EXHIBIT 2.1
EXECUTION COPY
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AGREEMENT AND PLAN OF MERGER
Dated as of December 12, 2005
among
MAGELLAN HEALTH SERVICES, INC.,
MAGELLAN SUB CO. I, INC.,
NATIONAL IMAGING ASSOCIATES, INC.
AND
TA IX L.P. AS STOCKHOLDER REPRESENTATIVE
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TABLE OF CONTENTS
ARTICLE I THE MERGER PAGE
SECTION 1.1 The Merger........................................................................1
SECTION 1.2 Closing...........................................................................1
SECTION 1.3 Effective Time....................................................................2
SECTION 1.4 Effects of the Merger.............................................................2
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving Corporation.............2
SECTION 1.6 Directors and Officers of the Surviving Corporation...............................2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS, OPTIONS AND WARRANTS; MERGER CONSIDERATION;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock...........................................................3
SECTION 2.2 Payment of Merger Consideration; Exchange of Certificates.........................9
SECTION 2.3 Adjustments to Company Stock.....................................................13
SECTION 2.4 Payment at Closing for Expenses..................................................13
SECTION 2.5 Tax Treatment of Deferred Payments...............................................13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization, Standing and Corporate Power.......................................13
SECTION 3.2 Capitalization...................................................................14
SECTION 3.3 Authority; Noncontravention; Voting Requirements.................................15
SECTION 3.4 Governmental Approvals...........................................................16
SECTION 3.5 Financial Statements.............................................................16
SECTION 3.6 No Undisclosed Liabilities.......................................................17
SECTION 3.7 Absence of Certain Changes or Events.............................................18
SECTION 3.8 Legal Proceedings................................................................18
SECTION 3.9 Compliance With Laws; Permits....................................................18
SECTION 3.10 Tax Matters......................................................................19
SECTION 3.11 Employee Benefits and Labor Matters..............................................20
SECTION 3.12 Environmental Matters............................................................22
SECTION 3.13 Contracts........................................................................24
SECTION 3.14 Title to Properties..............................................................26
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SECTION 3.15 Intellectual Property............................................................27
SECTION 3.16 Insurance........................................................................29
SECTION 3.17 Brokers and Other Advisors.......................................................29
SECTION 3.18 Health Care Regulatory Compliance................................................29
SECTION 3.19 Accounts and Notes Receivable and Payable........................................30
SECTION 3.20 Related Party Transactions.......................................................31
SECTION 3.21 Banks; Power of Attorney.........................................................31
SECTION 3.22 Certain Payments.................................................................31
SECTION 3.23 Full Disclosure..................................................................31
SECTION 3.24 Disclaimer of Other Representations and Warranties; Knowledge....................31
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 4.1 Organization, Standing and Corporate Power.......................................32
SECTION 4.2 Authority; Noncontravention......................................................32
SECTION 4.3 Governmental Approvals...........................................................33
SECTION 4.4 Ownership and Operations of Merger Sub...........................................33
SECTION 4.5 Brokers and Other Advisors.......................................................33
SECTION 4.6 Required Financing...............................................................34
SECTION 4.7 Litigation.......................................................................34
SECTION 4.8 Inspection; No Other Representations.............................................34
ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 5.1 Communications with and from Company Stockholders................................35
SECTION 5.2 Conduct of Business..............................................................35
SECTION 5.3 No Solicitation by the Company; Etc..............................................38
SECTION 5.4 Best Efforts.....................................................................41
SECTION 5.5 Public Announcements.............................................................42
SECTION 5.6 Access to Information; Confidentiality...........................................42
SECTION 5.7 Notification of Certain Matters..................................................43
SECTION 5.8 Indemnification and Insurance....................................................43
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SECTION 5.9 Securityholder Litigation........................................................44
SECTION 5.10 Fees and Expenses................................................................45
SECTION 5.11 Stockholder Notices; Closing of Stock Transfer Books.............................45
SECTION 5.12 Change In Control Customer Contracts.............................................45
SECTION 5.13 Tax Matters......................................................................45
ARTICLE VI CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger.......................47
SECTION 6.2 Conditions to Obligations of Parent and Merger Sub...............................47
SECTION 6.3 Conditions to Obligation of the Company..........................................49
SECTION 6.4 Frustration of Closing Conditions................................................49
ARTICLE VII TERMINATION
SECTION 7.1 Termination......................................................................50
SECTION 7.2 Means and Effect of Termination..................................................51
SECTION 7.3 Termination Fee..................................................................51
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
SECTION 8.1 Survival of Representations and Warranties.......................................52
SECTION 8.2 Indemnification..................................................................53
SECTION 8.3 Escrow Arrangements..............................................................54
SECTION 8.4 Exclusive Remedy.................................................................58
SECTION 8.5 Tax Losses.......................................................................58
SECTION 8.6 Tax Treatment of Indemnity Payments..............................................58
ARTICLE IX MISCELLANEOUS
SECTION 9.1 Stockholder Representative.......................................................59
SECTION 9.2 Amendment or Supplement..........................................................61
SECTION 9.3 Extension of Time, Waiver, Etc...................................................61
SECTION 9.4 Assignment.......................................................................62
SECTION 9.5 Counterparts.....................................................................62
SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries...................................62
SECTION 9.7 Governing Law; Jurisdiction; Waiver of Jury Trial................................62
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SECTION 9.8 Specific Enforcement.............................................................62
SECTION 9.9 Consent to Jurisdiction..........................................................62
SECTION 9.10 Notices..........................................................................63
SECTION 9.11 Severability.....................................................................64
SECTION 9.12 Definitions......................................................................64
SECTION 9.13 Interpretation...................................................................69
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EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 12, 2005 (this
"Agreement"), is among MAGELLAN HEALTH SERVICES, INC., a Delaware corporation
("Parent"), MAGELLAN SUB CO. I, INC., a Delaware corporation and a wholly owned
Subsidiary of Parent ("Merger Sub"), NATIONAL IMAGING ASSOCIATES, INC., a
Delaware corporation (the "Company"), and TA IX L.P., as the Stockholder
Representative. Certain terms used in this Agreement are used as defined in
Section 9.12 below and all references herein to "Sections," "Articles,"
"Exhibits" or "Schedules" without further description shall refer to the
sections, articles, exhibits or schedules of or to this Agreement.
WHEREAS, the respective Boards of Directors of the Company and Merger
Sub have approved and declared advisable, and the Board of Directors of Parent
has approved, this Agreement and the merger of Merger Sub with and into the
Company on the terms and subject to the conditions provided for in this
Agreement; and
WHEREAS, the requisite stockholders of the Company have, by written
consent thereof or at a meeting duly convened, approved this Agreement and the
merger of Merger Sub with and into the Company on the terms and subject to the
conditions provided for in this Agreement; and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
The Merger
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SECTION 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the General Corporation Law
of the State of Delaware (the "DGCL"), at the Effective Time Merger Sub shall be
merged with and into the Company, the separate corporate existence of Merger Sub
shall thereupon cease, and the Company shall be the surviving corporation (the
"Surviving Corporation") of the merger (such transaction, the "Merger").
