms attached hereto as Exhibit C (the "Sales
Milestone Payment Terms"). Notwithstanding the foregoing, Parent will have no
obligation to pay the Sales Milestone Payment following the fourth anniversary
of the Closing Date.
(v) In the event of a Change of Control (as defined
below), all remaining unpaid Progress Milestone Payments and the balance of the
Escrow Payment (including all accrued dividends or other economic benefits), and
the Sales Milestone Payment, if not yet paid, will be automatically accelerated
and will become due and payable within ten business days following the Change of
Control, at the Average Trading Price as of the closing date of the Change of
Control transaction. For purposes of this Agreement, "Change of Control" means
the occurrence of any of the following with respect to Parent: (A) any
consolidation or merger of Parent with or into another corporation or entity,
unless Parent or Parent's shareholders immediately prior to the merger or
consolidation own 50% or more of the common stock of the surviving corporation
or its ultimate parent immediately after the merger; (B) any
sale, license on an exclusive basis or other disposition or transfer
("Substantial Conveyance") of all or substantially all of the assets of Parent,
unless Parent or Parent's shareholders immediately prior to the Substantial
Conveyance own 50% or more of the common stock of the purchaser or licensor or
its ultimate parent immediately after the Substantial Conveyance; or (C) a
liquidation or dissolution. Notwithstanding the foregoing, following a Change of
Control, the Shareholders will cause Newco to continue to work in good faith to
assist Parent (or its successor) in completing any remaining Milestones on a
timely basis.
(d) Notwithstanding any provision of this Agreement to the
contrary, no shareholder of Company has the right to assign, convey, pledge or
otherwise transfer any right or interest that such shareholder has in or to any
portion of the Escrow Payment, any Progress Milestone Payment or the Sales
Milestone Payment (other than transfers that occur by operation of law and in
accordance with the Securities Act and any other applicable securities laws).
(e) Notwithstanding any provision of this Agreement to the
contrary, each share of Company Common Stock held in the treasury of Company or
owned by Parent or any direct or indirect wholly-owned subsidiary of Parent or
Company immediately prior to the Effective Time will be canceled and
extinguished without any conversion thereof and no payment will be made with
respect thereto.
(f) All shares of Company Common Stock will cease to be
outstanding and will automatically be canceled and retired, and each certificate
previously evidencing Converted Shares will thereafter represent the right to
receive the Merger Consideration Per Share for each Converted Share such
certificate evidences. The holders of certificates previously evidencing
Converted Shares will cease to have any rights with respect to such Converted
Shares except as otherwise provided in this Agreement or by law.
(g) Each share of common stock, $0.01 par value per share, of
Merger Sub issued and outstanding immediately prior to the Effective Time will
be converted into and become one share of common stock, $0.01 par value per
share, of the Surviving Corporation.
(h) Notwithstanding anything in this Agreement to the
contrary:
(i) If Sections 302A.471 and 302A.473 of the MBCA are
applicable to the Merger, Outstanding Shares that are issued and outstanding as
of the record date of the meeting of the Company's shareholders called for the
purpose of voting on this Agreement and the Merger and that are held by
shareholders who have not voted such shares in favor of the Merger, who have
delivered, prior to any vote on the Merger, a written demand for the fair value
of such shares in the manner provided in Section 302A.473 of the MBCA and who,
as of the Effective Time, have not effectively withdrawn or lost such right to
appraisal rights ("Dissenting Shares"), will not be converted into or represent
a right to receive any of the Merger Consideration that would otherwise be paid
therefor pursuant to Section 2.01(c), but the holders thereof will be entitled
only to such rights as are granted by Section 302A.471 and 302A.473 of the MBCA.
Each holder of Dissenting Shares who becomes entitled to payment for such shares
pursuant to Sections 302A.471 and 302A.473 of the MBCA will receive payment
therefor from the Surviving Corporation; provided, however, that if, prior to
the Effective Time, any such holder of Dissenting Shares has effectively
withdrawn such holder's demand for appraisal of such shares or lost such
holder's right to appraisal of
such shares under Section 302A.471 and 302A.473 of the MBCA, such holder or
holders (as the case may be) will forfeit the right to appraisal of such shares
and each such share will thereupon be deemed to have been canceled, extinguished
and, as of the Effective Time, converted into and represent the right to receive
payment of that portion of the Merger Consideration to be paid therefor pursuant
to Section 2.01(c) and such shares will not be deemed to be Dissenting Shares.
(ii) The Company will give Parent (A) prompt notice
of any written demand for fair value, any withdrawal of a demand for fair value
and any other instrument served pursuant to Sections 302A.471 and 302A.473 of
the MBCA received by the Company and (B) the opportunity to direct all
negotiations and proceedings with respect to demands for fair value under such
sections of the MBCA. The Company will have the right to participate in such
negotiations and proceedings. The Company will not, except with the prior
written consent of Parent (which will not be unreasonably withheld or delayed)
or as otherwise required by law, make any payment with respect to, settle or
offer to settle, any such demands.
SECTION 2.02. Exchange and Surrender of Certificates.
(a) As soon as practicable after the Effective Time, each
holder of a certificate previously evidencing Converted Shares will be entitled,
upon surrender thereof to Parent or an exchange agent mutually agreeable to
Company and Parent (the "Exchange Agent"), to receive in exchange therefor such
holder's pro rata share of the cash portion of the Closing Payment and a
certificate or certificates representing such holder's pro rata share of the
portion of the Closing Payment to be paid in shares of Parent Common Stock, and
will be entitled to such holder's pro rata share of any future Merger
Consideration that is payable on future dates, with any certificates to be
issued in such denominations and registered in such names as reflected on
Schedule 3.05 (as updated by Company immediately prior to the Effective Time) or
as such holder may otherwise request in accordance with Section 2.02(d). No
fractional shares of Parent Common Stock will be issued in connection with the
Merger. Until so surrendered and exchanged, each certificate previously
evidencing Converted Shares will represent solely the right to receive the
Merger Consideration that the holder thereof is entitled to receive under this
Agreement. Unless and until any such certificates are so surrendered and
exchanged, no dividends or other distributions payable to the holders of record
of Parent Common Stock as of any time on or after the Effective Time will be
paid to the holders of such certificates previously evidencing Converted Shares.
Upon such surrender and exchange of such certificates, such holders will be
paid, with respect to the portion of the Closing Payment to be paid in Parent
Common Stock, (i) the amount, without interest thereon, of dividends and other
distributions, if any, with a record date on or after the Effective Time
previously paid with respect to such whole shares of Parent Common Stock, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions, if any, with a record date on or after the Effective Time but
prior to surrender and a payment date occurring after surrender, payable with
respect to such whole shares of Parent Common Stock. Except as otherwise
provided by applicable law, neither any party to this Agreement nor the Exchange
Agent will be liable to any former holder of Converted Shares for any cash,
Parent Common Stock or dividends or distributions thereon delivered to a public
official pursuant to applicable abandoned property, escheat or similar law.
Parent will pay all fees and expenses of the Exchange Agent.
(b) The cash portion of the Closing Payment, and all shares of
Parent Common Stock representing the portion of the Closing Payment to be paid
in Parent Common Stock, in each case paid or issued upon the surrender for
exchange of certificates previously evidencing Converted Shares, together with
the rights to receive any future Merger Consideration, all in accordance with
the terms of this Agreement, will be deemed to have been paid or issued in full
satisfaction of all rights pertaining to such Converted Shares. At and after the
Effective Time, there will be no registration of transfers on the stock transfer
books of the Surviving Corporation of Company Common Stock that was outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates previously evidencing Converted Shares are presented to the
Surviving Corporation for any reason, they will be canceled and exchanged as
provided in this Article II.
(c) As promptly as practicable, and in no event more than five
business days after the Effective Time, Parent will send or cause the Exchange
Agent to send to each record holder of Company Common Stock at the Effective
Time a letter of transmittal or other appropriate materials for use in
surrendering certificates as contemplated by this Agreement.
(d) If any certificate for shares of Parent Common Stock is to
be issued in a name other than that in which the certificate surrendered in
exchange for Merger Consideration is registered, the certificate so surrendered
must be properly endorsed, with signatures guaranteed, and otherwise in proper
form for transfer before the certificate for shares of Parent Common Stock will
be issued, and the person requesting such exchange must have paid to Parent or
the Exchange Agent any transfer or other taxes required by reason of the
issuance of a certificate for shares of Parent Common Stock in any name other
than that of the registered holder of the certificate surrendered, or
established to the reasonable satisfaction of Parent or the Exchange Agent that
such tax has been paid or is not payable.
(e) No certificates or scrip evidencing fractional shares of
Parent Common Stock will be issued upon the surrender for exchange of
certificates previously evidencing Converted Shares, and such fractional share
interests will not entitle their owner to any rights of a shareholder of Parent.
The portion of the Merger Consideration to be paid in Parent Common Stock will
be paid in whole shares of Parent Common Stock, rounded up or down to the
nearest whole share.
(f) Parent is entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any former holder
of Converted Shares such amounts as Parent (or any affiliate thereof) is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by Parent, such withheld amounts will be treated
for all purposes of this Agreement as having been paid to the former holder of
the Converted Shares in respect of which such deduction and withholding was made
by Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE SHAREHOLDERS
Company and the Shareholders jointly and severally represent and
warrant to the Parent Companies as follows:
SECTION 3.01. Organization and Qualification. Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota and has all requisite power and authority to own, lease and
operate its properties and to conduct its business as presently conducted. The
Company is not qualified to do business in any jurisdiction outside the State of
Minnesota and there is no other jurisdiction in which the nature of the business
conducted by Company or the ownership or leasing of its properties makes such
qualification necessary, other than where the failure to be so duly qualified
and in good standing would not have a material adverse effect on the business,
financial condition, results of operations, assets or liabilities of Company (a
"Company Material Adverse Effect"). Company has material assets, employees or
operations only in the State of Minnesota. Company does not operate under any
assumed names.
SECTION 3.02. Articles and Bylaws; Books and Records.
(a) Company has previously furnished to Parent a complete and
correct copy of its articles of incorporation and bylaws, as amended or
restated. Company is not in violation of any of the provisions of its articles
of incorporation or bylaws.
(b) Company has made and kept books, records and accounts,
which, in reasonable detail, accurately and fairly reflect the activities of
Company. The minute books of Company accurately and adequately reflect all
actions previously taken by the shareholders, Board of Directors and committees
of the Board of Directors of Company. The copies of the stock records of Company
that have been delivered to Parent are true, correct and complete, and
accurately reflect all transactions effected in the capital stock of Company
through and including the date of this Agreement. Company has not engaged in any
material transaction, maintained any bank account or used any corporate funds
except for transactions, bank accounts and funds that have been and are
reflected in the normally maintained books and records of Company.
SECTION 3.03. Authorization; No Conflict or Violation.
(a) Company and the Shareholders have all requisite power and
authority to execute and deliver this Agreement and all other agreements and
instruments required to be executed and delivered by Company or the Shareholders
under this Agreement (the "Related Agreements"), to perform their obligations
under this Agreement and the Related Agreements and to consummate the
transactions contemplated by this Agreement. The execution, delivery and
performance of this Agreement and the Related Agreements by Company and the
Shareholders and the consummation by Company and the Shareholders of the
transactions contemplated by this Agreement have been duly authorized by the
Board of Directors of Company and no other corporate proceedings on the part of
Company or other actions on the part of the Shareholders, with the exception of
obtaining the approval of the shareholders of Company, are necessary to
authorize this
Agreement or the Related Agreements or to consummate the transactions
contemplated by this Agreement. Subject to the receipt of shareholder approval,
this Agreement and the Related Agreements are the legal, valid and binding
agreements of Company and the Shareholders, enforceable against Company and the
Shareholders in accordance with their respective terms.
(b) Except as set forth on Schedule 3.03, none of the
execution and delivery of this Agreement or the Related Agreements, the
performance of Company's or the Shareholders' obligations under this Agreement
or the Related Agreements or the consummation of the transactions contemplated
by this Agreement will result in a (i) violation of or conflict with any
provision of Company's articles of incorporation or bylaws, (ii) breach of or
default under any term or provision of any material contract, agreement, lease
commitment, license, franchise or permit to which Company is a party or an event
which, with notice, lapse of time or both, would result in any such breach or
default, or (iii) violation by Company of any material statute, rule,
regulation, ordinance, code, order, judgment, writ, injunction, decree or award,
or an event which, with notice or lapse of time or both, would result in any
such violation.
SECTION 3.04. Capitalization.
(a) The authorized capital stock of Company consists solely of
(X) 5,000,000 shares of undesignated stock, no shares of which are issued or
outstanding, and (Y) 20,000,000 shares of Company Common Stock, of which (i)
4,496,865 shares are issued and outstanding, (ii) no shares are held in
treasury, (iii) 248,369 shares are reserved for future issuance pursuant to
outstanding warrants ("Warrants"), (iv) 891,037 shares are reserved for future
issuance pursuant to outstanding stock options ("Stock Options") granted
pursuant to the 1999 Stock Incentive Plan (the "Option Plan"), and (v) 208,963
shares are reserved for future issuance pursuant to stock options eligible for
grant under the Option Plan. Except as described in this Section 3.04, no shares
of capital stock of Company are reserved for any purpose. All of the outstanding
shares of capital stock of Company have been duly authorized and validly issued,
are fully paid and nonassessable and were not issued in violation of (nor are
any of the authorized shares of capital stock of Company subject to) any
preemptive or similar rights created by statute, the articles of incorporation
or bylaws of Company or any agreement to which Company is a party or is bound.
Company has no wholly or partially-owned subsidiaries, and has no equity or debt
investment or any form of proprietary interest in any corporation, partnership,
joint venture or other entity, or option to acquire any such interest.
(b) Company has no obligation, contingent or otherwise, to (i)
repurchase, redeem or otherwise acquire any shares of Company Common Stock; or
(ii) provide funds to, make any investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any person.
SECTION 3.05. Share Ownership. As of the date of this Agreement, set
forth on Schedule 3.05 is a true, correct and complete list of the shareholders
and holders of Stock Options or Warrants of Company, the number of shares of
Company Common Stock owned by each or subject to each Stock Option or Warrant
and the percentage ownership of Company, on a fully diluted basis, represented
by each holder's shares, Stock Options or Warrants. Set forth on revised
Schedule 3.05, provided by Company and the Shareholders pursuant to
Section 5.01(e)(i), will be a true, correct and complete list, as of the
Effective Time, of the shareholders of Company, the number of shares of Company
Common Stock owned by each and the percentage ownership of Company represented
by each holder's shares. The Shareholders own sufficient shares of the issued
and outstanding Company Common Stock to approve the Merger in accordance with
the requirements of the MBCA. Except for the Stock Options and Warrants
reflected on Schedule 3.05, there are no outstanding stock options, warrants,
stock appreciation rights, securities convertible into or exchangeable for
shares of capital stock of Company or other rights, agreements, arrangements or
commitments obligating Company, the Shareholders or any other person or entity
to grant, issue or sell any securities or ownership interests in Company. All
Stock Options and Warrants will be exercised in full or terminated in accordance
with their terms prior to the Effective Time.
SECTION 3.06. Title to Assets; Facilities.
(a) Company owns and has good, valid and marketable title to,
or holds by valid and existing lease or license, all of its assets free and
clear of any liens, claims, security interests or encumbrances (collectively,
"Liens"), other than the Liens described in Schedule 3.06. Any Liens on
Company's assets to remain after Closing are specifically identified on Schedule
3.06.
(b) All of Company's assets are and have been maintained in
good working condition and repair subject to normal wear and tear, in accordance
with normal industry practice. These assets include (without limitation) all
microlead assets (the "Microlead Assets").
(c) Company has performed all the obligations required to be
performed by it with respect to all assets leased by it through the date of this
Agreement, except where the failure to perform such obligations would not have a
Company Material Adverse Effect.
(d) Company enjoys peaceful and undisturbed possession of all
manufacturing facilities, warehouses and administration buildings, and all other
real property and related facilities that are leased by it (collectively, the
"Facilities"), and, to the knowledge of Company and the Shareholders, such
Facilities are not subject to any encumbrances, encroachments, building or use
restrictions, exceptions, reservations or limitations that in any material
respect interfere with or impair the present and continued use of such
Facilities in the usual and normal conduct of Company's business. Company owns
no real estate.
(e) There are no pending or, to the knowledge of Company or
the Shareholders, threatened condemnation proceedings relating to any of the
Facilities. Company has received no notice and is not aware of any special
assessment relating to any Facility or any portion of any Facility and there is
no pending or, to the knowledge of Company or the Shareholders, threatened
special assessment.
(f) The real property improvements (including leasehold
improvements), equipment and other tangible assets owned or used by Company at
the Facilities are (i) adequately insured to the extent and in a manner
customary in the industry, (ii) to the knowledge of Company and the
Shareholders, structurally sound with no known material
defects, (iii) in good operating condition and repair, subject to ordinary wear
and tear, (iv) not in need of maintenance, repair or correction except for
ordinary routine maintenance and repair, the cost of which would not be
material, (v) sufficient for the operation of Company's business as presently
conducted, (vi) to the knowledge of Company and the Shareholders, in conformity
in all material respects with all applicable regulations, and (vii) supplied
with and anticipated to continue to be supplied with utilities and services
necessary for their operation as presently operated. Except as explicitly
provided for in this Agreement, none of such improvements, equipment or other
assets is subject to any commitment or other arrangement for its sale or use by
any affiliate of Company or any third party.
SECTION 3.07. Leased Premises. Company has provided to Parent true,
correct and complete copies of all real property leases, subleases, amendments,
options and other leasehold interests to which Company is a party (the
"Leases"). There is no existing default or event of default (or event which,
with notice or lapse of time or both, would constitute a default or an event of
default) under, or material breach by Company or, to the knowledge of Company
and the Shareholders, by any other party thereto, of any of the Leases. Except
as set forth on Schedule 3.07, (a) no consents are required in respect of any
Leases in connection with the transactions contemplated by this Agreement; (b)
any consents that are necessary will be obtained by Company prior to the Closing
and each such Lease will continue to be binding against the landlord in
accordance with its terms following the Closing; and (c) to the knowledge of
Company or the Shareholders, no party to any such Lease has repudiated any
provision thereof.
SECTION 3.08. Accounts Receivable. Except for certain accounts
receivable set forth on Schedule 3.08, which will be transferred to Newco in
connection with the Restructuring Transaction, all accounts receivable reflected
on the Interim Balance Sheet (as defined in Section 3.12) constitute, and all
accounts receivable to be reflected on the balance sheet of Company as of the
Closing Date but immediately prior to the effectiveness of the Merger, which has
been prepared in accordance with generally accepted accounting principles
("GAAP"), consistently applied (the "Closing Balance Sheet"), will constitute,
bona fide, valid and binding claims arising in the Ordinary Course of Business
(as defined below) at the aggregate recorded amount thereof and arose out of
arms' length transactions with third parties unrelated to Company. All of such
accounts receivable, net of reserves for doubtful accounts or for ordinary
returns and warranty claims, are collectible in the Ordinary Course of Business.
For purposes of this Agreement, "Ordinary Course of Business" means the ordinary
course of business of Company, consistent with past practice, of an amount and
type that were ordinarily incurred in past periods, and if required by GAAP,
fully reflected in the Financial Statements (as defined in Section 3.12), and
does not include the incurrence of any Liability that results from any breach or
default (or event that with notice or lapse of time would constitute a breach or
default) by Company under any agreement binding on it.
SECTION 3.09. Inventory. Except for certain inventory set forth on
Schedule 3.09, which will be transferred to Newco in connection with the
Restructuring Transaction, all inventory of Company reflected on the Financial
Statements (as defined in Section 3.12) at the dates thereof was, and all
inventory to be reflected on the Closing Balance Sheet (except to the extent in
each case of reserves reflected thereon) is and will be, of a quality and
quantity usable or salable in the Ordinary Course of Business. Company has
performed in the Ordinary Course of Business regular tests in accordance with
industry practice to determine whether its products comply in all material
respects with all applicable requirements under applicable laws and regulations.
SECTION 3.10. Material Agreements.
(a) Schedule 3.10 lists each agreement, arrangement and
understanding, whether written or oral and including all amendments thereto, to
which Company is a party or by which Company or any of its assets is bound that
is material to Company, its assets or its operations (collectively, the
"Material Agreements"), including without limitation (i) any product
development, manufacturing, supply, distribution or other agreements or
arrangements pursuant to which third parties are or will be entitled or
obligated to purchase or use any of Company's assets with an aggregate purchase
price in excess of $25,000; (ii) any warranty agreements or arrangements under
which Company has any liability in excess of $25,000; (iii) any leases with a
term of one year or more or pursuant to which Company is entitled to or
obligated to pay in excess of $25,000; (iv) any capital or operating leases or
conditional sales agreements relating to vehicles or equipment pursuant to which
Company is entitled or obligated to pay in excess of $25,000; (v) any supply or
manufacturing agreements or arrangements pursuant to which Company is entitled
or obligated to acquire any assets from a third party with an aggregate purchase
price in excess of $25,000; (vi) any employment, consulting, noncompetition,
separation, collective bargaining, union or labor agreements or arrangements
that are not otherwise set forth on Schedule 3.21; (vii) any noncompetition,
confidentiality or nondisclosure agreements to which Company is a party or a
beneficiary; (viii) any agreement evidencing, securing or otherwise relating to
any indebtedness in excess of $25,000 for which Company has any liability; (ix)
any agreement with or for the benefit of any member, manager, officer or
employee of Company, or any affiliate or family member thereof; and (x) any
other agreement or arrangement pursuant to which Company could be required to
make or be entitled to receive aggregate payments in excess of $25,000 and which
is not cancelable without penalty upon 30 days' notice.
(b) Company has performed all of its obligations under each
Material Agreement, and to the knowledge of Company and the Shareholders, there
exists no breach or default (or event that with notice or lapse of time would
constitute a breach or default) on the part of Company or any other party under
any Material Agreement.
(c) Except as described on Schedule 3.10, (i) each Material
Agreement is valid, binding and in full force and effect and enforceable in
accordance with its respective terms; (ii) there has been no termination
(whether for default or otherwise), investigation, notice of default or, to the
knowledge of Company or the Shareholders, any threatened termination or
investigation or basis for any termination or investigation under any Material
Agreement; and (iii) no party (including Company) has terminated, cancelled or
waived any material term or condition of any Material Agreement; and (iv) no
Material Agreements will be terminated or will expire according to their terms
at or prior to the Closing. Company has delivered to Parent a copy of each
written Material Agreement and a written summary of all material terms of any
oral Material Agreement.
(d) Except as set forth on Schedule 3.10, no consent of any
person is required in connection with the transactions contemplated by this
Agreement in order to preserve the rights of the Surviving Corporation under or
to prevent any disadvantage to the Surviving Corporation in
respect of any Material Agreement. To the knowledge of Company and the
Shareholders, no party to a Material Agreement intends to alter its relationship
with Company as a result of or in connection with the transactions contemplated
by this Agreement or the Related Agreements or has been threatened with
bankruptcy or insolvency.
SECTION 3.11. Intellectual Property. Set forth on Schedule 3.11 is a
complete list of all registered works of authorship, patents, registered and
common law trademarks, service marks, trade names, registered copyrights,
registered mask works, registered product designs and other registered
intellectual property rights, and applications for and licenses (to or from
Company) with respect to any of the foregoing (collectively, "Intellectual
Property") that are (i) owned by Company, or with respect to which Company has
any rights, or (ii) used by Company to conduct Company's business (collectively,
the "Company Intellectual Property"). Except as set forth on Schedule 3.11, to
the knowledge of Company and the Shareholders:
(a) Company owns, possesses or has adequate rights to use,
through license or otherwise, all works of authorship, inventions, copyrights,
trade secrets and Company Intellectual Property listed on Schedule 3.11
necessary to conduct Company's business in the Ordinary Course of Business.
Title to all patents, patent applications (except as may arise through claim
amendment during prosecution of the pending patent applications) and trademark
applications and registrations listed on Schedule 3.11 is recorded in the name
of Company or documents to reflect such recordation have been filed and are
unencumbered by any co-ownerships, security interests, liens or other claims or
encumbrances;
(b) Company is not contractually obligated to pay any royalty
or other consideration to any person in connection with the use of any Company
trade secret, inventions or Company Intellectual Property;
(c) there are no legal or governmental proceedings pending or
otherwise, relating to Company inventions, trade secrets or the Company
Intellectual Property and no such proceedings are threatened by governmental
authorities or others;
(d) Company's products, the manufacture of Company's products,
the use of Company's products or the conduct of Company's business does not
infringe or otherwise violate, and the conduct of Company, including but not
limited to past conduct, does not infringe or otherwise violate, nor has it been
alleged that Company or its conduct is currently infringing or violating, or may
infringe or violate any intellectual property of others and no person is
infringing on the Company inventions, trade secrets or Company Intellectual
Property; and Company has taken all proper and adequate steps to ensure the
continued proprietary nature of Company inventions, trade secrets and the
Company Intellectual Property and nothing has transpired that would compromise
or call into question that proprietary nature; and
(e) Company's pending U.S. patent and trademark applications
have been prepared and filed in the United States Patent and Trademark Office
(the "USPTO") in a form and with accompanying papers that are acceptable to the
USPTO for the purposes of according each such application a filing date and
serial number, and of placing each such application in condition for eventual
examination on the merits as to patentability or registration; and for each
such U.S. application, (i) Company has received an office filing receipt from
the USPTO, and (ii) there is no defect in preparation or filing that would
preclude registration or issuance of the application as a patent.
SECTION 3.12. Financial Statements. Attached as Schedule 3.12 are true,
complete and correct copies of (a) Company's unaudited balance sheet as of
September 30, 2002 (the "Interim Balance Sheet") and the related unaudited
statements of income for the three months then ended, and (b) Company's
unaudited balance sheets as of June 30, 2000, June 30, 2001 and June 30, 2002
and the related unaudited statements of income and cash flow for the fiscal
years then ended (clauses (a) and (b) collectively, the "Financial Statements").
The Financial Statements present fairly the financial condition of Company at
the dates specified and the results of its operations for the periods specified
and have been prepared in accordance with GAAP, consistently applied, subject to
the absence of footnote disclosure and other presentation items and to changes
resulting from normal period-end adjustments for recurring accruals, which are
not material individually or in the aggregate. The Financial Statements do not
contain any items of a special or nonrecurring nature, except as expressly
stated therein or as set forth on Schedule 3.12. The Financial Statements have
been prepared from the books and records of Company, which accurately and fairly
reflect all the transactions of, acquisitions and dispositions of assets by, and
incurrence of liabilities by Company.
SECTION 3.13. No Undisclosed Liabilities. Company has no direct or
indirect liabilities, obligations, debts or commitments of any nature (absolute,
accrued, contingent, liquidated or otherwise), matured or unmatured
("Liabilities"), which, individually or in the aggregate, are material, other
than for (a) Liabilities reflected on the Interim Balance Sheet; (b) trade
payables and other expenses incurred in the Ordinary Course of Business (the
"Accounts Payable"); and (c) obligations to be performed in the Ordinary Course
of Business under the Material Agreements or under agreements similar in type or
kind to the Material Agreements but which fall below the minimum threshold
amount, term or materiality of the contracts required to be disclosed pursuant
to Section 3.10 (each of the foregoing in clauses (a), (b) and (c) a "Disclosed
Liability" and collectively the "Disclosed Liabilities"). Set forth on Schedule
3.13 is a breakdown of the Accounts Payable to be retained by the Surviving
Corporation and the Accounts Payable to be transferred to Newco in connection
with the Restructuring Transaction.
SECTION 3.14. No Material Adverse Change. Since the date of the Interim
Balance Sheet, except as contemplated by this Agreement or as set forth on
Schedule 3.14, there has not been (a) any change in the condition (financial or
otherwise), results of operations, business, assets or Liabilities of Company or
with respect to the manner in which Company conducts its business or operations
that would result in a Company Material Adverse Effect; (b) any declaration,
setting aside or payment of any dividends or distributions in respect of any
securities of Company or any redemption, purchase or other acquisition by
Company of any of its securities; (c) any payment or transfer of assets
(including without limitation any distribution or repayment of indebtedness) to
or for the benefit of any security holder, manager, officer or employee of
Company or any relative or affiliate of any of the foregoing, other than
compensation to employees paid in the Ordinary Course of Business; (d) any
revaluation by Company of any of its assets, including without limitation the
writing down or off of notes or accounts receivable, other than in the Ordinary
Course of Business;
(e) any entry by Company into any commitment or transaction material to Company,
including without limitation incurring or agreeing to incur capital expenditures
in excess of $25,000, individually or in the aggregate; (f) any increase in
indebtedness for borrowed money; (g) any breach or default (or event that with
notice or lapse of time would constitute a breach or default), termination or
threatened termination under any Material Agreement; (h) any change by Company
in its accounting or tax reporting methods, principles or practices; (i) any
increase in the benefits under, or the establishment or amendment of, any bonus,
insurance, severance, deferred compensation, pension, retirement, profit sharing
or other employee benefit plan, or any increase in the compensation payable or
to become payable to directors, officers, employees or consultants of Company;
(j) the termination of employment (voluntary or involuntary) of any officer or
key employee of Company or of employees of Company materially in excess of
historical attrition in personnel; (k) any theft, condemnation or eminent domain
proceeding or any material damage, destruction or casualty loss in excess of
$25,000 affecting any asset used in Company's business not adequately covered by
insurance; (l) any sale, assignment or transfer of any of the assets of Company,
except for inventory in the Ordinary Course of Business; (m) any waiver by
Company or any Shareholder of any material rights related to Company's business,
operations or assets; (n) any other transaction, agreement or commitment entered
into by Company or any Shareholder affecting Company's business, operations or
any assets, except in the Ordinary Course of Business; or (o) any agreement or
understanding to do or resulting in any of the foregoing.