SECTION 1.2 Closing. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m. (New York City time) on a business day to be specified
by Parent and reasonably acceptable to the Company, which date shall be no later
than the fourth business day after satisfaction or waiver of the conditions set
forth in Article VI below (other than those conditions that by their nature are
to be satisfied at the Closing, but subject to the satisfaction or waiver of
such conditions), unless another time or date, or both, are agreed to in writing
by the parties hereto. The date on which the Closing is held is herein referred
to as the "Closing Date." The Closing will be held at the offices of Weil,
Gotshal & Xxxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, unless another
place is agreed to by the parties hereto.
SECTION 1.3 Effective Time. Subject to the provisions of this
Agreement, at the Closing the parties shall cause to be filed with the Office of
the Secretary of State of the State of Delaware an appropriate certificate of
merger, executed in accordance with the relevant provisions of the DGCL, to
effectuate the Merger (the "Certificate of Merger"). The Merger shall become
effective upon the filing of the Certificate of Merger or at such later time as
is agreed to by the parties hereto and specified in the Certificate of Merger
(the time at which the Merger becomes effective is herein referred to as the
"Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects
set forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation.
(a) The certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be amended to read (except in
respect of the name of the Company) the same as the certificate of incorporation
of Merger Sub as in effect immediately prior to the Effective Time and, as so
amended, shall be the certificate of incorporation of the Surviving Corporation
until thereafter amended as provided therein or by applicable Law.
(b) The bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter amended as provided therein or by applicable Law.
SECTION 1.6 Directors and Officers of the Surviving Corporation.
(a) The directors of the Surviving Corporation commencing as of the
Effective Time shall be the individuals identified on Exhibit 1.6(a), until
their respective successors are duly elected or appointed and qualified or their
earlier death, incapacity, resignation or removal in accordance with the
certificate of incorporation and by-laws of the Surviving Corporation, and each
of the parties hereto shall take all necessary action to cause such individuals
to be the directors of the Surviving Corporation in office at the Effective
Time.
(b) The officers of the Surviving Corporation commencing as of the
Effective Time shall be the officers identified on Exhibit 1.6(b), until their
respective successors are duly appointed and qualified or their earlier death,
incapacity, resignation or removal in accordance with the certificate of
incorporation and by-laws of the Surviving Corporation, and each of the parties
hereto shall take all necessary action to cause such persons to be the officers
of the Surviving Corporation in office at the Effective Time.
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ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent Corporations,
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Options and Warrants; Merger Consideration; Exchange of Certificates
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SECTION 2.1 Effect on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
capital stock of Merger Sub, any holder of shares of Class A or Class B Common
Stock, each par value $.01 per share, of the Company (collectively, "Company
Common Stock") or any holder of any shares of Series B, Series C, Series D or
Series E Preferred Stock of the Company (collectively, "Company Preferred Stock"
and together with the Company Common Stock, "Company Stock") (or any other
shares of capital stock of Merger Sub or the Company):
(a) Capital Stock of Merger Sub. Each share of capital stock of
Merger Sub issued and outstanding immediately before the Effective Time shall be
converted into and become one validly issued, fully paid and nonassessable share
of common stock, par value $0.01 per share, of the Surviving Corporation, as
authorized pursuant to the certificate of incorporation of the Surviving
Corporation as in effect at the Effective Time.
(b) Cancellation of Treasury Stock of the Company. Any shares of
capital stock of the Company that are held by the Company as treasury stock
shall be automatically canceled and shall cease to exist and no consideration
shall be delivered in exchange therefor.
(c) Conversion of Company Preferred Stock. Unless converted into
Company Common Stock before the Effective Time, each holder of shares of Company
Preferred Stock issued and outstanding immediately prior to the Effective Time
(other than such shares held by Parent or any wholly-owned Subsidiary of Parent
and other than any Dissenting Shares) shall be entitled to receive, in the
manner provided by Section 2.2, an amount in cash, without interest, equal to:
(i) for each share of Series B Preferred Stock, $2.687 (the
"Series B Preference Amount");
(ii) for each share of Series C Preferred Stock, $3.00 (the
"Series C Preference Amount");
(iii) for each share of Series D Preferred Stock, an amount
equal to the sum of (A) $1.612, plus any accrued but unpaid dividends thereon
(the "Series D Preference Amount"), plus (B) the product of (1) the Per Common
Share Merger Consideration, times (2) the total number of shares of Company
Common Stock into which such share of Series D Preferred Stock is convertible
into as of the Effective time; provided, that in addition thereto, a holder of
Series D Preferred Stock may also be entitled to additional payments in
accordance with Section 2.1(g) (distributions in respect of excess working
capital) and 2.2(b) (distributions from the escrow), in which case the holder
shall be entitled to his, her or its Pro Rata Share of any such distribution;
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(iv) for each share of Series E Preferred Stock, $1.612 plus any
accrued but then unpaid dividends thereon as of the day before the Effective
Time (the "Series E Preference Amount").
The aggregate of the Series B Preference Amount, the Series C Preference Amount,
the Series D Preference Amount and the Series E Preference Amount payable in
accordance with the foregoing provisions of this Section in respect of all
shares of Company Preferred Stock issued and outstanding immediately prior to
the Effective Time (other than such shares held by Parent or any wholly-owned
Subsidiary of Parent and other than any Dissenting Shares) is herein referred to
as the "Preferred Stock Merger Consideration." As of the Effective Time, all
shares of Company Preferred Stock shall cease to be outstanding and shall
automatically be canceled and shall no longer be issued or authorized, and each
holder of a certificate which immediately prior to the Effective Time
represented any such shares of Company Preferred Stock (each, a "Preferred
Certificate" ) shall cease to have any rights with respect thereto, except the
right to receive the Preferred Stock Merger Consideration to be paid in
consideration therefor as provided herein upon surrender of such Preferred Stock
Certificate in accordance with Section 2.2(c), without interest, or in the case
of Dissenting Shares the amount provided for by Section 2.1(h) and applicable
law.
(d) Conversion of Company Common Stock. Subject to the following
provisions of this Section 2.1(d), each share of Company Common Stock issued and
outstanding immediately before the Effective Time, other than shares to be
canceled in accordance with Section 2.1(b) and any Dissenting Shares, shall be
converted into the right to receive, in the manner provided by Section 2.2, the
amount in cash, without interest (the "Per Common Share Merger Consideration" )
equal to the quotient produced by dividing (i) the remainder of (A) the sum of $
130,000,000 (the "Base Purchase Price" ), plus the Estimated Excess, if any,
plus the Aggregate Option Exercise Price Proceeds, plus the Aggregate Warrant
Exercise Price Proceeds minus (B) the sum of the Preferred Stock Merger
Consideration, all Company Expenses, the Estimated Underage, if any, and the
Escrow Amount, by (ii) the number of shares of Company Common Stock equal to the
sum of (A) the number of shares of Company Common Stock outstanding immediately
before the Effective Time (including any Dissenting Shares), (B) any shares of
Company Common Stock that, immediately before the Effective Time, would be
issuable upon exercise in full of all Options (including the Modified Options),
whether or not then vested, that are outstanding as of such time, (C) any shares
of Company Common Stock issuable upon conversion of all shares of Series D
Preferred Stock outstanding immediately before the Effective Time and (D) any
shares of Company Common Stock issuable upon exercise (directly or indirectly)
in full of all the Series C Warrants or Series D Warrants outstanding
immediately prior to the Effective Time), but excluding for this purpose any
outstanding shares of Company Common Stock to be cancelled at the Effective Time
pursuant to Section 2.1(b)); provided, however, that the Per Common Share Merger
Consideration shall be subject to adjustment as provided by Article VIII. The
holders of shares of Company Common Stock entitled to receive the Per Common
Share Merger Consideration are herein collectively referred to as the "Company
Stockholders"). The Preferred Stock Merger Consideration plus the remainder of
(i) the aggregate of all Per Common Share Merger Consideration minus (ii) the
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sum of the Aggregate Option Exercise Price Proceeds plus the Aggregate Warrant
Exercise Price Proceeds is herein referred to as the "Merger Consideration." As
of the Effective Time, all shares of Company Common Stock shall cease to be
outstanding and shall automatically be canceled and shall no longer is issued or
authorized, and each holder of a certificate which immediately prior to the
Effective Time (giving effect to Section 5.11) represented any such shares of
Company Common Stock (each, a "Common Certificate" and each Common Certificate
or Preferred Certificate, a "Certificate" ) shall cease to have any rights with
respect thereto, except the right to receive the Per Common Share Merger
Consideration to be paid in consideration therefor as provided herein upon
surrender of such Common Certificate, without interest, or, in the case of
Dissenting Shares, the amount provided for by Section 2.1(h) and applicable law.