SECTION 3.15. Taxes.
(a) Company has properly completed and filed on a timely basis
and in correct form all returns, declarations, reports, statements and other
documents in respect of Taxes (collectively, "Returns") required to be filed on
or prior to the date of this Agreement. As of the time of filing, the foregoing
Returns correctly reflected in all material respects the facts regarding the
income, business, assets, operations, activities, status or other matters of
Company or any other information required to be shown thereon. In particular,
the foregoing Returns are not subject to penalties under Section 6662 of the
Code, relating to accuracy-related penalties (or any corresponding provision of
state, local or federal Tax law) or any predecessor or successor provision of
law.
(b) With respect to all amounts of Taxes imposed on Company or
for which Company is or could be liable, whether to taxing authorities (as, for
example, under law) or to other persons or entities (as, for example, under tax
allocation agreements), with respect to all taxable periods or portions of
periods ending on or before the Closing Date, all applicable tax laws and
agreements have been fully complied with, and all such amounts required to be
paid by Company to taxing authorities or others have been timely paid or
adequately provided for pursuant to Section 3.15(i).
(c) No issues have been raised (and none are currently
pending) by any taxing authority in connection with any of the Returns. No
waivers of statutes of limitation with respect to the Returns have been given by
or requested from Company. There are no pending or, to the knowledge of Company
or the Shareholders, threatened audits, investigations or claims for or relating
to any material additional liability in respect of Taxes, and there are no
matters under discussion with any governmental entities with respect to Taxes
that, in the reasonable judgment
of Company or its counsel, are likely to result in a material additional
liability for Taxes. All deficiencies asserted or assessments made as a result
of any examinations have been fully paid, or are fully reflected as a liability
on the Interim Financial Statements, or are being contested and an adequate
reserve therefor has been established and is fully reflected on the Interim
Financial Statements.
(d) Company has not agreed to make nor is it required to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise. Except as set forth on Schedule 3.15(d), Company
will not be required to include any amount in taxable income for any taxable
period (or portion thereof) ending after the Effective Time as a result of (i)
any "closing agreement" as described in Section 7121 of the Code (or any
corresponding provision of state, local or foreign income tax laws) entered into
prior to the Effective Time; (ii) any sale reported on the installment method
that occurred prior to the Effective Time; or (iii) any prepaid amount received
prior to the Effective Time.
(e) Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
(f) Company does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable tax treaty or
convention between the United States and such foreign country. No claim has been
made by a taxing authority in a jurisdiction where Company does not file Returns
that Company is subject to Taxes assessed by such jurisdiction.
(g) Company is not a party to any joint venture, partnership
or other arrangement, contract or relationship that would be treated as a
partnership for federal income tax purposes. Company is not a party to, or bound
by (nor will Company become a party to or bound by) any tax-indemnity,
tax-sharing, or tax-allocation agreement. Company is not now, and never has been
a member of an affiliated group of corporations within the meaning of Section
1504 of the Code.
(h) The unpaid Taxes of Company do not exceed the reserve for
tax liability (excluding any reserve for deferred Taxes established to reflect
timing differences between book and tax income) set forth or included in
Company's Closing Balance Sheet. There are no liens for Taxes (other than for
current Taxes not yet due and payable).
(i) Company is not and has not been a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code)
during the application holding period specified in Section 897(c)(1)(A)(ii) of
the Code. Company is not now and never has been an "investment company" within
the meaning of Section 368(a)(2)(F)(iii) of the Code. Neither Company nor any of
the Shareholders is a person other than a United States person within the
meaning of the Code.
(j) None of the material assets of Company 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.
None of the material assets of Company directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code. None of the material assets of Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
SECTION 3.16. Litigation. Except as set forth on Schedule 3.16, there
are no pending or, to the knowledge of Company or the Shareholders, threatened
lawsuits, administrative proceedings or reviews, arbitrations, or formal or
informal complaints, investigations or inquiries (collectively, "Proceedings"),
including without limitation any Proceedings with respect to Labor and
Employment Matters (as defined in Section 3.21(j)), by any individual,
corporation, partnership, governmental entity or other entity against or
relating to (a) Company or any of its directors, shareholders, employees or
agents (in their capacities as such), (b) any of Company's assets or to which
any of Company's assets is subject, (c) any shares of Company Common Stock or
other debt or equity securities of Company, or (d) the transactions contemplated
by this Agreement. To the knowledge of Company or the Shareholders, there is no
valid basis for any such Proceedings, and neither Company nor the Shareholders
are aware of any facts that may provide a reasonable basis for any such
Proceeding in the future. Neither Company, the Shareholders (in their capacity
as such) nor any of Company's assets are subject to or bound by any currently
existing judgment, order, writ, injunction or decree.
SECTION 3.17. Governmental Matters.
(a) Company, the Facilities and the conduct of Company's
business are in compliance with all applicable laws, statutes, rules,
ordinances, executive orders and regulations, whether federal, state or local,
including, without limitation, those promulgated by the FDA and those governing
building, zoning, occupancy, safety, employment standards, equal employment
opportunity, anti-pollution, health, waste disposal and hazardous or toxic
substances or unlawful payments. Company has not received notice of any
violation of any applicable federal, state or local statute, law or regulation
or of any investigation relating to the same; Company has not experienced any
voluntary or involuntary recalls of its products; and, to the knowledge of
Company and the Shareholders, there are no presently existing circumstances that
are likely to result in violations of any laws, statutes, ordinances or
regulations.
(b) The execution and delivery of this Agreement and the
Related Agreements by Company does not, and consummation of the transactions
contemplated by this Agreement will not, require Company to obtain any consent,
license, permit, approval, waiver, authorization or order of, or to make any
filing with or notification to, any governmental or regulatory entity, domestic
or foreign, (including, but not limited to, the FDA), except for the filing a
certificate of merger with the Delaware Secretary of State and articles of
merger and certain other filings with the Minnesota Secretary of State, each in
such form as required by, and executed in accordance with the relevant
provisions of, the DGCL or the MBCA, as applicable.
(c) Company owns or possesses from each appropriate
governmental entity all right, title and interest in and to all permits,
licenses, authorizations, approvals, quality certifications, franchises or
rights (collectively, "Permits") issued by any governmental entity required in
connection with the conduct of Company's business, other than those with respect
to which the failure to so own or possess would not have a Company Material
Adverse Effect. Each of such
Permits is described on Schedule 3.17(c). No loss or expiration of any such
Permit is pending or, to the knowledge of Company or the Shareholders,
threatened or reasonably foreseeable, other than expiration in accordance with
its respective terms.
SECTION 3.18. Medical Device Regulation.
(a) Company has obtained all applicable licenses,
registrations, approvals, clearances, and authorizations required for Company's
business by any governmental entity regulating the safety, effectiveness and
market clearance of Company's medical components or devices that are currently
marketed by Company in the territories in which such components or devices are
currently marketed. Such licenses, registrations, approvals, clearances, and
authorizations have not been withdrawn, revoked or challenged and Company has
not taken any action with respect to the design, development, manufacture or
distribution of any such medical component or device which could reasonably be
expected to lead to such withdrawal, revocation or challenge. Set forth on
Schedule 3.18 is information related to the regulation of Company's medical
devices that are currently marketed or that have been approved for marketing
since January 1, 1997, including any recalls, product actions and inspections of
Company's Facilities.
(b) Since January 1, 1997 Company recorded no "complaints" (as
such term is defined in 21 C.F.R. Section 820.198) and reported no Medical
Device Reports ("MDRs"). Set forth on Schedule 3.18 are certain customer
comments with respect to Company's products.
(c) Company manufactures and for the past five years has
manufactured its products in accordance with all applicable FDA rules and
regulations (including the Good Manufacturing Practices and the Quality System
regulations promulgated by the FDA) and the European Medical Device Directive
(93142/ECC) and quality control procedures of Company in effect at the time of
manufacture. To the extent required, all of the products currently sold by
Company have been approved for sale by the FDA and all other applicable federal,
state, local and foreign regulatory agencies. None of Company's products are
permitted to be marked with the "CE" xxxx. Company has not received any notice
from the FDA or any other federal, state, local or foreign regulatory agency
calling into question its manufacturing practices or threatening to revoke or
curtail any product approval, and Company and the Shareholders are not aware of
any intent to deliver any such notice. Schedule 3.18 contains a complete list of
all products manufactured or marketed by Company, including those that require
the approval of or notice to, or registration with, the FDA or any other United
States federal or state or foreign governmental entity under any existing law,
regulation or policy, specifying the type of approval or notice of registration
required and the reference number or identification of each currently effective
approval or notice and registration. Since January 1, 1997, Company has not
received any FDA "warning letter." None of the products identified on Schedule
3.18 has been the subject of any voluntary or involuntary recall or any
governmental investigation other than routine inspections of Company's
facilities and all United States and international regulatory approvals therefor
are owned by and registered in the name of Company and are in full force and
effect.
SECTION 3.19. Environmental Matters.
(a) (i) Company has conducted its business in compliance in
all material respects with all applicable Environmental Laws (as defined in
Section 3.19(b)), including without limitation by having all Permits required
under any Environmental Laws for the operation of the business; (ii) none of the
real property leased by Company contains any Hazardous Substance (as defined in
Section 3.19(b)) in violation of any applicable Environmental Laws; (iii)
Company has not received any notices, demand letters or requests for information
from any governmental entity or other person indicating that Company may be in
violation of, or liable under, any Environmental Law or relating to any of
Company's assets; (iv) no reports have been filed, or are required to be filed,
by Company concerning the release of any Hazardous Substance or the threatened
or actual violation of any Environmental Law; (v) no Hazardous Substance has
been disposed of, released or transported in violation of any applicable
Environmental Law from any real property leased by Company or as a result of any
activity of Company; (vi) there have been no environmental investigations,
studies, audits, tests, reviews or other analyses regarding compliance or
noncompliance with any Environmental Law conducted by Company or which are in
the possession of Company relating to the activities of Company on any real
property leased by Company that have not been delivered or made available to
Parent prior to the date of this Agreement; (vii) to the knowledge of Company
and the Shareholders, there are no underground storage tanks on, in or under any
real property leased by Company and no underground storage tanks have been
closed or removed from any of such properties; and (viii) neither Company nor
any of its assets, including without limitation any Facility, including any
Facility formerly occupied, managed or owned by Company, is subject to any
liabilities or expenditures relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment, claim or lien asserted
by any governmental or quasi-governmental entity relating to any Environmental
Law.
(b) As used in this Agreement, "Environmental Law" means any
federal, state or local law, statute, ordinance, rule, regulation, code, permit,
license, authorization, approval, consent, order, judgment, decree, injunction,
requirement or agreement with any governmental entity relating to (i) the
protection, preservation or restoration of the environment (including without
limitation air, water vapor, surface water, groundwater, drinking water, surface
land, subsurface land, plant and animal life or any other natural resource) or
to human health or safety; or (ii) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances, in each case
as amended and in effect on the Closing Date. As used in this Agreement,
"Hazardous Substance" means any substance listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law. Hazardous Substance includes any
substance to which exposure is regulated by any governmental entity or any
Environmental Law, including without limitation any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos or asbestos containing material, urea formaldehyde, foam
insulation, lead or polychlorinated biphenyls.
SECTION 3.20. Warranty and Product Liability Matters. Schedule 3.20
sets forth all written warranties currently provided by Company on any of its
products. No product liability or
warranty claims, other than claims in the Ordinary Course of Business,
consistent in amount and number with those made in prior periods, which are set
forth on Schedule 3.20, are pending or, to the knowledge of Company or the
Shareholders, threatened, nor is there any reasonable basis for any such claim.
SECTION 3.21. Employee Benefit Plans; Labor Matters.
(a) Set forth on Schedule 3.21 is a complete and correct list
of all "employee benefit plans" (as defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all plans or policies providing for
"fringe benefits" (including but not limited to vacation, paid holidays,
personal leave, employee discount, educational benefit or similar programs), and
each other bonus, incentive compensation, deferred compensation, profit sharing,
stock, severance, retirement, health, life, disability, group insurance,
employment, stock option, stock purchase, stock appreciation right, supplemental
unemployment, layoff, consulting, or any other similar plan, agreement or policy
(whether written or oral, qualified or nonqualified, currently effective or
terminated), and any trust, escrow or other agreement related thereto, which (i)
is or has been established, maintained or contributed to by Company or any ERISA
Affiliate and with respect to which Company or any ERISA Affiliate has or may
have any liability, or (ii) provides benefits, or describes policies or
procedures applicable, to any officer, employee, director, former officer,
former employee or former director of Company or any ERISA Affiliate, or any
dependent thereof, regardless of whether funded (each, an "Employee Plan," and
collectively, the "Employee Plans").
(b) Except as set forth on Schedule 3.21, no written or oral
representations have been made to any employee or officer or former employee or
officer of Company promising or guaranteeing any coverage under any employee
welfare plan for any period of time beyond the end of the current plan year
(except to the extent of coverage required under Code Section 4980B). Except as
set forth on Schedule 3.21, the consummation of the transactions contemplated by
this Agreement will not accelerate the time of payment or vesting, or increase
the amount of compensation (including amounts due under Employee Plans) due to
any employee, officer, former employee or former officer of Company. In
connection with the Closing, the Employee Plans will be transferred to Newco and
Newco will be responsible for all Liabilities under such Employee Plans and
neither the Surviving Corporation nor Parent will be responsible for any
Liabilities under any such Employee Plans.
(c) To the knowledge of Company and the Shareholders, no
employee of Company is subject to any agreement or obligation that restricts or
limits his or her ability to devote his or her full talents and efforts to
Company. Except as set forth on Schedule 3.21, all employees of Company are
terminable at the will of Company, and neither Company, nor any present or
former director, or officer, employee or agent of Company has made any binding
commitments of Company, written or verbal, to any present or former director,
officer, agent or employee concerning his or her term, condition, benefits or
employment.
(d) With respect to each Employee Plan, Company has furnished
or made available to Parent true, correct and complete copies of (i) the plan
documents and summary plan description; (ii) the most recent determination
letter received from the Internal Revenue Service;
(iii) the annual reports required to be filed for the three most recent plan
years of each such Employee Plan; (iv) all related trust agreements, insurance
contracts or other funding agreements which implement such Employee Plan; and
(v) all other documents, records or other materials related thereto reasonably
requested by Parent.
(e) The MicroNet Medical, Inc. 401(k) Plan (i) is the only
employee pension benefit plan maintained by Company or any ERISA Affiliate that
is intended to qualify under Code Section 401; (ii) meets and has met the
qualification requirements of the Code in form and operation; and (iii) nothing
has occurred since the date of the most recent determination letter that may
adversely affect the qualification of such plan or the tax-exempt status of such
related trust. All Employee Plans purporting to qualify for special tax
treatment under any provision of the Code, including, without limitation, Code
Sections 79, 105, 106, 125, 127, 129, 132, 421 or 501(c)(9) meet the requirement
of such sections in form and in operation. All reports, returns or filings
required by any government agency have been timely filed in accordance with all
applicable requirements.