In addition to any amounts payable pursuant to this Section 2.1(d), a holder of
Company Common Stock as of immediately prior to the Effective Time may also be
entitled to additional amounts in accordance with Sections 2.1(g) and 2.2(b).
(e) Treatment of Company Stock Options. At the Effective Time, each
Option, whether vested or unvested, other than the Modified Options, shall
automatically be cancelled and extinguished, and each holder of an Option other
than a Modified Option (each such holder, an "Optionholder" and all
Optionholders collectively, the "Optionholders") shall, in accordance with the
terms of the Stock Plans and the action taken thereunder by the Board of
Directors of the Company or the Compensation Committee, only have the right to
receive in respect thereof a cash payment payable at the Closing in an aggregate
amount, rounded to the nearest xxxxx, equal to the product of (A) the aggregate
number of shares of Company Common Stock subject to such Optionholder's
unexercised Option which is exercisable as of the Effective Time (the "Option
Shares"), multiplied by (B) the positive difference, if any, between the Per
Common Share Merger Consideration over the applicable exercise price per share
for each such Option. In addition to any amounts payable pursuant to this
Section 2.1(e), an Optionholder as of immediately prior to the Effective Time
may also be entitled to additional amounts in accordance with Sections 2.1(g)
and 2.2(b). In respect of the Modified Options, Parent shall at the Effective
Time, without any further action by the Company (other than actions contemplated
by Section 3.2(a) hereof), Parent or the holder of a Modified Option, assume the
obligations, and succeed to the rights, of the Company under the Stock Plans and
the option agreements, award notices and other documents with respect to the
Modified Options, but only with the modifications identified in the agreements
referred to in Exhibit 6.2(g), and the Modified Options at the Effective Time
shall become options to purchase shares of Ordinary Common Stock, $0.01 par
value per share, of Parent on the terms provided by Exhibit 6.2(g). The amount
payable to Optionholders at the Effective Time (as provided by the first
sentence of this Section 2.1(e)) plus the amount equal to the product of (A) the
aggregate number of shares of Company Common Stock subject to Modified Options
multiplied by (B) the positive difference, if any, between the Per Common Share
Merger Consideration over the applicable exercise price per share for each such
Modified Option before the Effective Date is herein referred to as the "Option
Consideration." For purposes of this Agreement, the aggregate exercise price
payable in respect of all Option Shares underlying all Options shall be referred
to herein as the "Aggregate Option Exercise Price Proceeds." All consideration
to be received by Optionholders pursuant to this Section 2.1(e) (as well as any
amounts paid to the Optionholders pursuant to Sections 2.1(g) or 2.2(b)) shall
be treated as compensation by the Company and shall be net of any applicable
federal and/or state withholding tax. To the extent it has not already done so,
the Company shall as soon as practicable take all action necessary so that all
Options shall be cancelled and extinguished or modified as provided by this
Section as of the Effective Time.
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(f) Treatment of Warrants. At the Effective Time, each warrant to
acquire shares of Company Common Stock or any securities directly or indirectly
convertible into or exchangeable for shares of Company Common Stock (each, a
"Warrant"), including warrants to purchase shares of Series C Preferred Stock
(each, a "Series C Warrant" and collectively the "Series C Warrants") and
warrants to purchase shares of Series D Preferred Stock (each, a "Series D
Warrant"), outstanding immediately prior to the Effective Time shall
automatically be cancelled and extinguished, in accordance with the terms of the
Warrants and the action taken by the Board of Directors thereunder, and each
holder of a Warrant (each, a "Warrantholder" and collectively, the
"Warrantholders") shall only have the right to receive in respect thereof the
following:
(i) a cash payment payable at the Closing in an aggregate
amount, rounded to the nearest xxxxx, equal to the product of (A) the aggregate
number of shares of Company Common Stock subject to such holder's unexercised
Series C Warrant which is exercisable as of the Effective Time, by (B) the
positive difference, if any, between the Per Common Share Merger Consideration
over the applicable exercise price per share for each such Series C Warrant;
provided that, in addition thereto, such holder may also be entitled to
additional payments in accordance with Sections 2.1(g) (distributions in respect
of excess working capital) and 2.2(b) (distributions from the escrow), in which
case the holder shall be entitled to his, her or its Pro Rata Share of any such
distribution; and.
(ii) each holder of a Series D Warrant outstanding at the
Effective Time and who has duly exercised such Series D Warrant in accordance
with the terms thereof shall be entitled to receive an amount equal to the sum
of (A) the product of (i) $1.612, times (ii) the total number of shares of
Series D Preferred Stock issuable upon the full exercise of said warrant (the
"Series D Warrant Preference"), plus (B) the product of (i) the total number of
shares of Series D Preferred Stock issuable upon the full exercise of said
warrant, times (ii) the positive difference between the Per Common Share Merger
Consideration, minus $2.015; provided that, in addition thereto, such holder may
also be entitled to additional payments in accordance with Sections 2.1(g)
(distributions in respect of excess working capital) and 2.2(b) (distributions
from the escrow), in which case the holder shall be entitled to his, her or its
Pro Rata Share of any such distribution. The amounts referred to in
subparagraphs (i) and (ii) of the immediately preceding sentence, without giving
effect to the provisos thereto, is herein referred to as the "Warrant
Consideration." For purposes of this Agreement, the aggregate exercise price
payable in respect of all Series C Warrants and all Series D Warrants entitled
to payments under this Section 2.1(f) shall be referred to herein as the
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"Aggregate Warrant Exercise Price Proceeds" and the aggregate number of shares
of Company Common Stock that may be issued pursuant to all Series C and Series D
Warrants (herein referred to as the "Warrant Shares") The Company shall as soon
as practicable take all action necessary so that all Warrants shall be cancelled
and extinguished as provided by this Section as of the Effective Time.
(g) Working Capital Adjustment.
(i) At least three (3) business days prior to Closing, the
Company's Chief Financial Officer shall deliver to Parent and Merger Sub a good
faith estimate of the Company Expenses and of the Company's Net Working Capital
(as defined in Section 9.12) as of the close of business on the Closing Date
(the "Estimated Net Working Capital" ), together with supporting documentation
for such estimate and any additional information reasonably requested by Parent
or Merger Sub. An "Estimated Underage" will be deemed to exist if (and will
equal the amount by which) the Estimated Net Working Capital is less than
$5,000,000 (the "Base Amount"). An "Estimated Excess" will be deemed to exist if
(and will equal the amount by which) the Estimated Net Working Capital exceeds
the Base Amount.