(f) Except as set forth on Schedule 3.21, no condition exists
that would subject Company, any ERISA Affiliate or Parent to any excise tax,
penalty tax or fine related to any Employee Plan, except as could not reasonably
be expected to have a Company Material Adverse Effect.
(g) Except as set forth on Schedule 3.21, there are no
agreements that will or may provide payments to any officer, employee,
shareholder or highly compensated individual that, in connection with or as a
result of the Merger and the transactions contemplated by this Agreement, will
be "parachute payments" under Code Section 280G that are nondeductible to
Company or subject to tax under Code Section 4999 for which Company or any ERISA
Affiliate would have withholding liability.
(h) There is no Employee Plan that is subject to Part 3 of
Title I of ERISA or Title IV of ERISA; each Employee Plan has been operated in
all material respects in compliance with ERISA, the Code and all other
applicable laws; none of the Employee Plans is a "multiple employer plan" or
"multiemployer plan" (as described or defined in ERISA or the Code), nor has
Company or any ERISA Affiliate ever contributed or been required to contribute
to any such plan; there are no material unfunded liabilities existing under any
Employee Plans, and each Employee Plan could be terminated as of the Closing
Date without any material liability to Parent, Company or any ERISA Affiliate.
(i) Except as set forth on Schedule 3.21, there are no
material actions, suits, claims, audits or investigations pending or, to the
knowledge of Company or the Shareholders, threatened against, or with respect
to, any of the Employee Plans or their assets, other than benefit claims in the
normal course of plan operations, and all contributions required to be made to
the Employee Plans have been made.
(j) Company is not a party to any collective bargaining or
other labor union contract. No collective bargaining agreement is being
negotiated by Company, and there is no representation question or organizing
effort. Company is in compliance with all applicable laws
regarding employment, union or concerted activity, occupational safety and
health, employment standards, equal employment opportunity, employment practices
and wages and hours ("Labor and Employment Matters"). There is no pending or
threatened labor dispute, strike or work stoppage against Company. None of
Company or any of its representatives or employees has committed any material
unfair labor practices in connection with the operation of the business of
Company, and there is no material pending or threatened charge or complaint
against Company by the National Labor Relations Board or any comparable state
agency. Company is not subject to any injunction, consent decree, settlement
agreement, compliance agreement, conciliation agreement or administrative order
that requires any ongoing compliance or monitoring with regard to Labor and
Employment Matters.
(k) Except as set forth on Schedule 3.21, Company is not a
party to or bound by any severance agreements, programs, policies, plans or
arrangements, whether or not written (collectively, "Severance Agreements").
Following the Closing, neither the Surviving Corporation nor Parent will be
responsible for any Liabilities under any Severance Agreement. Schedule 3.21
sets forth, and Company has provided or made available to Parent true and
correct copies of, (i) all employment agreements with officers or employees of
Company; (ii) all agreements with consultants of Company obligating Company to
make annual cash payments in an amount exceeding $10,000; and (iii) all
non-competition agreements with Company.
SECTION 3.22. Insurance. Company is insured, and since January 1, 1997
has been insured, for reasonable amounts against such risks as companies engaged
in a similar business would, in accordance with good business practice,
customarily be insured, including, without limitation, against product liability
claims. Schedule 3.22 sets forth a complete and accurate list of all primary,
excess and umbrella policies, bonds and other forms of insurance, including
product liability insurance, currently owned or held by or on behalf of and/or
providing insurance coverage to Company and its businesses, properties, assets
and products, including the following information for each such policy: (a)
types of insurance coverage provided; (b) name of insurer; (c) effective date;
(d) policy number; (e) per occurrence and annual aggregate deductibles or
self-insured retention; and (f) per occurrence and annual aggregate limits of
liability and the extent, if any, to which the limits of liability have been
exhausted. All such policies will be in full force and effect until the Closing.
Company has not received a notice of default under any such policy and has not
received written notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material premium increase
with respect to any such policy. Company does not provide any self-insurance
coverage and no letters of credit have been posted and no cash has been
restricted to support any reserves for insurance.
SECTION 3.23. Competing Interests. None of Company or, to the knowledge
of Company or the Shareholders, the Shareholders, directors or officers of
Company or any manager, officer, relative or affiliate of any of the foregoing
owns, directly or indirectly, a greater than 5% equity interest, or serves as an
executive officer or director, in any entity that is a competitor, customer or
supplier of Company or that otherwise has material business dealings with
Company or is a party to or has an interest opposed to Company under any
Material Agreement or other business relationship or arrangement.
SECTION 3.24. Regulated Payments. Neither Company nor any director,
officer, agent or employee of Company, nor, to the knowledge of Company or the
Shareholders, any affiliate or immediate family member of any of the foregoing,
has (a) used any Company funds for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to the sale of Company goods or services or
any political activity; (b) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; or (c) made any other unlawful gift, contribution or payment.
Set forth on Schedule 3.24 is a summary of certain payments made by Company in
the ordinary course of its business.
SECTION 3.25. Brokers. Except as set forth on Schedule 3.25, no broker,
finder or investment banker (any, a "Broker") is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Company or the Shareholders.
SECTION 3.26. No Misrepresentations. The representations, warranties
and statements made by Company and the Shareholders in or pursuant to this
Agreement (including the Schedules) are true, complete and correct in all
material respects and do not contain any untrue statement of a material fact or
omit to state any material fact necessary to make any such representation,
warranty or statement, under the circumstances in which it is made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT COMPANIES
The Parent Companies jointly and severally represent and warrant to
Company and the Shareholders as follows:
SECTION 4.01. Organization. Each of Parent and Merger Sub, the former
of which owns directly or indirectly through another wholly-owned subsidiary all
of the outstanding capital stock of Merger Sub, is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation. Parent has all requisite power and authority to own, lease and
operate its properties and to carry on its business as presently conducted and
is duly qualified and in good standing to do business in each jurisdiction in
which the nature of the business conducted by it or the ownership or leasing of
its properties makes such qualification necessary, other than where the failure
to be so qualified and in good standing would not have a material adverse effect
on the business, financial condition, results of operations, assets or
liabilities of Parent (a "Parent Material Adverse Effect").
SECTION 4.02. Authorization. The Parent Companies have all requisite
power and authority to execute and deliver this Agreement and the Related
Agreements, to perform their obligations under this Agreement and the Related
Agreements and to consummate the transactions contemplated by this Agreement.
The execution, delivery and performance of this Agreement and the Related
Agreements by the Parent Companies and the consummation by the Parent Companies
of the transactions contemplated by this Agreement have been duly authorized by
all necessary actions on the part of the Parent Companies and no other
proceedings on the part
of the Parent Companies are necessary to authorize this Agreement or the Related
Agreements or to consummate the transactions contemplated by this Agreement.
This Agreement and the Related Agreements are the legal, valid and binding
agreements of the Parent Companies, enforceable against the Parent Companies in
accordance with their respective terms.
SECTION 4.03. No Conflict or Violation. Neither the execution and
delivery of this Agreement or the Related Agreements nor the performance of the
Parent Companies' obligations under this Agreement or the Related Agreements or
the consummation of the transactions contemplated by this Agreement will result
in a (a) violation of or conflict with any provision of Parent's articles of
incorporation or bylaws or Merger Sub's certificate of incorporation or bylaws,
(b) breach of or default under any term or provision of any material contract,
agreement, lease commitment, license, franchise or permit to which any of the
Parent Companies is a party or an event which, with notice, lapse of time or
both, would result in any such breach or default, or (c) violation by the Parent
Companies of any material statute, rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award, or an event which, with notice or
lapse of time or both, would result in any such violation.
SECTION 4.04. Capitalization.
(a) The authorized capital stock of Parent consists solely of
25,000,000 shares of Parent Common Stock, of which, as of October 23, 2002, (i)
12,163,389 shares were issued and outstanding, (ii) no shares were held in
treasury, (iii) 2,026,880 shares are reserved for future issuance pursuant to
outstanding stock options or warrants, and (iv) 94,334 shares are reserved for
future issuance pursuant to stock options eligible for grant. Except as
described in this Section 4.04 or in Parent's SEC Reports (as defined in Section
4.05), as of the date of this Agreement, no shares of capital stock of Parent
are reserved for any purpose. The outstanding shares of capital stock of Parent
have been duly authorized and validly issued, are fully paid and nonassessable
and were not issued in violation of (nor are any of the authorized shares of
capital stock of Parent subject to) any preemptive or similar rights created by
statute, the articles of incorporation or bylaws of Parent or any agreement to
which Parent is a party or is bound.
(b) Except as set forth in Section 4.04(a) or as described in
Parent's SEC Reports, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character to which Parent is a
party relating to the issued or unissued capital stock of Parent or obligating
Parent to grant, issue or sell any shares of the capital stock of Parent, by
sale, lease, license or otherwise. Except as set forth in Parent's SEC Reports,
there are no obligations, contingent or otherwise, of Parent or any of its
subsidiaries to repurchase, redeem or otherwise acquire any capital stock of
Parent. There are no voting trusts, proxies or other agreements or
understandings to which Parent is a party or by which Parent is bound with
respect to the voting of any shares of capital stock of Parent.
(c) The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, par value $0.01 per share ("Merger Sub Common
Stock"). As of the date of this Agreement, 100 shares of Merger Sub Common Stock
were issued and outstanding and held by Parent, all of which are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, Merger Sub's certificate of incorporation
or bylaws or any agreement to which Merger Sub is a party or is bound.
(d) The shares of Parent Common Stock to be issued pursuant to
the Merger (i) will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, Parent's
articles of incorporation or bylaws or any agreement to which Parent is a party
or is bound, and (ii) will, when issued, be included for quotation on Nasdaq or
listed on the principal securities exchange on which similar securities issued
by Parent are then listed (if any).
SECTION 4.05. SEC Reports; Financial Statements.
(a) Since January 1, 2000, Parent and its subsidiaries have
filed all forms, reports, statements and other documents required to be filed
with the Securities and Exchange Commission (the "SEC"), including, without
limitation, (1) all Annual Reports on Form l0-K, (2) all Quarterly Reports on
Form 10-Q, (3) all proxy statements relating to meetings of shareholders
(whether annual or special), (4) all Current Reports on Form 8-K, and (5) all
other reports, schedules, registration statements or other documents
(collectively, the "SEC Reports"). The SEC Reports, including all SEC Reports
filed after the date of this Agreement and prior to the Effective Time, (x) were
or will be prepared in all material respects in accordance with the requirements
of all applicable laws, including the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and (y) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing), or will not at the time they are filed, 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.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the SEC Reports filed
prior to the Effective Time (i) has been or will be prepared in accordance with
the published rules and regulations of the SEC and GAAP, applied on a consistent
basis throughout the periods involved (except (A) to the extent required by
changes in GAAP, and (B) with respect to SEC Reports filed prior to the date of
this Agreement, as may be indicated in the notes thereto), and (ii) fairly
present or will fairly present in all material respects the consolidated
financial position of Parent and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for the
periods indicated (including reasonable estimates of normal and recurring
year-end adjustments), except that (x) any unaudited interim financial
statements were or will be subject to normal and recurring year-end adjustments
and (y) any pro forma financial information contained in such consolidated
financial statements is not necessarily indicative of the consolidated financial
position of Parent and its subsidiaries as of the respective dates thereof and
the consolidated results of operations and cash flows for the periods indicated.
(c) Parent meets the registrant eligibility requirements of
the SEC for the use of Form S-3, as such requirements are set forth in the
General Instructions to Form S-3.
SECTION 4.06. Litigation. There are no pending or, to the knowledge of
the Parent Companies, threatened Proceedings by any individual, corporation,
partnership, governmental entity or other entity relating to (a) Parent or any
of its directors, shareholders, employees or agents (in their capacities as
such) or any of Parent's subsidiaries or assets or to which any of Parent's
subsidiaries or assets is subject, other than litigation that is not expected to
have a Parent Material Adverse Effect or (b) the transactions contemplated by
this Agreement or otherwise material to Parent. To the knowledge of the Parent
Companies, there is no valid basis for any such Proceedings, and the Parent
Companies are aware of no facts that may provide a reasonable basis for any such
Proceeding in the future. Neither Parent nor any of Parent's assets is subject
to or bound by any currently existing judgment, order, writ, injunction or
decree that is expected to have a Parent Material Adverse Effect. There are no
court orders or agreements with, or liens by, any governmental or
quasi-governmental entity relating to any Environmental Law that regulate,
obligate, bind or in any way affect Parent or any of its facilities, including
any facility formerly occupied, managed or owned by Parent.
SECTION 4.07. Governmental Matters. The execution and delivery of this
Agreement and the Related Agreements by the Parent Companies does not, and
consummation of the transactions contemplated by this Agreement will not,
require the Parent Companies to obtain any consent, license, permit, approval,
waiver, authorization or order of, or to make any filing with or notification
to, any governmental or regulatory entity, domestic or foreign, (including, but
not limited to, the FDA), except for applicable requirements, if any, of the
Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act,
state securities or blue sky laws ("Blue Sky Laws") and the filing of a
certificate of merger with the Delaware Secretary of State and articles of
merger and certain other filings with the Minnesota Secretary of State, each in
such form as required by, and executed in accordance with the relevant
provisions of, the DGCL or the MBCA, as applicable.
SECTION 4.08. No Misrepresentations. The representations, warranties
and statements made by the Parent Companies in or pursuant to this Agreement are
true, complete and correct in all material respects and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make any such representation, warranty or statement, under the circumstances
in which it is made, not misleading.
SECTION 4.09. Brokers. Neither Parent nor Merger Sub nor any of their
respective officers, directors or employees has employed any Broker or incurred
any liability for any brokerage fees, commissions, finders' fees or similar fees
or expenses, and no Broker has acted directly or indirectly for Parent and/or
Merger Sub in connection with this Agreement or the transactions contemplated
hereby.
SECTION 4.10. Tax Matters.
(a) Prior to the Effective Time, Parent will be in Control (as defined
below) of Merger Sub within the meaning of Section 368(c) of the Code. As used
herein, "Control" means direct ownership of shares of stock possessing at least
eighty percent (80%) of the total combined voting power of all classes of stock
entitled to vote and at least eighty percent (80%) of the total number of shares
of all other classes of stock of the corporation.
(b) Parent has no plan or intention, following the Effective Time, to:
(i) liquidate Company; (ii) merge Company with or into another corporation or
entity; (iii) sell or otherwise dispose of the stock of Company except for
transfers of stock described in Section 1.368-2(k)(2) of the Treasury
Regulations; or (iv) cause Company to sell or otherwise dispose of any of its
assets or the assets of Merger Sub, if any, acquired in the Merger, except for
dispositions in the ordinary course of business or transfers described in
Section 1.368-2(k)(2) of the Treasury Regulations.
(c) Following the Effective Time, Company will not issue additional
shares of stock that would result in Parent losing "Control" of Company within
the meaning of Section 368(c) of the Code.
(d) To the knowledge of the Parent Companies, immediately following the
Effective Time, Company will not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any person
could acquire stock in Company that, if exercised or converted, would affect
Parent's acquisition or retention of "Control" of Company within the meaning of
Section 368(c) of the Code.
ARTICLE V
COVENANTS
SECTION 5.01. Covenants of Company and the Shareholders.
(a) Conduct of Business. Until the Effective Time, except as
contemplated by this Agreement, Company will, and the Shareholders will use good
faith and commercially reasonable efforts to cause Company to, (i) operate only
in the Ordinary Course of Business consistent with past practices and preserve
the goodwill of Company and of its employees, customers, suppliers,
distributors, governmental entities and others having business dealings with
Company; (ii) not engage in any transaction outside the Ordinary Course of
Business, including without limitation by making any material expenditure,
investment or commitment or entering into any Material Agreement or material
arrangement of any kind; (iii) not increase the compensation of any employee or
officer or make any bonus payments or other distributions except in the Ordinary
Course of Business; (iv) maintain all insurance policies and all Permits that
are required for Company to carry on its business, including without limitation
by maintaining Company's current insurance coverage for all product liability
claims that may arise but not be asserted prior to Closing; (v) maintain books
of account and records in the usual, regular and ordinary manner and consistent
with past practices; and (vi) not take any action that would result in, or
otherwise allow, a breach of any of the representations and warranties set forth
in Article III.
(b) Maintenance of Business and Operations. Until the
Effective Time, except as contemplated by this Agreement, Company and the
Shareholders will use all reasonable efforts to preserve substantially intact
Company's business organization, maintain its material rights and franchises,
maintain its books and records, retain the services of its respective officers
and key employees and maintain its relationships with its material customers and
suppliers, maintain and
keep its material properties and assets in as good repair and condition as at
present, ordinary wear and tear excepted, and maintain supplies and inventories
in quantities consistent with its customary business practice.
(c) No Repurchase of Securities. Except for the termination of
the Stock Options and Warrants contemplated in Section 3.05, Company will not
(i) redeem, purchase or otherwise acquire any of its securities; (ii) effect any
reorganization or recapitalization; or (iii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock.
(d) No Issuance of Securities. Except for the issuance of
Company Common Stock upon the exercise of Stock Options and Warrants, as
contemplated in Section 3.05, Company will not issue, deliver, award, grant or
sell, or authorize or propose the issuance, delivery, award, grant or sale
(including the grant of any security interests, liens, claims, pledges,
limitations in voting rights, charges or other encumbrances) of, any shares of
its capital stock (including shares held in treasury), any securities
convertible into or exercisable or exchangeable for any such shares, or any
rights, warrants or options to acquire any such shares.
(e) Supplemental Disclosure.
(i) From time to time prior to the Closing, Company
and the Shareholders will promptly supplement or amend each of the Schedules
with respect to any matter arising after the date of this Agreement that, if
existing or occurring at or prior to the date of this Agreement, would have been
required to be set forth or listed in the Schedules or that is necessary to
complete or correct any information in the Schedules. Without limiting the
generality of the foregoing, Company and the Shareholders will provide a revised
Schedule 3.05, reflecting the shareholders of Company, the number of shares of
Company Common Stock owned by each and the percentage ownership of Company
represented by each holder's shares as of the Effective Time, to Parent by no
later than five days prior to the Closing Date. For purposes of determining the
satisfaction of the conditions set forth in Section 7.01 or 7.02, other than
with respect to the revised Schedule 3.05 delivered pursuant to this Section
5.01(e), no supplement or amendment to any Schedule will be given effect.
(ii) Company and the Shareholders will give prompt
notice to Parent of (w) the occurrence, or failure to occur, of any event that
Company or any Shareholder believes has caused any representation or warranty
contained in Article III to be untrue or inaccurate at any time between the date
of this Agreement and the Closing Date, and (b) any failure of Company or any
Shareholder to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement.
(f) Information for Filings. Upon prior written request, given
reasonably in advance, and at the expense of Parent, Company and the
Shareholders will furnish Parent with all information concerning Company that is
required for inclusion in any application or filing made by Parent with the SEC
or any other governmental entity in connection with the transactions
contemplated by this Agreement.
(g) No-Shop. Company and the Shareholders covenant and agree
that (i) they will not, and will not permit any of their affiliates to, directly
or indirectly, initiate, solicit, encourage or respond to (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, any Competing Transaction, or enter into discussions or
negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or endorse or agree to endorse any Competing Transaction,
or authorize or permit any of the officers, directors or employees of Company or
any investment banker, financial advisor, attorney, accountant or other
representative retained by Company, or any of its affiliates to take any such
action, and (ii) Company will promptly notify Parent of all relevant terms of
any such inquiries and proposals received by it or any of its affiliates or by
any such officer, director, investment banker, financial advisor, attorney,
accountant or other representative relating to any of such matters, and if such
inquiry or proposal is in writing, Company will promptly deliver or cause to be
delivered to Parent a copy of such inquiry or proposal. For purposes of this
Agreement, "Competing Transaction" means any of the following involving Company
(other than the Merger and except as specifically contemplated in Section
5.01(i)): (x) any merger, consolidation, share exchange, business combination or
similar transaction; (y) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of 10% or more of the assets used in Company's business; or
(z) any offer for 10% or more of the outstanding shares of capital stock of
Company.
(h) Employee Matters. Prior to the Closing Date, Company will
terminate the employment of all employees of Company. Company will have full
responsibility for providing any notice to employees of Company and appropriate
government officials that may be required pursuant to the Worker Adjustment and
Retraining Notification Act of 1988, as amended (the "WARN Act"), or any similar
state law with respect to any such employees who are terminated by Company prior
to the Closing Date. Prior to Closing, Company will bear any Liability that may
accrue to such employees or any unit of local government under the WARN Act or
any similar state law as a result of improper or untimely notice and, at
Closing, the Shareholders agree, jointly and severally, to assume any such
Liability that has not been satisfied, has not accrued or is not known at the
time of Closing. Additionally, any and all obligations or Liabilities with
respect to any Severance Agreement or Employee Plan will either be satisfied by
Company prior to Closing or assumed by Newco. Specifically and without
limitation, prior to the Closing Newco will be designated as plan administrator
and as the employer and plan sponsor with respect to each Employee Plan. Prior
to Closing, Company will adopt and approve any amendments to the 401(k) Plan
necessary to bring such 401(k) Plan into compliance with law changes as required
by GUST and EGTRRA. "GUST" means the Uruguay Round Agreements Act, the Uniformed
Services Employment and Reemployment Rights Act of 1994, the Small Business Job
Protection Act of 1996, the Taxpayer Relief Act of 1997, the Internal Revenue
Restructuring and Reform Act of 1998 and the Community Renewal Tax Relief Act of
2000. "EGTRRA" means the Economic Growth and Tax Relief Reconciliation Act of
2001. Immediately following the Closing, Newco will maintain a group health plan
providing continuous and uninterrupted group health coverage to any and all
employees or former employees of Company who had been covered by a group health
plan(s) of Company or Newco prior to the Closing (including any former employees
who have elected continuation coverage, or
are eligible to elect continuation coverage, pursuant to Part 6 of Title I of
ERISA). Newco will be responsible for depositing in any 401(k) Plan trust or
forwarding to any health insurance company, as applicable, any amounts deducted
from Company employee paychecks prior to the Closing for 401(k) Plan
contributions or health insurance benefits.
(i) Stock Options and Warrants. Prior to the Closing, Company will
amend the Option Plan to provide for the exercise or termination at or prior to
Closing of all Stock Options so that upon Closing, no Stock Options will be
outstanding. Additionally, Company will take all action necessary so that all
Warrants are exercised or terminated at or prior to Closing.
SECTION 5.02. Parent Covenants.
(a) Support. In connection with Newco's commitments to assist
Parent in achieving the Milestones described in Section 2.01(c), and in
accordance with the Regulatory Strategy Plan attached hereto as Exhibit A,
Parent will use its commercially reasonable efforts to support Newco's efforts
and will assist Newco in all commercially reasonable ways, including but not
limited to assisting Newco in (i) conducting biocompatibility, shelf life and
other customary product testing, (ii) preparing all required submissions to the
FDA and (iii) working to obtain any regulatory approvals consistent with its
usual process and timetables for pursuing regulatory approvals for its products,
taking into account the deadlines set forth in Section 2.01(c).
(b) S-3 Eligibility. Parent will use its best efforts to
maintain its eligibility to use Form S-3 according to the registrant eligibility
requirements of the SEC, as such requirements are set forth in the General
Instructions to Form S-3.
(c) Contracts. Following the Effective Time, upon request of
the Shareholders, Parent will cause the Surviving Corporation to take all
reasonable steps within its power to assist Newco in obtaining any benefits
under existing contracts between the Surviving Corporation and third parties
that Newco reasonably determines are necessary to conduct its business.
SECTION 5.03. Mutual Covenants.
(a) Fulfillment of Conditions. Each of the parties agrees not
to take any action that would cause the conditions on the obligations of the
parties to effect the transactions contemplated by this Agreement not to be
fulfilled, including without limitation intentionally or willfully taking or
causing to be taken any action that would cause the representations and
warranties made by such party in this Agreement not to be true and correct as of
the Closing. Each of the parties will take all reasonable steps within its power
to cause to be fulfilled the conditions precedent to the other parties'
obligations to consummate the transactions contemplated by this Agreement that
are dependent on the actions of such party.
(b) Manufacturing Transition Plan. Each of the parties agrees
to use good faith and commercially reasonable efforts to implement and comply
with the Manufacturing Transition Plan attached hereto as Exhibit D (the
"Manufacturing Transition Plan").
(c) Transaction Costs. Except as otherwise specifically set
forth in this Agreement, each party will bear the costs and expenses incurred by
it in connection with the transactions contemplated by this Agreement, including
without limitation all attorneys', accountants' and other fees, costs and
expenses incurred in connection with the preparation, negotiation, execution and
performance of this Agreement or any of the transactions contemplated by this
Agreement. The parties will promptly pay such costs and expenses after written
notice thereof. Any such costs or expenses incurred by Company that are unpaid
as of the Effective Time will be assumed by the Shareholders at Closing. Parent
will pay the amount of the fee owing to the Broker, as set forth on Schedule
3.25; the Shareholders will pay any other amounts owing to any Broker.
(d) Confidentiality.
(i) Each of the parties agrees that it will continue
to be bound by the terms of the confidentiality agreement dated June 17, 2002.
Consistent with the terms of that agreement, each party agrees to, and to cause
its representatives to, use all reasonable efforts to maintain the
confidentiality of any information supplied to it by or on behalf of any of the
other parties in connection with the transactions contemplated by this
Agreement, except: (A) to the extent a party is required to disclose the
confidential information pursuant to applicable laws and regulations or by any
subpoena or similar legal process, in which case such party will agree to
provide the disclosing party with prompt notice of such requirement so that the
disclosing party may seek an appropriate protective order from such disclosure;
or (B) to the extent such confidential information becomes publicly available
(other than as a result of a breach of this Agreement or other obligation owed
by the disclosing party of which the disclosing party has knowledge).
(ii) No party will issue a press release or make any
other media release or public statement regarding the transactions contemplated
by this Agreement; provided however, that Company and the Shareholders
acknowledge that Parent may have an obligation under applicable securities laws
to publicly disclose the proposed transaction. Parent will provide Company and
the Shareholders with a reasonable opportunity to review and comment upon such
disclosure prior to its release.
(iii) If the transactions contemplated by this
Agreement are not consummated, each party agrees that it will not thereafter use
confidential information of another party for any purposes whatsoever or permit
such information to be made available publicly and that it will return any such
written information to such other party.
(iv) The Shareholders acknowledge and agree that all
of Company's customer, prospect and marketing lists, sales data, Intellectual
Property, proprietary information, trade secrets and other confidential
information (collectively, "Confidential Information") are valuable, special and
unique assets owned by Company and, following the Closing, will be owned
exclusively by the Surviving Corporation. Each Shareholder agrees to, and agrees
to use reasonable efforts to cause its representatives to, treat the
Confidential Information as confidential and not to make any use of such
Confidential Information for its own purposes or for the benefit of any other
person (other than Company, or the Surviving Corporation after Closing).
(v) Parent acknowledges that, in accordance with
Section 6.01, Company must convene a meeting of its shareholders and solicit
proxies from its shareholders to approve this Agreement, the Related Agreements,
the Restructuring Agreement (as defined in Section 7.01(c)) and the transactions
contemplated hereby and thereby. Such actions will not be construed as a breach
of this Section 5.03(d) or any other covenant in this Agreement.
(e) Access and Information. Upon reasonable prior written
notice, each party will permit each other party to have reasonable access to its
officers, employees, agents, assets and properties and all relevant books,
records and documents of or relating to its business or operations during normal
business hours, and will furnish to each other party such information, financial
records and other documents relating to its business or operations as such other
party may reasonably request. Upon reasonable prior written notice, each party
will permit each other party reasonable access to its accountants, auditors,
customers, suppliers and governmental entities having dealings with it for
consultation or verification of any information obtained by such other party,
and it will use its reasonable efforts to cause such persons to cooperate with
such other party and its representatives in such consultation and in verifying
such information.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Company Shareholder Meeting. Company will, promptly after
the date of this Agreement, take all actions necessary in accordance with the
MBCA and its articles of incorporation and bylaws to convene a meeting of its
shareholders to act on and approve this Agreement, the Related Agreements, the
Restructuring Agreement and the transactions contemplated hereby (the "Company
Shareholder Meeting"). Company will provide Parent with drafts of any documents
to be provided to its shareholders relating to this Agreement, the Related
Agreements, the Restructuring Agreement or the Merger (including all exhibits),
which documents will be subject to the reasonable review, comment and approval
of Parent, not to be unreasonably delayed or withheld.
SECTION 6.02. Merger Sub. Prior to the Effective Time, Merger Sub will
not conduct any business or make any investments other than as specifically
contemplated by this Agreement and will not have any assets (other than a de
minimis amount of cash paid to Merger Sub for the issuance of shares to Parent)
or liabilities.
SECTION 6.03. Appropriate Action; Consents; Filings. The parties will
use all reasonable efforts to (a) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
under applicable law or otherwise to consummate and make effective the
transactions contemplated by this Agreement; (b) obtain from any governmental
entities any consents, licenses, permits, waivers, approvals, authorizations or
orders required to be obtained or made by any of the parties in connection with
the authorization, execution and delivery of this Agreement or the Related
Agreements and the consummation of the transactions contemplated by this
Agreement, including, without limitation, the Merger, (c) make all necessary
filings, and thereafter make any other required submissions with respect
to this Agreement and the Merger required under (i) the Securities Act (in the
case of Parent) and the Exchange Act and the rules and regulations thereunder,
and any other applicable federal or state securities laws, and (ii) any other
applicable law. The parties will cooperate with one another in connection with
the making of all such filings, including providing copies of all such documents
to the non-filing parties and their advisors reasonably in advance of filings
and, if requested, will accept all reasonable additions, deletions or changes
suggested in connection therewith. The parties will furnish to one another all
information required for any application or other filing to be made pursuant to
the rules and regulations of any applicable law in connection with the
transactions contemplated by this Agreement.