(ii) Within sixty (60) days following the Closing Date, Parent
shall prepare and deliver to the Stockholders' Representative a statement of Net
Working Capital as of the close of business on the Closing Date (the "Closing
Statement"), with such Closing Statement being prepared using the same
accounting methodologies and principles as were used to calculate the Estimated
Net Working Capital. The Stockholders' Representative shall have twenty (20)
days following its receipt of the Closing Statement (the "Review Period") to
review the same. On or before the expiration of the Review Period, the
Stockholders' Representative shall deliver to Parent a written statement
accepting or objecting to the calculation of Net Working Capital set forth on
the Closing Statement. In the event that the Stockholders' Representative shall
object to the Closing Statement, such statement shall include a detailed
itemization of the Stockholders' Representative's objections and the reasons
therefor. If the Stockholders' Representative does not deliver such statement to
Parent within the Review Period, the Stockholders' Representative shall be
deemed to have accepted the Closing Statement.
(iii) In the event that the Stockholders' Representative shall
accept or shall be deemed to have accepted the Closing Statement as prepared and
delivered by Parent, the Net Working Capital set forth on the Closing Statement
shall constitute the Final Net Working Capital for purposes of determining any
adjustment to the Merger Consideration. In the event, however, that the
Stockholders' Representative shall object to the Closing Statement within the
Review Period, Parent and the Stockholders' Representative shall promptly meet
and in good faith attempt to resolve such objections. Any such objections which
cannot be resolved between Parent and the Stockholders' Representative within
thirty (30) days following the Parent's receipt of the Stockholders'
Representative's statement of objections shall be resolved in accordance with
Section 2.1(g)(iv). The Net Working Capital set forth on the Closing Statement,
as adjusted to reflect any adjustments agreed upon by the parties, as deemed
accepted under Section 2.1(g)(ii) or as determined in accordance with Section
2.1(g)(iv), shall constitute the "Final Net Working Capital" for purposes of
determining any adjustment to the Merger Consideration.
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(iv) Should the Stockholders' Representative and Parent not be
able to resolve such objections as may be raised with respect to the Closing
Statement, within the thirty (30) day period described in Section 2.1(g)(iii),
either party may submit the matter to PricewaterhouseCoopers LLP (the
"Arbitrator") for review and resolution, with instructions to complete the same
as promptly as practicable, but in any event within thirty (30) days of its
engagement, and to make any calculations in accordance with generally accepted
accounting principles and consistent with the accounting methodologies and
principles used to calculate the Estimated Net Working Capital. The fees and
costs of the Arbitrator, if one is required, shall be borne as follows: (i)
fifty percent (50%) of such fees and costs shall be borne collectively by the
holders of Company Common Stock, the holders of Series D Preferred Stock, the
Warrantholders and the Optionholders as of immediately prior to the Effective
Time (each a "Company Equity Holder" and collectively, the "Company Equity
Holders") based on each such Company Equity Holder's Pro Rata Share (and any
such amount shall be payable out of the Escrow Amount), and (ii) the remaining
fifty percent of such costs and fees shall be borne by Parent. For purposes of
this Agreement, any Company Equity Holder's "Pro Rata Share" shall equal the
quotient obtained by dividing (x) the total number of shares of Company Common
Stock (determined on the same basis, including shares of Series D Preferred
Stock, Option Shares and/or Warrant Shares deemed held thereby, provided by
Section 2.1(d) for the calculation of the Per Common Share Merger Consideration)
deemed held by such Company Equity Holder's as of immediately prior to the
Effective Time, by (y) the total number of shares of Company Common Stock
(determined on the same basis, including Option Shares and Warrant Shares,
provided by Section 2.1(d) for the calculation of the Per Common Share Merger
Consideration) deemed held by all Company Equity Holders as of immediately prior
to the Effective Time.
(v) The amount of any payment required to be made pursuant to
this Section 2.1(g)(v) is referred to hereinafter as the "Final Working Capital
Adjustment Amount".
(1) If the Final Net Working Capital is less than the Estimated
Net Working Capital (the amount obtained by subtracting the Final Net
Working Capital from the Estimated Net Working Capital being referred
to herein as the "Net Working Capital Shortfall"), then the Escrow
Agent shall pay to Parent out of the Escrow Amount, an amount in cash
equal to the Net Working Capital Shortfall. Such payment shall be made
within five (5) days of the date on which the Final Net Working
Capital is finally determined pursuant to Sections 2.1(g)(iii) or
(iv).
(2) If the Final Net Working Capital is greater than the
Estimated Net Working Capital (the amount obtained by subtracting
Estimated Net Working Capital from the Final Net Working Capital being
referred to herein as the "Net Working Capital Overage"), then Parent
shall pay the Paying Agent an amount equal to the Net Working Capital
Overage and such amount shall be distributed proportionally by the
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Paying Agent to the Company Equity Holders based on each such Company
Equity Holder's Pro Rata Share. Such payment shall be made by Parent
to the Paying Agent within five (5) days of the date on which the
Final Net Working Capital is finally determined pursuant to Sections
2.1(g)(iii) or (iv) and the Paying Agent shall distribute such amount
to the Company Equity Holders in accordance with Section 2.2.
(h) Appraisal Rights. Notwithstanding anything in this Agreement to
the contrary, shares of capital stock of the Company that are issued and
outstanding immediately prior to the Effective Time and which are held by a
stockholder (collectively, "Dissenting Stockholders") who did not vote in favor
of the Merger (or consent thereto in writing) and who is entitled to demand and
properly demands appraisal of such shares pursuant to, and who complies in all
respects with, the provisions of Section 262 of the DGCL (the "Dissenting
Shares") shall not upon effectiveness of the Merger be converted into the right
to receive the Merger Consideration to which such Dissenting Stockholder is
otherwise entitled to receive hereunder, but instead such Dissenting Stockholder
shall be entitled to payment of the fair value of such shares in accordance with
the provisions of Section 262 of the DGCL (and at the Effective Time, such
Dissenting Shares shall no longer be outstanding and shall automatically be
canceled and shall cease to exist, and such holder shall cease to have any
rights with respect thereto, except the right to receive the fair value of such
Dissenting Shares in accordance with the provisions of Section 262 of the DGCL),
unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost rights to appraisal under the DGCL. If any
Dissenting Stockholder shall have failed to perfect or shall have effectively
withdrawn or lost such right, such holder's shares of capital stock of the
Company shall thereupon be treated as if they had been converted into and become
exchangeable for the right to receive, as of the Effective Time, the cash
payment for each such share provided by Section 2.1(c) or (d), as the case may
be, without any interest thereon. The Company shall give Parent (i) prompt
notice of any written demands for appraisal of any shares of capital stock of
the Company, attempted withdrawals of such demands and any other instruments,
notices of documents served pursuant to the DGCL and received by the Company
relating to stockholders' rights of appraisal, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under the DGCL. In addition, the Company shall not waive any
requirement under the DGCL for the perfection of such appraisal rights without
the prior written approval of the Parent and the Company shall not, except with
the prior written consent of Parent, voluntarily make any payment with respect
to, or settle, or offer or agree to settle, any such demand for payment. Any
portion of the Merger Consideration made available to the Paying Agent pursuant
to Section 2.2 to pay for shares of Company Stock for which appraisal rights
have been perfected shall be returned to Parent upon demand.