SECTION 6.04. Tax Matters.
(a) Reorganization Status. Each party will use all reasonable efforts
to cause the Merger to qualify, and will not take, and will use all reasonable
efforts to prevent any affiliate of such party from taking, any actions that
could prevent the Merger from qualifying as a reorganization under the
provisions of the Code; provided however, that no party to this Agreement will
be required to obtain a tax opinion with respect to such qualification.
(b) Tax Refunds. In the event that, after the Effective Time, Parent,
any affiliate of Parent or the Surviving Corporation receives (or, on a separate
return basis, would receive) a refund or a credit in respect of any Taxes
attributable to the business, property or operations of Company with respect to
any taxable period or portion thereof ending on or prior to the Effective Time,
such refund or credit will be the property of the former shareholders of Company
and any portion thereof paid to Parent, any affiliate of Parent or the Surviving
Corporation will promptly be paid over to the former shareholders of Company.
Neither Parent nor its affiliates will file or cause the Surviving Corporation
to file any refund or similar claims for Taxes or amended Tax Returns related to
Company for any taxable period or portion thereof ending on or prior to the
Effective Time without the express written consent of the former shareholders of
Company or their Representative (as defined below).
(c) Audits. Each party hereto agrees to notify the other party or
parties promptly of any audits, investigations or examinations of or having a
potential impact on the Taxes of Company by any federal, state or local taxing
authority with regard to any taxable periods or portions thereof ending on or
before the Effective Time if the audit, investigation or examination could
affect the Taxes of Company or any party's indemnification obligations
hereunder. In the event of such an audit, investigation or examination, the
party controlling the proceeding agrees to (i) allow the other party and its
attorneys and accountants to participate in said audit, investigation or
examination in respect of items that may affect Company or the shareholders of
Company, at such other party's expense, and (ii) provide the other party and its
agents, accountants and attorneys with reasonable access to such books and
records as they reasonably deem necessary to determine the validity of the items
under audit, investigation or examination by said federal, state or local taxing
authority. The parties agree to either (x) obtain the written consent, not to be
unreasonably withheld or delayed, of the other party prior to agreeing to any
audit adjustment that would adversely affect such other party or its affiliates,
or (y) waive their right to seek reimbursement from such other party or its
affiliates with respect to such audit adjustment.
(d) Inspection of Tax Records. Following the Effective Time, Parent,
affiliates of Parent and the Surviving Corporation will, upon reasonable
request, afford to the Shareholders or their Representative reasonable access
during normal business hours to the books, records and other data or relating to
the Company (and permit the Shareholders or their Representative to make copies
thereof at their own expense) with respect to taxable periods or portions
thereof ending on or prior to the Effective Time, to the extent that such access
may be reasonably required by the Shareholders to defend an audit or other
investigation or examination of any federal, state or local Tax Returns for all
taxable periods or portions thereof ending on or before the Effective Time.
(e) Retention of Tax Records. The Surviving Corporation, Parent and
Parent's affiliates agree to retain all books and records with respect to Tax
matters pertinent to the Company until the expiration of three months after the
relevant statute of limitations (and, to the extent notified by Parent or the
Shareholders or their Representative, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any taxing authority.
(f) Preparation of Tax Returns. Company will file, at Company's
expense, on or prior to the due date thereof, all Tax Returns required to be
filed by Company at or before the Effective Time, with a copy thereof provided
to Parent promptly after such filing. Parent, its affiliates or the Surviving
Corporation will file (or cause to be filed) all Tax Returns of the Surviving
Corporation due after the Effective Time.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party. The respective
obligations of each party under this Agreement are subject to the satisfaction
at or prior to the Closing of the following conditions. Compliance with any of
these conditions may be waived by the parties in writing.
(a) There is no pending or threatened litigation in any court
or any proceeding before or by any governmental entity against the Shareholders,
Company, or the Parent Companies to restrain, prohibit or obtain damages or
other relief with respect to this Agreement or the consummation of the
transactions contemplated by this Agreement.
(b) The shareholders of Company have approved the execution,
delivery and performance of this Agreement, the Related Agreements and the
Restructuring Agreement, the transactions contemplated by this Agreement and the
Restructuring Transaction.
(c) (i) Parent has had the opportunity to review the agreement
by and between Company and Newco related to the Restructuring Transaction (the
"Restructuring Agreement") and all documents related thereto, pursuant to which
Company will, simultaneously with the Closing, complete the Restructuring
Transaction; (ii) such documents adequately provide for the
transfer of all assets and all Liabilities associated with the Other Assets to
Newco, including the assumption by Newco of all Liabilities associated with the
Other Assets; (iii) all of such documents are reasonably acceptable to Parent;
(iv) upon the completion of the Restructuring Transaction, Newco will be
capitalized with cash and marketable securities with an aggregate value of no
less than $900,000; and (v) the Restructuring Transaction will be completed in
accordance with all applicable laws and the terms and conditions of its
governing documents and in a manner satisfactory to Parent in its reasonable
discretion.
(d) Parent, Company, the Shareholders and the Escrow Agent
have entered into the Escrow Agreement, substantially in the form of Exhibit B.
(e) A valid private placement exemption under applicable
federal and state law is available to Parent for the issuance of shares of
Parent Common Stock to the shareholders of Company.
(f) At the Effective Time, holders representing no more than
five percent (5%) of the Outstanding Shares have validly exercised (and not
withdrawn, abandoned or otherwise lost or forfeited) the rights of dissenting
shareholders under the MBCA.
SECTION 7.02. Additional Conditions to Obligations of the Parent
Companies. The obligations of the Parent Companies under this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions. Notwithstanding the foregoing, if Company notifies Parent in writing
at least two days prior to the Closing Date in sufficient detail, in Parent's
reasonable discretion, that any of the following conditions will not be
satisfied at or prior to the Closing, Parent will, at its sole option, (a) waive
such noncompliance in writing and, in such event, will have no right to
indemnification with respect thereto; (b) agree to negotiate, prior to the
Effective Time, with Company and the Shareholders to reach a compromise with
respect to such noncompliance, it being recognized that such compromise may be a
full resolution as of the Effective Time or an agreement that a full resolution
will occur after the Effective Time; or (c) decline to waive such noncompliance,
in which event the Parent Companies may terminate this Agreement in accordance
with Section 10.01.
(a) All representations and warranties of Company and the
Shareholders contained in this Agreement are true and correct in all material
respects (if not qualified by materiality) or in all respects (if qualified by
materiality) at and as of the Closing with the same effect as though such
representations and warranties were made at and as of the Closing, except for
representations and warranties that speak as of a specific date or time other
than the Closing Date (which need only be true and correct as of such date or
time), and Parent has received a certificate to such effect, in form and
substance reasonably satisfactory to Parent, executed on behalf of Company by an
executive officer of Company and by the Shareholders.
(b) Company and the Shareholders have performed and complied
in all material respects with all of the covenants and agreements and satisfied
all of the conditions required by this Agreement to be performed, complied with
or satisfied by them at or prior to the Closing, and Parent has received a
certificate to such effect, in form and substance reasonably satisfactory to
Parent, executed on behalf of Company by an executive officer of Company and by
the Shareholders.
(c) Company and the Shareholders have delivered, or caused to
be delivered, to the Parent Companies:
(i) a certificate of good standing from the Minnesota
Secretary of State;
(ii) duly adopted resolutions of the Board of
Directors and shareholders of Company approving the execution, delivery and
performance of this Agreement and the Related Agreements and the transactions
contemplated by this Agreement, certified by the Secretary of Company; and
(iii) a true and complete copy of the articles of
incorporation, as amended, of Company certified by the Minnesota Secretary of
State and a true and complete copy of the bylaws of Company, as amended,
certified by the Secretary of Company.
(d) All Company contractual and governmental consents,
approvals, orders, authorizations or notices necessary in connection with the
Merger have been obtained or given, as applicable, on terms reasonably
satisfactory to the Parent Companies.
(e) The Parent Companies have received a Noncompete Agreement,
substantially in the form attached hereto as Exhibit E, from Xxxxxx X. Xxxxx.
(f) Company has delivered to Parent design dossiers for its
existing products that have been prepared in a manner reasonably satisfactory to
Parent and are ready for submission to the FDA for (a) 510(k) Clearance for use
of the Leads in conjunction with Renew using Parent's A127 adapter, and (b) PMA
Approval for use of the Leads in conjunction with Genesis using Parent's A127
adapter, each in accordance with the Regulatory Strategy Plan attached hereto as
Exhibit A.
(g) Other than as a result of the Restructuring Transaction in
accordance with the terms and conditions of the Restructuring Agreement and this
Agreement, there has been no material adverse change in the financial condition,
operations or business of Company between the date of the Interim Balance Sheet
and the Closing Date, and the Parent Companies have received a certificate of
the President and the Chief Financial Officer of Company, dated the Closing
Date, to that effect.
(h) The Parent Companies have received a legal opinion, in
form and substance reasonably satisfactory to the Parent Companies, from counsel
to Company and the Shareholders.
(i) Within 20 calendar days following the date of this
Agreement, Parent has received inducement letters in the form of Exhibit F from
(i) all non-accredited shareholders, and (ii) shareholders holding no less than
90% of all of the Outstanding Shares.
SECTION 7.03. Additional Conditions to Obligations of Company and the
Shareholders. The obligations of Company and the Shareholders under this
Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions. Compliance with any of these conditions may be waived by
Company and the Shareholders in writing:
(a) All representations and warranties of the Parent Companies
contained in this Agreement are true and correct in all material respects (if
not qualified by materiality) or in all respects (if qualified by materiality)
at and as of the Closing with the same effect as though such representations and
warranties were made at and as of the Closing, except for representations and
warranties that speak as of a specific date or time other than the Closing Date
(which need only be true and correct as of such date or time), and Company and
the Shareholders have received a certificate to such effect, in form and
substance reasonably satisfactory to Company and the Shareholders, executed on
behalf of each Parent Company by an executive officer of such Parent Company.
(b) The Parent Companies have performed and complied in all
material respects with all of the covenants and agreements and satisfied all of
the conditions required by this Agreement to be performed, complied with or
satisfied by them at or prior to the Closing, and Company and the Shareholders
have received a certificate to such effect, in form and substance reasonably
satisfactory to Company and the Shareholders, executed on behalf of each Parent
Company by an executive officer of such Parent Company.
(c) All Parent and Merger Sub contractual and governmental
consents, approvals, orders, authorizations or notices necessary in connection
with the Merger, including but not limited to issuance of Parent Common Stock as
Merger Consideration at Closing of thereafter, have been obtained or given, as
applicable, on terms reasonably satisfactory to Company.
(d) There has been no material adverse change in the financial
condition, operations or business of Parent between the date of this Agreement
and the Closing Date, and Company and the Shareholders have received a
certificate of the President and the Chief Financial Officer of Parent, dated
the Closing Date, to that effect.
(e) Company and the Shareholders have received a legal
opinion, in form and substance reasonably satisfactory to Company and the
Shareholders, from counsel to the Parent Companies.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Indemnification of the Parent Companies. Subject to the
other provisions of this Article VIII, from and after the Closing Date, the
Shareholders, jointly and severally, and the other shareholders of Company,
severally in accordance with their ownership of the Company immediately prior to
the Effective Time as set forth on Schedule 3.05 (the Shareholders and the other
shareholders of Company are collectively referred to in this Article VIII as the
"Indemnifying Parties"), will indemnify and hold the Parent Companies, their
affiliates (including the Surviving Corporation) and their respective officers,
directors, employees, representatives, agents and shareholders (the "Indemnified
Parties") harmless from and against any and all Liabilities, obligations,
claims, losses, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys'
fees (but exclusive of incidental or consequential damages) (collectively,
"Claims") that any Indemnified Party may suffer or incur as a result of or
relating to:
(a) the breach or inaccuracy of any representation or warranty
made by Company or any Shareholder in this Agreement or in any certificate
required to be executed and delivered by Company or the Shareholders at the
Closing pursuant to this Agreement;
(b) the failure of Company or the Shareholders to perform any
covenant, agreement or obligation of Company or the Shareholders contained in
this Agreement;
(c) any Liability, lawsuit, claim or proceeding existing at or
prior to the Closing arising out of any act or transaction of Company occurring
prior to the Closing, or arising out of facts or circumstances that existed at
or prior to the Closing that in each case, is related to Company, the assets of
Company or the operation or conduct of Company's business, to the extent not a
Disclosed Liability;
(d) any cost or expense to any Indemnified Party related to or
arising out of the exercise of rights of holders of Dissenting Shares under the
MBCA in connection with the Merger, including but not limited to any excess paid
per Dissenting Share over the Merger Consideration and any costs or expenses
incurred to administer payment to or contest such rights of such dissenting
shareholders;
(e) any Tax arising out of any act or transaction of Company
occurring prior to the Closing, or arising out of facts or circumstances that
existed at or prior to the Closing; or
(f) any Liability with respect to any Stock Option, Warrant or
Xxxxx Optionee (as defined in Schedule 3.04), including without limitation any
payment or issuance of capital stock, to (i) any holder of any Stock Option or
Warrant, or (ii) any Xxxxx Optionee.
For purposes of indemnification pursuant to this Section 8.01, all materiality
qualifiers will be excluded from and given no effect in each representation and
warranty set forth in Article III and each covenant and agreement set forth in
Article V.
SECTION 8.02. Notice and Resolution of Claims.
(a) Any Indemnified Party will promptly give written notice to
the Indemnifying Parties after obtaining knowledge of any Claim that it may have
pursuant to this Article VIII, but the Indemnified Party's failure to give such
notice will not affect the obligations of the Indemnifying Parties under this
Article VIII except to the extent the Indemnifying Parties are prejudiced
thereby. Such notice will set forth in reasonable detail the Claim and the basis
for indemnification, including the amount involved, unless such amount is
uncertain or contingent, in which case the notice will so state and Indemnified
Party will give a later written notice when the amount becomes fixed.
(b) If such Claim arises from a claim or action involving a
third party (a "Third-Party Claim") and would, if adversely determined, entitle
the Indemnified Party to indemnity under this Article VIII, the Indemnified
Party will permit the Indemnifying Parties to assume its defense, provided that
(w) the Indemnifying Parties acknowledge their obligation to indemnify the
Indemnified Party for any losses resulting from such Third-Party Claim and
provide reasonable evidence to the Indemnified Party of their financial ability
to satisfy such obligation; (x) the Third-Party Claim does not seek to impose
any liability or obligation on the Indemnified Party other than for money
damages; (y) the Claim does not relate to the Indemnified Party's relationship
with its customers or employees; and (z) the Indemnifying Parties notify the
Indemnified Party of their election to assume the defense of such Third-Party
Claim within 10 days after their receipt of notice thereof pursuant to Section
8.02(a). If such conditions are satisfied and the Indemnifying Parties assume
the defense of a Third-Party Claim, they will (i) consult with the Indemnified
Party with respect to such defense; (ii) take all steps necessary to
investigate, defend or settle the Claim; and (iii) subject to Section 8.03, hold
the Indemnified Party harmless from and against any and all damages caused by or
arising out of any settlement approved by the Indemnifying Parties or any
judgment in connection with such Third-Party Claim. The Indemnified Party will
have the right to employ counsel separate from counsel employed by the
Indemnifying Parties in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel employed by the Indemnified
Party will be at the expense of the Indemnified Party. If such conditions are
not satisfied, the Indemnified Party may assume and control the defense of the
Third-Party Claim.