SECTION 2.2 Payment of Merger Consideration; Exchange of
Certificates.
(a) Paying Agent. Prior to the Closing, the Company shall designate a
bank or trust company reasonably acceptable to Parent to act as agent for the
Company Equity Holders and the holders of shares of Company Preferred Stock in
connection with the Merger (together with any successor thereto, the "Paying
Agent") and, in such respect, to receive, for the benefit of such Company Equity
Holders and holders of shares of Company Preferred Stock the Merger
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Consideration to which such Persons shall become entitled pursuant to Section
2.1. Parent shall simultaneously with the Closing (and subject to the
satisfaction or waiver of the conditions to the Closing provided by Article VI)
deposit in immediately available funds such amounts of Merger Consideration with
the Paying Agent. Such Merger Consideration deposited with the Paying Agent
shall, pending its disbursement, be invested by the Paying Agent in money-market
instruments as directed by Parent. Any net profit resulting from, or interest or
income produced by, such amounts on deposit with the Paying Agent will be
payable to Parent or as Parent otherwise directs.
(b) Escrow Fund. At the Effective Time, Parent shall pay to Mellon
Trust of New England, N.A. (the "Escrow Agent") an amount in cash equal to
$13,000,000 (the "Escrow Amount" ). The Escrow Amount will be held by the Escrow
Agent in escrow pursuant to an Escrow Agreement consistent with the terms of
this Agreement and reasonably acceptable to Parent and the Company (the "Escrow
Agreement" ) and shall be so held in escrow pending calculation of the Final Net
Working Capital as set forth in Section 2.1(g)(v) and pending resolution of
claims for indemnification (if any) pursuant to Section 8.2. The Escrow Amount
shall bear interest, which shall be added to and become part of the Escrow
Amount. The Escrow Agent shall release to the Paying Agent (or to the Surviving
Corporation if the Paying Agent has distributed all remaining funds in
accordance with this Section 2.2) (A) on the date which is six (6) months
following the Closing Date (the "First Escrow Release Date" ), the lesser of (I)
$4,000,000, and (II) the aggregate amount of funds remaining in escrow under the
Escrow Agreement (the "Remaining Amount" ) at such time, out of the remaining
balance of the Escrow Amount, (B) on the date which is twelve (12) months
following the Closing Date (the "Second Escrow Release Date"), the lesser of (I)
$4,000,000, and (II) the Remaining Amount at such time, out of the remaining
balance of the Escrow Amount, and (C) on the date which is eighteen (18) months
following the Closing Date (the "Final Escrow Release Date" and, collectively,
together with the Second Escrow Release Date or the First Escrow Release Date,
an "Escrow Release Dates"), the Escrow Agent shall release the remaining balance
of the Escrow Amount, plus any interest earned thereon, in each case referred to
in clause (A), (B) or (C) of this sentence, for payment to the Company Equity
Holders as hereinafter provided. Any amount released by the Escrow Agent to the
Paying Agent on an Escrow Release Date shall then be paid by the Paying Agent
(or the Surviving Corporation if it has succeeded to the obligations of the
Paying Agent pursuant to this Section 2.2) to the Company Equity Holders based
on each such Company Equity Holder's Pro Rata Share. Notwithstanding the
foregoing, if, on the Final Escrow Release Date, there are any pending claims by
a Parent Indemnified Party for Losses that are contested or not resolved, the
Escrow Agent shall continue to hold that portion of the Escrow Amount equal to
the amount of such pending claim on that date (the "Pending Claim Amount") in
escrow for the benefit of the Parent Indemnified Parties. Upon the final
resolution of any such claim described in the preceding sentence, the Escrow
Agent shall release the amount held in escrow on account thereof, plus any
interest earned thereon (as the same may have been reduced by the amount of such
claim resolved in favor of the Parent Indemnified Party) to the Paying Agent (or
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to the Surviving Corporation if the Paying Agent has distributed all remaining
funds in accordance with this Section 2.2) and such amount shall then be paid by
the Paying Agent (or the Surviving Corporation if it has succeeded to the
obligations of the Paying Agent pursuant to this Section 2.2) to the Company
Equity Holders, based on each such Company Equity Holder's Pro Rata Share.
(c) Payment Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause the Paying Agent to mail to each holder of
record of a Certificate and to each Optionholder and Warrantholder (i) a letter
of transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates, any certificates or other instruments
representing the Warrants and/or any instruments or other documents representing
the Options (each, a "Company Security") shall pass, only upon delivery of the
Company Securities to the Paying Agent, and which shall be in such form and
shall have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Company Securities in
exchange for payment of the applicable portion of the Merger Consideration. Upon
surrender of a Company Security for cancellation to the Paying Agent, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions (and such other customary documents as may
reasonably be required by the Paying Agent), the holder of such Company Security
shall be entitled to receive in exchange therefor the applicable portion of the
Merger Consideration, as the case may be, without interest, for each share of
Company Stock, Option or Warrant formerly represented by such Company Security,
and the Company Security so surrendered shall forthwith be canceled. If a
payment of Merger Consideration is to be made to a Person other than the Person
in whose name the surrendered Company Security is registered, it shall be a
condition of payment that (x) the Company Security so surrendered shall be
properly endorsed or shall otherwise be in proper form for transfer and (y) the
Person requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of Merger Consideration to a Person other than
the registered holder of such Company Security surrendered or shall have
established to the reasonable satisfaction of the Surviving Corporation that
such tax either has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Company Security shall be deemed at any
time after the Effective Time to represent only the right to receive the
applicable portion of the Merger Consideration as contemplated by this Article
II, without interest.
(d) Transfer Books; No Further Ownership Rights in Company Stock. The
consideration to be paid in respect of shares of capital stock of the Company
upon the surrender for exchange of Company Securities in accordance with the
terms of this Article II shall be deemed to have been paid in full satisfaction
of all rights pertaining to such shares (or other securities, as applicable)
previously represented by such Company Securities, and (in addition to the
requirements of Section 5.11) at the close of business on the day on which the
Effective Time occurs, the transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers on the transfer
books of the Surviving Corporation of the shares of capital stock of the Company
(or other securities, as applicable) that were outstanding immediately prior to
the Effective Time. From and after the Effective Time, the holders of Company
Securities that evidenced ownership of shares of capital stock (or other
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securities, as applicable) of the Company outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares (or
other securities, as applicable), except as otherwise provided for herein or by
applicable law. Subject to the last sentence of Section 2.2(e), if, at any time
after the Effective Time, Company Securities are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article II.
(e) Lost, Stolen or Destroyed Company Securities. If any Company
Security shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Company Security to be lost,
stolen or destroyed and, if required by Parent, the posting by such Person of a
bond, in such reasonable amount as Parent may direct, as indemnity against any
claim that may be made against it with respect to such Company Security, the
Paying Agent will pay, in exchange for such lost, stolen or destroyed Company
Security, the applicable consideration to be paid in respect of such shares (or
other securities, as applicable) formerly represented by such Company Security,
as contemplated by this Article II.
(f) Termination of Fund. At any time following 180 days after the
Closing Date, the Surviving Corporation shall be entitled to require the Paying
Agent to deliver to it any funds (including any interest received with respect
thereto) that had been made available to the Paying Agent and which have not
been disbursed to holders of Company Securities, and thereafter such holders
shall be entitled to look only to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) as general creditors thereof
with respect to the payment of any consideration payable upon surrender of any
Company Securities held by such holders, as determined pursuant to this
Agreement, without any interest thereon. Any amounts remaining unclaimed by such
holders at such time at which such amounts would otherwise escheat to or become
property of any Governmental Authority shall become, to the extent permitted by
applicable Law, the property of Parent, free and clear of all claims or interest
of any Person previously entitled thereto.
(g) No Liability. Notwithstanding any provision of this Agreement to
the contrary, none of the parties hereto, the Surviving Corporation or the
Paying Agent shall be liable to any Person for any consideration otherwise
payable hereunder but delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law.
(h) Withholding Taxes. Parent, the Surviving Corporation and the
Paying Agent shall be entitled to deduct and withhold from the consideration
otherwise payable to a holder of shares of capital stock of the Company,
Optionholder or Warrantholder pursuant to this Agreement such amounts as may be
required to be deducted and withheld with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code"), or under any provision of
state, local or foreign tax Law. To the extent amounts are so withheld and paid
over to the appropriate taxing authority, the withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the Person in respect
of which such deduction and withholding was made.
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SECTION 2.3 Adjustments to Company Stock. Notwithstanding any
provision of this Article II to the contrary (but without in any way limiting
the covenants in Section 5.2), if between the date of this Agreement and the
Effective Time the outstanding shares of capital stock of the Company shall have
been changed into a different number of shares or a different class by reason of
the occurrence of or record date for any stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange of shares or
similar transaction, the consideration payable in respect thereof as a result of
the Merger shall be appropriately adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination, exchange of
shares or similar transaction.
SECTION 2.4 Payment at Closing for Expenses. As of the Closing Date,
Parent and Merger Sub shall provide sufficient funds to the Surviving
Corporation to enable the Surviving Corporation to pay all outstanding fees and
expenses of the Company in connection with the negotiation, preparation and the
consummation of the transactions contemplated by this Agreement (but not
including the cost of the extended reporting period endorsement under the
Company's existing directors' and officers' liability insurance coverage
referred to in Section 5.8(b)) that have not been paid on or prior to the
Closing Date (the "Company Expenses").
SECTION 2.5 Tax Treatment of Deferred Payments. All payments under
Section 2.2(b) to the Company Equity Holders, other than payments that
constitute compensation (including but not limited to payments to Optionholders)
shall be treated by the parties as deferred purchase price eligible for
installment sale treatment under Code Section 453, and shall be subject to
imputed interest under Code Section 483 and/or 1274. All payments under Section
2.2(b) that constitute compensation, including any payments to Optionholders,
shall be treated by the parties as deferred compensation for federal income tax
purposes and shall be subject to Section 2.2(h). All interest earned in respect
of the Escrow Amount shall be included in the gross income of Parent, consistent
with the provisions of Code Section 468B(g) and, upon any payment thereof for
the benefit of the Company Equity Holders, Parent shall be entitled to any
deduction for any imputed interest included therein.
ARTICLE III
Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants to Parent and Merger Sub that
except as set forth in the disclosure schedule attached hereto (the "Company
Disclosure Schedule"):
SECTION 3.1 Organization, Standing and Corporate Power.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the Laws of Delaware and has all requisite corporate
power and authority necessary to own or lease all of its properties and assets
and to carry on its business as it is now being conducted. The Company is duly
licensed or qualified to do business and is in good standing in each
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jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary except where the failure to be so
qualified or licensed would not be reasonably expected to have a Material
Adverse Effect on the Company (a "Company Material Adverse Effect").
(b) The Company does not have any Subsidiaries and does not own,
directly or indirectly, any capital stock, voting securities or equity interests
in any Person.
(c) The Company has delivered to Parent correct and complete copies
of its certificate of incorporation and by-laws (the "Company Charter
Documents"), in each case as amended to the date of this Agreement. All such
Company Charter Documents are in full force and effect and the Company is not in
violation of any of their respective provisions. The Company has made available
to Parent and its representatives correct and complete copies of the minutes of
all meetings of stockholders, the Board of Directors and each committee of the
Board of Directors of the Company held since 2002 (if applicable).
SECTION 3.2 Capitalization.
(a) As of the date hereof, the authorized capital stock of the
Company consists of (i) 28,633,532 shares of Preferred Stock of which (A)
3,200,000 shares are designated as Series A Preferred Stock, of which none are
issued and outstanding, (B) 3,200,000 shares are designated as Series B
Preferred Stock, of which 2,678,473 are issued and outstanding, (C) 1,492,462
shares are designated as Series C Preferred Stock, of which 1,402,103 are issued
and outstanding, (D) 10,370,550 shares are designated as Series D Preferred
Stock, of which 9,923,971 are issued and outstanding, and (E) 10,370,550 shares
are designated as Series E Preferred Stock, of which none are issued and
outstanding, and (ii) 26,000,000 shares of Common Stock, of which (F) 6,400,000
shares are designated as Class A Common Stock, of which 6,400,000 are issued and
outstanding, and (G) 19,600,000 shares are designated as Class B Common Stock,
of which 667,000 shares are issued and outstanding. All outstanding shares of
Company Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. Included in Section 3.2(a) of the
Company Disclosure Schedule is a correct and complete list, as of the date
hereof (but before giving effect to the Transactions), of all holders of shares
of Company Common Stock or shares of Company Preferred Stock, all Warrantholders
(and for each such Warrantholder the number of shares of Company Stock issuable
upon exercise of such Warrants and the exercise price therefor, all holders of
Options or other rights to purchase or receive shares of Company Common Stock
granted under the Stock Plan or otherwise, and, for each such Option or other
right, the number of shares of Company Common Stock subject thereto, the terms
of vesting and the grant and expiration dates and exercise price thereof. All
necessary action on the part of the Company, including action by the
Compensation Committee of the Board of Directors and, if necessary, the full
Board of Directors of the Company, will have been taken by the Closing Date so
that all the unvested Options (other than the Modified Options) outstanding
under the Option Plans (as specified above) will become fully vested and
exercisable (without regard to any performance criteria relating to the vesting
or exercise thereof) immediately prior to consummation of the Merger. In
14
addition, as of immediately before the Effective Time, the Company, or its Board
of Directors, as the case may be, shall have taken such actions consistent with
the Stock Plans and the pertinent agreements or instruments thereunder, as
Parent shall reasonably request so that the Modified Options held by those
officers of the Company identified in the agreements referred to in Section
6.2(g) will be modified as provided in those agreements. Except as set forth
above in this Section 3.2(a), no shares of capital stock, voting securities or
equity interests of the Company are issued and outstanding nor are any
subscriptions, options, warrants, calls, convertible or exchangeable securities,
rights, commitments or agreements of any character providing for the issuance of
any shares of capital stock, voting securities or equity interests of the
Company, including any representing the right to purchase or otherwise receive
any Company Common Stock.
(b) Except as provided pursuant to the Company Charter Documents, the
Stock Plan or the Warrants, there are no outstanding obligations of the Company
to repurchase, redeem or otherwise acquire any shares of capital stock, voting
securities or equity interests (or any options, warrants or other rights to
acquire any shares of capital stock, voting securities or equity interests) of
the Company.