SECTION 8.03. Limits on Indemnification. Notwithstanding any contrary
provision of Section 8.01, with respect to Section 8.01(a), except as set forth
in the following sentence, (i) the Indemnifying Parties will not be liable to
the Indemnified Parties for any Claims thereunder unless the aggregate amount of
such Claims exceeds $100,000 (the "Deductible"), and in such event, the
Indemnifying Parties will be liable for only the amount of such Claims that
exceeds the Deductible; and (ii) the total aggregate liability of the
Indemnifying Parties for all Claims thereunder will not exceed $4,900,000 (the
"Cap"). Notwithstanding the foregoing, neither the Deductible nor the Cap will
apply to any Claims arising out of a breach of Section 3.04 (Capitalization),
Section 3.06 (Title to Assets), Section 3.11(a) (regarding title to Intellectual
Property Rights), Section 3.15 (Taxes) or Section 3.21 (Employee Benefit Plans;
Labor Matters).
SECTION 8.04. Consequential Damages; Insurance. Indemnifying Parties
will have no obligation to indemnify any Indemnified Party for (a) any damages
arising out of any interruption of business, loss of profits, punitive damages
or loss of goodwill ("Consequential Damages"); or (b) any damages to the extent
they are recovered or recoverable by the Indemnified Parties from any insurance,
except to the extent that such recovery results in an adjustment being made to
such Indemnified Party's insurance premium, in which case the amount of such
adjustment will be borne by the Indemnifying Parties.
SECTION 8.05. Exclusive Remedy. This Article VIII sets forth the
exclusive remedy for damages owing from the Indemnifying Parties to the
Indemnified Parties that arise from or are related to this Agreement. Nothing in
this Article VIII will limit in any way, however, the Indemnified Parties'
remedies against the Indemnifying Parties for Claims relating to or arising out
of any intentional breach of this Agreement, or any fraud or intentional
misrepresentation or omission in this Agreement.
SECTION 8.06. Right of Setoff. The Indemnifying Parties hereby agree
that Parent, at its sole option, is hereby authorized to setoff and apply any
and all claims of any Indemnified Party under this Article VIII for
indemnifiable Claims against Parent's obligation to pay any or all of the Escrow
Payment, the Progress Milestone Payments or the Sales Milestone Payment, in
accordance with the terms and conditions of the Escrow Agreement, provided that
such Claim has been acknowledged by the Indemnifying Parties in writing or
otherwise finally determined pursuant to the dispute resolution provisions of
this Agreement. If any shares of Parent Common Stock are setoff against
indemnifiable Claims, such shares will be valued at the Average Trading Price on
the date of setoff.
SECTION 8.07. Survival. Notwithstanding any investigation or contrary
knowledge by the Parent Companies, the representations and warranties of the
Parent Companies, Company and the Shareholders made in this Agreement, any
Related Agreement or any certificates provided for in this Agreement or any
Related Agreement will expire and be of no further force and effect on the
earlier to occur of (x) the 30th day after completion of the Surviving
Corporation's audit for the year ended December 31, 2003, or (y) April 30, 2004,
except for the representations and warranties set forth in (a) Sections 3.11(a)
(regarding title to Intellectual Property Rights), 3.15 (Taxes), 3.19
(Environmental Matters) and 3.21 (Employee Benefit Plans; Labor Matters), which
will survive until 60 days after the expiration of the applicable period of
limitations, and (b) Section 3.04 (Capitalization) and Section 3.06 (Title to
Assets), which will survive indefinitely. Notwithstanding the foregoing, any
representation or warranty the violation of which is made the basis for a claim
for indemnification pursuant to Section 8.01 will survive until such claim is
finally resolved if the Indemnified Party notifies the Indemnifying Parties of
such claim in reasonable detail prior to the date on which such representation
or warranty would otherwise expire under this Agreement.
ARTICLE IX
AGREEMENT TO REGISTER THE SHARES
SECTION 9.01. Exemption. The Shareholders acknowledge that the shares
of Parent Common Stock issuable as Merger Consideration (the "Shares") have not
been registered under the Securities Act in reliance upon the exemption provided
by Regulation D promulgated pursuant to, and by Section 4(2) of, the Securities
Act, for transactions by an issuer not involving a public offering.
SECTION 9.02. Investment Intent and Access. The Shareholders represent
and warrant that (a) the Shares that the Shareholders receive under this
Agreement will be acquired for investment for their accounts, not as nominees or
agents, and not with a view to the resale or
distribution of any part thereof in a manner which would violate the
registration provisions of the Securities Act or any applicable state securities
laws, (b) the Shareholders have had sufficient access to the SEC Reports, and
(c) the Shareholders have had sufficient access to Parent and its officers to
ask questions related to the SEC Reports and Parent's business and operations
and to review such information, financial records and other documents relating
to the SEC Reports and Parent's operations and business as the Shareholders have
requested. Parent acknowledges that, in connection with the Restructuring
Transaction, shareholders of Company will transfer a portion of the Shares that
comprise the Closing Payment to Newco as a capital contribution in accordance
with any applicable provisions of the Securities Act or any applicable state
securities laws.
SECTION 9.03. Restrictions.
(a) Shares, or the right to receive any Shares under this
Agreement, may not be sold or transferred unless either (i) such sale or
transfer is duly registered under the Securities Act, or (ii) Parent is first
furnished with an opinion of legal counsel, reasonably satisfactory to Parent,
to the effect that such sale or transfer is exempt from the registration
requirements under the Securities Act.
(b) Each certificate representing Shares will bear a legend
substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE
WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL
AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM."
SECTION 9.04. Registration.
(a) Form S-3. Parent will file a registration statement on
Form S-3 (or any registration form under the Securities Act subsequently adopted
by the SEC that permits inclusion or incorporation of substantial information by
reference to other documents filed by a company with the SEC) under the
Securities Act as promptly as practicable, and in any case within 30 days after
the Closing Date, and thereafter will amend such Form S-3 or file a supplemental
or additional Form S-3, as Parent determines, covering the Shares issuable upon
payment of the Merger Consideration (the proposed registration statements are
collectively, the "Registration Statements"). Parent may defer the filing (but
not the preparation) of any Registration Statement one time for a period of up
to 120 days if at the time Parent or any of its subsidiaries is engaged in
confidential negotiations or other confidential business activities, disclosure
of which would be required in such Registration Statement (but would not be
required if such Registration Statement were not filed), and Parent determines
in good faith that such disclosure would be materially detrimental to Parent and
its shareholders or would have a material adverse effect on any such
confidential negotiations or other confidential business activities. A deferral
of the filing of the Registration Statement will be lifted, and the Registration
Statement will be filed forthwith, if the negotiations or other activities are
disclosed or terminated. In order to defer the
filing of the Registration Statement, Parent will promptly (but in any event
within ten days), upon determining to seek such deferral, deliver to the
Shareholders a certificate signed by an executive officer of Parent setting
forth a statement of the reason for such deferral and an approximation of the
anticipated delay, which information the Shareholders will treat as
confidential. Parent may include shares of Parent Common Stock of other
shareholders of Parent in the Registration Statement.
(b) Effectiveness of Registration. Parent will use its best
efforts, including responding to comments from the SEC, to cause any
Registration Statement to become effective as promptly after filing as is
practicable, and will use its best efforts to keep such Registration Statement
continuously effective under both (x) the Securities Act and (y) "Blue Sky" laws
of jurisdictions in which shareholders hold Shares, until the first anniversary
of the Closing Date with respect to the Shares issued as of the Closing Date,
and until the first anniversary of any amendment or supplement or additional
Form S-3 to cover Shares issued thereafter (the "Effectiveness Period"), or such
shorter period ending when (i) all Shares covered by the Registration Statement
have been sold in the manner set forth and as contemplated in the Registration
Statement, or (ii) during any period in which the Shares may be sold within
three months pursuant to Rule 144 under the Securities Act. Parent will not
suspend the effectiveness of any Registration Statement by reason of any actual
or alleged breach of a representation, warranty or covenant contained in Article
III or Article V of this Agreement. Without limiting the foregoing, in
connection with filing any Registration Statement as required by this Agreement,
Parent will, as promptly as possible:
(i) furnish to one counsel for the holders (the
"Holders' Counsel") participating in the planned offering (selected by the
holders of three-fourths of the Shares) copies of all such documents proposed to
be filed as part of the Registration Statement (including all exhibits thereto),
which documents will be subject to the reasonable review and reasonable comment
of the Holders' Counsel, not to be unreasonably delayed;
(ii) prepare and file with the SEC such amendments
and supplements to such Registration Statement and any prospectus used in
connection with such Registration Statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of the
Shares covered by such Registration Statement;
(iii) furnish to the holders of the Shares such
numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition of the
Shares owned by them;
(iv) if required by Blue Sky Laws or other securities
laws, use its best efforts to register and qualify the Shares covered by the
Registration Statement under such other securities or Blue Sky laws of such
jurisdictions as will be requested by the holders of Shares covered by such
Registration Statement; provided that Parent will not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions unless
Parent is already subject to service in such jurisdiction;
(v) promptly notify (a) each holder selling Shares
covered by such Registration Statement (w) when the Registration Statement, the
prospectus or any prospectus supplement related thereto or post-effective
amendment to the Registration Statement has been filed and, with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective, (x) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose, (y) of the receipt by Parent of any notification with respect
to the suspension of the qualification of any Shares for sale under the
securities or blue sky laws of any jurisdiction or the initiation of any
proceeding for such purpose, and (z) when a prospectus relating to the
Registration Statement is required to be delivered under the Securities Act as a
result of the occurrence of any event causing the prospectus included in such
Registration Statement, as then in effect, to include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing; and (b) Holders' Counsel of any request by the SEC
for amendments or supplements to such Registration Statement or prospectus
related thereto or for additional information;
(vi) cooperate with the selling holders of Shares to
facilitate the timely preparation and delivery of certificates not bearing any
restrictive legends representing the Shares to be sold, and cause such Shares to
be issued in such denominations and registered in such names in accordance with
the instructions of the selling holders of Shares and instruct any transfer
agent and registrar of Shares to release any stop transfer orders in respect
thereto; and
(vii) provide and cause to be maintained a transfer
agent and registrar for all such Shares covered by such Registration Statement
not later than the effective date of such Registration Statement.
(c) Notice of Sales; Right to Suspend Sale. Each holder of
Shares will provide Parent with five business days' prior written notice of a
good faith intention to sell Shares under the Registration Statement. In the
notice, the holder must state the approximate number of Shares the holder
intends to sell within the following 90-day period. Upon the holder's receipt of
any notice from Parent that a Required Disclosure (as defined below) must be
made, such holder will immediately discontinue disposition of such Shares until
such holder receives a supplemented or amended prospectus, or until it is
advised in writing by Parent that the use of the applicable prospectus may be
resumed. Parent will not, however, be permitted to require such suspension for
more than 30 days on any one occasion or on more than two occasions in any
12-month period, and at least 60 days must have elapsed between such
suspensions. If Parent commences an underwritten offering of Parent Common Stock
on it own behalf or on behalf of selling shareholders, the holders of Shares
will refrain from selling Shares pursuant to any Registration Statement for a
period of time beginning 15 days before the anticipated effective date of
Parent's offering (as disclosed to such holders by Parent in writing) and ending
120 days after such effective date, or 45 days after the beginning of such
period, if such effective date has not yet occurred. "Required Disclosure" means
public disclosure of material non-public information, which disclosure, in
Parent's good faith judgment, (i) may reasonably be required to be made in any
Registration Statement (by amendment or supplement to the applicable
prospectus), by filing of reports with the SEC that are incorporated by
reference into the Registration Statement, by press release, or other means of
disseminating the information through a method (or combination
of methods) of disclosure that is reasonably designed to provide broad,
non-exclusionary distribution of the information to the public; and (ii) would
not be required to be made at such time but for the current effectiveness of a
registration statement.
SECTION 9.05. Cooperation and Expenses. The holders of the Shares will
cooperate with Parent in the preparation and filing of any Registration
Statement and any amendments thereto. Parent will pay all Registration Expenses
(as defined below) in connection with the Shares. "Registration Expenses" means
all registration and filing fees, fees and expenses of compliance with
securities or Blue Sky Laws, fees associated with the listing of the Shares on
Nasdaq or any then applicable securities exchange, printing and mailing expenses
and fees and expenses of legal counsel for Parent and all independent certified
public accountants, the reasonable attorneys' fees and expenses of Holders'
Counsel (provided that Parent's obligation to pay such attorney's fees and
expenses of Holders' Counsel will not exceed $2,500 in the aggregate) and the
fees and expenses of any other persons retained by Parent. All expenses other
than those described in this Section 9.04 will be paid by the holders of the
Shares included in such registration, pro rata among such holders on the basis
of the number of Shares included in the registration.
SECTION 9.06. Indemnification. Parent and the shareholders of Company
selling Shares under any Registration Statement agree, severally and jointly,
that it or they will indemnify and hold harmless the other parties against any
losses, claims, damages or liabilities, joint or several, to which it or the
other parties may become subject, whether under the Securities Act or otherwise,
insofar as such are caused by an untrue statement or alleged untrue statement of
any material fact contained in a Registration Statement filed pursuant to this
Article IX, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading, to the extent that the inclusion or omission was with
respect to data provided by or relating to Parent, for which Parent will be
responsible, or provided by or relating to the shareholders, for which the
shareholders will be responsible, as the case may be.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of this
Agreement and the Merger by the shareholders of Company:
(a) by mutual consent of the parties;
(b) by the Parent Companies, upon a breach of any
representation, warranty, covenant or agreement on the part of Company or the
Shareholders set forth in this Agreement, or if any representation or warranty
of Company or the Shareholders has become untrue, in either case such that the
conditions set forth in Section 7.02(a) or Section 7.02(b), as the case may be,
would be incapable of being satisfied by December 31, 2002. A willful breach
will, in any case, be deemed to cause such conditions to be incapable of being
satisfied for purposes of this Section 10.01(b);
(c) by Company and the Shareholders, upon a breach of any
representation, warranty, covenant or agreement on the part of the Parent
Companies set forth in this Agreement, or if any representation or warranty of
the Parent Companies has become untrue, in either case such that the conditions
set forth in Section 7.03(a) or Section 7.03(b), as the case may be, would be
incapable of being satisfied by December 31, 2002. A willful breach will, in any
case, be deemed to cause such conditions to be incapable of being satisfied for
purposes of this Section 10.01(c);
(d) by any party, if there has been any final and
nonappealable decree, judgment, injunction or other order preventing the
consummation of the Merger; or
(e) by any party, if the Merger is not consummated on or
before December 31, 2002.