SECTION 3.3 Authority; Noncontravention; Voting Requirements.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and
to consummate the Merger and the other Transactions. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it of the
Merger and the other Transactions, have been duly authorized and approved by its
Board of Directors, which has recommended to the Company's stockholders the
approval of the Merger and this Agreement as in the best interests of the
Company and its stockholders, and any vote, approval or consent required to be
received from the holders of any class or series of capital stock of the Company
or any other security issued by the Company (including the Warrants) in order
for the Company under the DGCL and the Company's certificate of incorporation
and bylaws and any agreement with any securityholder of the Company to enter
into this Agreement and to consummate the Merger and the other Transactions has
been obtained and remains in full force and effect (the "Company Stockholder
Approval"). No other corporate action on the part of the Company is necessary to
authorize the execution, delivery and performance by the Company of this
Agreement and the consummation by it of the Merger and the other Transactions.
This Agreement has been duly executed and delivered by the Company and, assuming
due authorization, execution and delivery hereof by the other parties hereto,
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other similar laws of general
application affecting or relating to the enforcement of creditors' rights
generally and (ii) is subject to general principles of equity, whether
considered in a proceeding at law or in equity (the "Bankruptcy and Equity
Exception").
15
(b) Neither the execution and delivery of this Agreement by the
Company nor the consummation by the Company of the Transactions, nor compliance
by the Company with any of the terms or provisions hereof, will (i) conflict
with or violate any provision of the Company Charter Documents or (ii) assuming
that the authorizations, consents and approvals referred to in Section 3.4 are
obtained and the filings referred to in Section 3.4 are made (x) violate any
Law, judgment, writ or injunction of any Governmental Authority or any
arbitration award applicable to the Company or any of its properties or assets,
or (y) except as set forth on Section 3.3(b) of the Company Disclosure Schedule,
violate or conflict with in any material respect, result in the loss of any
material benefit under, constitute a material default (or an event which, with
notice or lapse of time, or both, would constitute a material default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any Lien of
any material nature upon any of the properties or assets of, the Company under,
any of the terms, conditions or provisions of any loan or credit agreement,
debenture, note, bond, mortgage, indenture, deed of trust, license, lease,
insurance policy, contract or other agreement, instrument or obligation (each, a
"Contract") or Permit, to which the Company is a party, or by which they or any
of its properties or assets may be bound or affected. Without limiting the
generality of the immediately preceding sentence, the Company does not have any
unsatisfied obligation under any Contract to notify any Person of the Company
entering into, or having intended to enter into, this Agreement before doing so
or to negotiate with any Person regarding a possible alternative Takeover
Proposal.
SECTION 3.4 Governmental Approvals. Except for (1) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware
pursuant to the DGCL, (2) filings required under, and compliance with other
applicable requirements of, the HSR Act and (3) as described on Section 3.4 of
the Company Disclosure Schedule, no consents or approvals of, or filings,
declarations or registrations with, any Governmental Authority (each, a
"Governmental Approval") are necessary for the execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the Transactions.
SECTION 3.5 Financial Statements.
(a) The Company has delivered to Parent copies of (i) the audited
consolidated balance sheets of the Company as at December 31, 2003 and 2004 and
the related audited consolidated statements of income and of cash flows of the
Company for the years then ended, and (ii) the unaudited consolidated balance
sheet of the Company as at October 31, 2005 and the related consolidated
statements of income and cash flows of the Company for the ten (10)-month period
then ended (such audited and unaudited statements, including the related notes
and schedules thereto, are referred to herein as the "Financial Statements").
Except as disclosed in Section 3.5(a) of the Company Disclosure Schedule, each
of the Financial Statements is complete and correct in all material respects,
has been prepared in accordance with GAAP consistently applied by the Company
without modification of the accounting principles used in the preparation
thereof throughout the periods presented (except as noted therein) and presents
fairly in all material respects the consolidated financial position, results of
16
operations and cash flows of the Company as at the dates and for the periods
indicated therein subject in the case of the unaudited statements to the absence
of footnotes and other supplemental information that would be required by GAAP
and to normal year-end audit adjustments. The unaudited consolidated balance
sheet of the Company as at October 31, 2005 is referred to herein as the
"Balance Sheet" and October 31, 2005 is referred to herein as the "Balance Sheet
Date".
(b) Except as disclosed in Schedule 3.5(b) of the Company Disclosure
Schedule, (i) to the Knowledge of the Company, in all respects material to the
Company's current business and operations, the Company's books, records and
accounts are made and kept in accordance with all applicable Laws and so as to
reflect, in reasonable detail, accurately and fairly the transactions and
dispositions of the assets of the Company, (ii) to the Knowledge of the Company,
in all respects material to the Company's current business and operations, the
Company has devised and maintains a system of internal accounting controls
sufficient (taking into account the size of the Company, the nature of it
business and the fact that it is not presently subject to the reporting
requirements of Exchange Act) to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or specific
authorization, (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (C) access to assets is
permitted only in accordance with management's general or specific authorization
and (D) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences, (iii) the Company has disclosed to Parent in writing any change
in the Company's internal control over financial reporting that, to the
Knowledge of the Company, has occurred during the Company's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting and (iv) the
Company has disclosed to Parent in writing (A) all significant deficiencies and
material weaknesses (as such terms are defined by GAAP) in the design or
operation of the Company's internal control over financial reporting that, to
the Knowledge of the Company, are reasonably likely to adversely affect the
Company's ability to record, process, summarize and report financial
information; and (B) any fraud, whether or not material, that, to the Knowledge
of the Company, involves management or other employees who have a significant
role in the Company's internal control over financial reporting.
SECTION 3.6 No Undisclosed Liabilities.
(a) Except as disclosed on Schedule 3.6 of the Company Disclosure
Schedule, the Company has no indebtedness for borrowed money or Liabilities that
would be required to be reflected under GAAP on a balance sheet of the Company
other than those (i) fully reflected in or reserved against in the Balance Sheet
or, if not required under GAAP to be reflected on a balance sheet, disclosed in
the notes thereto or in another representation or warranty of the Company
contained in this Article or the Company Disclosure Schedule or (ii) incurred
after the Balance Sheet Date in the ordinary course of business consistent with
past practice, except any not required to be reflected on the Balance Sheet or
the notes thereto.
17
(b) The Company is not a party to, and does not have any commitment
to become a party to, any joint venture, off-balance sheet partnership or any
similar Contract (including any Contract or arrangement relating to any
transaction or relationship between or among the Company, on the one hand, and
any unconsolidated Affiliate, including any structured finance, special purpose
or limited purpose entity or Person, on the other hand, or any "off-balance
sheet arrangements" (as defined in Item 303(a) of Regulation S-K of the SEC)),
where the result, purpose or effect of such Contract is to avoid disclosure of
any transaction involving, or liabilities of, the Company in the Company's
financial statements.
SECTION 3.7 Absence of Certain Changes or Events. Since the Balance
Sheet Date there have not been any events, changes, occurrences or state of
facts that, individually or in the aggregate, have had or would reasonably be
expected to have a Company Material Adverse Effect. Since the Balance Sheet Date
(a) the Company has carried on and operated its business in the ordinary course
of business consistent with past practice and (b) except as set forth on Section
3.7 of the Company Disclosure Schedule, the Company has not taken any action
described in Section 5.2 hereof that if taken after the date hereof and prior to
the Effective Time without the prior written consent of Parent would violate
such provision. Without limiting the foregoing, since the Balance Sheet Date
there has not occurred any damage, destruction or loss (whether or not covered
by insurance) of any material asset of the Company which materially affects the
use thereof.