The right of any party to terminate this Agreement pursuant to this Section
10.01 will remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party, any person controlling any such
party or any of their respective officers, directors, representatives or agents,
whether prior to or after the execution of this Agreement.
SECTION 10.02. Effect of Termination. Except as provided in Article
VIII, in the event of the termination of this Agreement pursuant to Section
10.01, this Agreement will become void, there will be no liability on the part
of the parties to one another and all rights and obligations of any party will
cease, except that nothing in this Agreement will relieve any party of any
liability for any breach of such party's covenants or agreements contained in
this Agreement.
SECTION 10.03. Amendment. This Agreement may be amended by Parent or
Company by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time, but after approval of the Merger by the
shareholders of Company, no amendment, which under applicable law may not be
made without the approval of the shareholders of Company, may be made without
such approval. This Agreement may not be amended except by an instrument in
writing signed by the parties.
SECTION 10.04. Waiver. At any time prior to the Effective Time, any
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement, or (c) waive compliance
by the other parties with any of the agreements or conditions contained in this
Agreement. Any such extension or waiver will be valid only if set forth in an
instrument in writing signed by the party or parties to be bound thereby. For
purposes of this Section 10.04, the Parent Companies as a group will be deemed
to be one party.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Dispute Resolution. Except as specifically provided in
Section 11.01(d), the parties agree that instead of seeking relief from a court,
they will attempt in good faith to resolve any dispute or controversy that
arises out of this Agreement or any of the Related Agreements, or the
performance, breach, validity, interpretation or enforcement thereof (any such
dispute or controversy, a "Dispute") first among themselves through informal
negotiation and then, if unsuccessful, through mediation and then, if still
unsuccessful, through binding arbitration, in accordance with the following
procedures:
(a) Informal Negotiation.
(i) The party believing a Dispute to exist will give
the other parties prompt written notice thereof, setting forth in reasonable
detail the facts alleged to give rise to such Dispute, any relevant contractual
provisions, the nature of the Dispute and a proposal for resolving the Dispute.
(ii) Within 20 days after receipt of such notice,
each party against whom relief is sought in connection with the Dispute will
deliver a written response, setting forth in reasonable detail its views of the
facts alleged to give rise to the Dispute, any relevant contractual provisions,
the nature of the Dispute and, if necessary, a counterproposal for resolving the
Dispute.
(iii) If the parties do not agree on the manner in
which the Dispute should be resolved, they will arrange to hold a meeting within
ten days after delivery of the response described in Section 11.01(ii) or
another mutually agreeable date. Each party will have in attendance at such
meeting a representative with the authority to resolve the Dispute. At the
meeting (and any adjournments thereof), the parties will negotiate in good faith
in an attempt to agree as to whether a Dispute exists, the exact nature of the
Dispute and the manner in which the Dispute should be resolved. Any resolution
of the Dispute will be evidenced by a written agreement setting forth in
reasonable detail the actions to be taken by each party.
(b) Mediation. If, after following the procedures set forth in
Section 11.01(a), any party reaches the conclusion that the Dispute cannot be
resolved by unassisted negotiations, such party may notify the other parties and
the American Arbitration Association, Inc. (the "AAA") (such notice, a
"Mediation Notice"), which will promptly designate a mediator who is independent
and impartial, and AAA's decision about the identity of the mediator will be
final and binding. The parties agree to conduct at least eight consecutive hours
of mediated negotiations within 30 days after the notice is sent (i) in Dallas,
Texas, if the Mediation Notice is provided by a Shareholder, or (ii) in
Minneapolis, Minnesota, if the Mediation Notice is provided by Parent or the
Surviving Corporation.
(c) Binding Arbitration. If the Dispute is not resolved by
mediation within 30 days after the Mediation Notice is sent, then, upon notice
by any party to the other affected parties and to AAA (the "Arbitration
Notice"), the Dispute will be resolved by binding arbitration in accordance with
Title 9 of the U.S. Code (United States Arbitration Act) and the Commercial
Arbitration Rules (the "Rules") of the AAA, and judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof, in
accordance with the following procedures:
(i) The Arbitration Notice will contain a description
of the Dispute and the remedy sought. The arbitration will be conducted at the
offices of the AAA in Dallas, Texas before three independent and impartial
arbitrators experienced in legal matters related to the medical device
manufacturing industry. Each party will be entitled to select one arbitrator,
and the two individuals so selected will select the third arbitrator. In no
event may a demand for arbitration for a Claim under Article VIII be made after
the date when the institution of a legal or equitable proceeding based on such
Claim would be barred by Section 8.05.
(ii) Except as otherwise specifically provided
herein, the arbitration and any discovery conducted in connection therewith will
be conducted in accordance with the Rules. The arbitrators' authority to make
any award will be based on and limited by the laws of the State of Texas and the
terms and conditions of this Agreement. The arbitrators will deliver their
decision in writing, together with a summary of the reasons for their decision,
including citations to legal authority to the extent appropriate. The decision
of the arbitrators will be final and binding on all parties. A judgment upon the
award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. The parties intend that this agreement to arbitrate be
irrevocable.
(iii) The panel of arbitrators will be selected no
later than 45 days after the date of the Arbitration Notice. The arbitration
hearings will commence no later than three months after the panel of arbitrators
is selected. The arbitrators will render their decision no later than 30 days
after the close of the hearings, in accordance with AAA Rules.
(iv) The parties agree that the panel of arbitrators
selected pursuant to Section 11.01(c)(i) will allocate the costs and expenses of
arbitration to the successful party, or to each party as the arbitrators
determine is appropriate in their sole and absolute discretion.
(v) The parties agree that, notwithstanding anything
to the contrary in this Section 11.01(c), any award made by the arbitrators will
be consistent with the terms and conditions of this Agreement (including the
terms and limitations set forth in Article VIII) and that any award will be
restricted to a remedy that would be available to a party under this Agreement.
(d) Notwithstanding the foregoing, any party may seek a
temporary restraining order, temporary or preliminary injunction or other
preliminary equitable relief from a court of competent jurisdiction if such
party believes such injunction is necessary to enforce the status quo pending
resolution of a Dispute arising under Section 5.03(c) in accordance with this
Section 11.01.
SECTION 11.02. Notices. All notices and other communications given or
made pursuant to this Agreement must be in writing and will be deemed to have
been duly given upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at the
following addresses (or at such other address for a party as is specified by
like changes of address) or sent by electronic transmission to the telecopier
number specified below:
(a) If to any of the Parent Companies, to:
Advanced Neuromodulation Systems, Inc.
0000 Xxxxxxxxx Xxxxx
Xxxxx 000
Xxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
with a copy to:
Xxxxxx & Xxxx, L.L.P.
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxx
(b) If to Company or the Shareholders, to:
Xx. Xxxxxx Xxxxx
0000 Xxxxxxx Xxxx
Xx. Xxxx, Xxxxxxxxx 00000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxxxxxx Xxxxx & Xxxxxxxx XXX
Xxxxx XXX Xxxxx 0000
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: D. Xxxxxxx Xxxxxxx/Xxxx X. Xxxxxx
SECTION 11.03. Certain Definitions. For the purposes of this Agreement,
the term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "business day" means any day other than a day on which
banks in the States of New York or Texas are authorized or obligated to be
closed;
(c) "control" (including the terms "controlled," "controlled
by," and "under common control with") means the possession, directly or
indirectly, or as trustee or executor, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of stock or as trustee or executor, by contract or credit arrangement
or otherwise;
(d) "ERISA Affiliate" means Company and each corporation,
partnership, or other trade or business, whether or not incorporated, which is
or has been treated as a single employer or controlled group member with Company
pursuant to Code Section 414 or ERISA Section 4001.
(e) "knowledge" or "known" means, with respect to the Parent
Companies or Company, that the information to be attributed to the Parent
Companies or Company, as the case may be, is information actually or
constructively known to any executive officer of such entity, and with respect
to any Shareholder, that the information to be attributed to such Shareholder is
information actually or constructively known to such Shareholder. A person has
constructive knowledge of those matters which the individual involved could be
expected to have as a result of undertaking an investigation of such a scope and
extent as a reasonably prudent person would undertake concerning the particular
subject matter;
(f) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as used
in Section l3(d) of the Exchange Act);
(g) "subsidiary" or "subsidiaries" of Company, Parent, the
Surviving Corporation or any other person, means any corporation, partnership,
joint venture or other legal entity of which Company, Parent, the Surviving
Corporation or any such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
50% or more of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing entity of such corporation or other legal entity; and
(h) "Tax" or "Taxes" means any and all taxes, charges, fees,
levies, assessments, duties or other amounts payable to any federal, state,
local or foreign taxing authority or agency, including, without limitation, (x)
income, franchise, profits, gross receipts, minimum, alternative minimum,
estimated, ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, disability, employment,
social security, workers compensation, unemployment compensation, utility,
severance, excise, stamp, windfall profits, transfer and gains taxes, (y)
customs, duties, imposts, charges, levies or other similar assessments of any
kind, and (z) interest, penalties and additions to tax imposed with respect
thereto.
SECTION 11.04. Headings. The headings contained in this Agreement are
for reference purposes only and are not intended to affect in any way the
meaning or interpretation of this Agreement. Section and Exhibit references in
this Agreement are, unless the context otherwise requires, references to
sections of and exhibits to this Agreement.
SECTION 11.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties will negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated by this Agreement are
fulfilled to the extent possible.
SECTION 11.06. Entire Agreement. This Agreement (together with the
Annexes, Exhibits and Schedules), the Escrow Agreement and any other Related
Agreements constitute the entire agreement of the parties, and supersede all
prior agreements and undertakings, both written and oral, among the parties or
between any of them, with respect to the subject matter of this Agreement.
SECTION 11.07. Assignment. This Agreement may not be assigned by
operation of law or otherwise except that Parent may assign the rights and
obligations of Merger Sub to another of its wholly-owned subsidiaries.
SECTION 11.08. Parties in Interest. This Agreement will be binding upon
and inure solely to the benefit of the parties, and nothing in this Agreement,
express or implied will confer upon any other person any right, remedy,
obligation, benefit or liability of any nature whatsoever, except as expressly
provided in this Agreement.
SECTION 11.09. Specific Performance. The parties acknowledge and agree
that the failure of any party to perform its agreements and covenants hereunder,
including its failure to take all actions as are necessary on its part to the
consummation of the Merger, will cause irreparable injury to the other parties
for which damages, even if available, will not be an adequate remedy.
Accordingly, each party consents to the issuance of injunctive relief by any
court of competent jurisdiction to compel performance of such party's
obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
SECTION 11.10. Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any party in the exercise of any right
hereunder will impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement in this
Agreement, nor will any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. Except as otherwise
contemplated herein, all rights and remedies existing under this Agreement are
cumulative to, and not exclusive to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 11.11. Governing Law. This Agreement will be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
SECTION 11.12. Counterparts. This Agreement may be executed in multiple
counterparts, and by the parties in separate counterparts, each of which when
executed will be deemed to be an original but all of which taken together will
constitute one and the same agreement.
SECTION 11.13. Representative. Upon the signing of this Agreement, the
Shareholders hereby appoint Xxxxxx X. Xxxxx as the representative for the
Shareholders in connection with the transactions contemplated by this Agreement
and the Related Agreements (in such capacity, the "Representative"). The
Representative will represent the Shareholders under this Agreement (including,
without limitation, with respect to the Progress Milestone Payments, the Escrow
Payment, the Sales Milestone Payment and any claims for indemnification pursuant
to Article VIII) until all of the Shareholders' duties under this Agreement are
discharged. The Representative will have full and irrevocable power and
authority to act for and in the name of and as agent for the Shareholders under
this Agreement and the Shareholders will be bound by the Representative's
agreements and decisions with respect hereto. The Parent Companies may rely on
any document believed by them to have been signed or presented by the
Representative and will have no obligation to investigate any fact or matter set
forth in any such document, and the Shareholders will be bound by any such
document delivered by the Representative to the Parent Companies. In the event
the Representative resigns, dies or becomes incapacitated, a majority of the
remaining Shareholders will appoint a successor Representative, notwithstanding
the absence of a quorum. The Shareholders will give Parent written notice of any
change in the Representative and until such written notice is received by
Parent, such change in Representative will not be effective or binding on the
Parent Companies.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed as of the date first written above in its corporate or individual
capacity, as indicated, and in the case of a corporation, by its respective
officer thereunto duly authorized.
ADVANCED NEUROMODULATION SYSTEMS, INC.
By:
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Name:
------------------------------------
Title:
-----------------------------------
MICRONET ACQUISITION, INC.
By:
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Name:
------------------------------------
Title:
-----------------------------------
MICRONET MEDICAL, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
THE SHAREHOLDERS
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Xxxxxx X. Xxxxx, individually
XXXXX LIMITED PARTNERSHIP
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
NOTE: The annexes, exhibits and schedules to this Agreement have been omitted in
accordance with Item 601(b)(2) of Regulation S-K, except Exhibit C - Sales
Milestone Payment Terms. The
Registrant agrees to furnish a copy of any omitted annex, exhibit or schedule to
the Commission upon request.
Following is a list of the omitted annexes, exhibits and schedules:
Annex 1 Amended and Restated Articles of Incorporation and Bylaws
Exhibit A Regulatory Strategy Plan
Exhibit B Form of Escrow Agreement
Exhibit D Manufacturing Transition Plan
Exhibit E Form of Noncompete Agreement
Exhibit F Form of Inducement Letter
Schedules Disclosure Schedules provided pursuant to specific Sections of
Article II of the Agreement
EXHIBIT C
SALES MILESTONE PAYMENT TERMS
The Sales Milestone Payment related to net sales of Leads, as defined
in the Agreement, is subject to the following terms and provisions:
1. For purposes of the calculation of net sales, the term "net sales"
means the gross invoice value of the Lead sales less refunds, quantity discounts
given to customers, returns and commissions, but only if such discounts and
returns are expressly stated; provided, however, that in all cases "net sales"
will be based on a genuine and objective selling price as would be established
in a bona fide arm's length transaction between unrelated and independent
parties. Intra-company transfers between Parent affiliates do not qualify. If
Parent ceases selling Leads as a separately-priced component, for purposes of
this calculation, the "net sales" price of a Lead will be deemed to be the
average net sales price for the specific Lead during the last calendar month
that the Lead was sold as a separately-priced component.
2. A "sale" will be deemed to have been effected as of the date of the
invoice for such product to the purchaser thereof, provided such purchaser is
not an affiliated company with Parent.
3. Upon reasonable request of the Representative but not more often
than once every twelve months, Parent will permit access to its books and
records during ordinary business hours by an independent accounting firm
selected by Company and approved by Parent for the sole purpose of verifying the
calculation of sales pursuant to the Agreement.
4. The Sales Milestone Payment is due and payable within five business
days of the end of the month following cumulative net sales totaling $5 million
or greater.