SECTION 3.8 Legal Proceedings. Except as set forth in Section 3.8 of
the Company Disclosure Schedule there is no pending or, to the Knowledge of the
Company, threatened, legal, administrative, arbitral or other proceeding, claim,
suit or action against, or governmental or regulatory investigation of, or
healthcare regulatory review proceedings involving, the Company, nor is there
any injunction, order, judgment, ruling or decree imposed (or, to the Knowledge
of the Company, threatened to be imposed) upon the Company or the assets of the
Company by or before any Governmental Authority or arbitrator, (a) including any
of the foregoing that challenges any of the Transactions, provided that the
representation in clause (a) is made only as of the date hereof.
SECTION 3.9 Compliance With Laws; Permits. The Company is (and since
January 1, 2002 has been) in compliance in all material respects with all laws
(including common law), statutes, ordinances, codes, rules, regulations, decrees
and orders of Governmental Authorities (collectively, "Laws") applicable to the
Company, any of its properties or other assets or its business or operations.
The Company holds all material licenses, franchises, permits, certificates,
approvals and authorizations from Governmental Authorities, or required by
Governmental Authorities to be obtained, in each case necessary for the lawful
conduct of its business, including, without limitation, all state licenses to
perform medical utilization review services (collectively, "Permits"). The
Company is (and since January 1, 2002 has been) in compliance in all material
respects with the terms of all Permits. Except as disclosed in Section 3.9 of
the Company Disclosure Schedule, since January 1, 2002, the Company has not
received written notice to the effect that a Governmental Authority (i) claimed
or alleged that the Company was not in compliance with all Laws applicable to
the Company, any of its properties or other assets or its business or operations
or (ii) was considering the amendment, termination, revocation or cancellation
of any Permit.
18
SECTION 3.10 Tax Matters. Except as otherwise provided on Section
3.10 of the Company Disclosure Schedule:
(a) The Company has timely filed, or has caused to be timely filed on
its behalf (taking into account any extension of time within which to file), all
material Tax Returns required to be filed by it, and all such filed Tax Returns
are correct and complete in all material respects. All material Taxes shown to
be due on such Tax Returns, or otherwise required to be paid by the Company,
have been timely paid and all material Taxes required to be withheld by the
Company have been withheld and timely paid over to the proper Governmental
Authority. Without limiting the generality of the immediately preceding
sentence, in all material respects for each individual who has been or would be
considered to be an employee of the Company for purposes of determining the
obligation of the Company to pay or withhold any Taxes, the Company has complied
with all applicable Laws relating to the payment and/or withholding of such
Taxes, and has timely withheld and paid over to the appropriate Governmental
Authority all amounts required to be so withheld and paid under all applicable
Laws.
(b) The Company has not been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code, other than the
affiliated group of which the Company is the common parent.
(c) The Company has no outstanding agreements, waivers, or
arrangements extending the statutory period of limitations applicable to any
claim for, or the period for the collection or assessment of Taxes. No claim has
been made in writing by a taxing authority in a jurisdiction where the Company
does not file Tax Returns that the Company is or may be subject to taxation in
that jurisdiction. No Liens for material Taxes exist with respect to any assets
or properties of the Company, except for Liens for Taxes not yet due.
(d) The federal income Tax Returns of the Company and each of its
Subsidiaries have been examined by and settled with the IRS (or the applicable
statute of limitations has expired) for all years through 2004. All assessments
for Taxes due with respect to such completed and settled examinations or any
concluded litigation have been fully paid.
(e) The Company has not constituted either a "distributing
corporation" or a "controlled corporation" (within the meaning of Section
355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code since the effective date of Section
355(e) of the Code.
(f) No audit or other administrative or court proceedings are pending
with any Governmental Authority with respect to Taxes of the Company and no
written notice thereof has been received.
19
(g) The Company is not a party to any contract, agreement, plan or
other arrangement that, individually or collectively, could give rise to the
payment of any amount which would not be deductible by reason of Section 162(m)
or Section 280G of the Code or would be subject to withholding under Section
4999 of the Code.
(h) The Company has made available to Parent correct and complete
copies of (i) all income and franchise Tax Returns of the Company and its
Subsidiaries for the preceding three taxable years and (ii) any audit report
issued within the last three years (or otherwise with respect to any audit or
proceeding in progress) relating to income and franchise Taxes of the Company.
(i) The Company is not a "United States real property holding
corporation" within the meaning of Section 897 of the Code during the five-year
period ending on the Closing Date.
(j) For purposes of this Agreement: (x) "Taxes" shall mean (A) all
federal, state, local or foreign taxes, charges, fees, imposts, levies or other
assessments, including all net income, gross receipts, capital, sales, use, ad
valorem, value added, transfer, franchise, profits, inventory, capital stock,
license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation, property and estimated taxes, customs
duties, fees, assessments and charges of any kind whatsoever, (B) all interest,
penalties, fines, additions to tax or additional amounts imposed by any
Governmental Authority in connection with any item described in clause (A), and
(C) any transferee liability in respect of any items described in clauses (A)
and/or (B) payable by reason of contract, assumption, transferee liability,
operation of Law, Treasury Regulation Section 1.1502-6(a) (or any predecessor or
successor thereof of any analogous or similar provision under Law) or otherwise,
and (y) "Tax Returns" shall mean any return, report, claim for refund, estimate,
information return or statement or other similar document relating to or
required to be filed with any Governmental Authority with respect to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
SECTION 3.11 Employee Benefits and Labor Matters.
(a) Section 3.11(a) of the Company Disclosure Schedule sets forth a
correct and complete list of (i) all full- or part-time employment, consulting,
sales commission or similar compensatory agreements, (ii) all "employee benefit
plans" (as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), (iii) all bonus or other incentive
compensation, stock purchase, equity or equity-based compensation plans,
policies, agreements or arrangements, (iv) all severance, change in control,
deferred compensation or loan plans, policies, agreements or arrangements, (v)
all health insurance or benefit, life insurance, disability insurance, salary
continuation or educational assistance plans, policies, agreements or
arrangements, (vi) all material payroll practices, including sick leave and
vacation policies, programs or arrangements and (vii) all other material
employee benefit plans, policies, agreements or arrangements, in each case with
respect to which the Company has any obligation or liability, contingent or
otherwise, for current or former employees, consultants or directors of the
Company (collectively, the "Company Plans"). Section 3.11(a) of the Company
Disclosure Schedule separately sets forth each Company Plan which is subject to
Title IV of ERISA or is a "multiemployer plan", as defined in Section 3(37) of
ERISA (a "Multiemployer Plan"), or is or has been subject to Sections 4063 or
4064 of ERISA.
20
(b) Correct and complete copies of the following documents with
respect to each of the Company Plans (other than a Multiemployer Plan) have been
delivered to Parent by the Company to the extent applicable: (i) any plans and
related trust documents, insurance contracts or other funding arrangements, and
all amendments thereto; (ii) the most recent Forms 5500 and all schedules
thereto, (iii) the most recent actuarial report, if any; (iv) the most recent
IRS determination letter; (v) the most recent summary plan descriptions; and
(vi) written summaries of all non-written Company Plans.
(c) The Company Plans have been maintained in all material respects
in accordance with their terms and with all applicable provisions of ERISA, the
Code and other Laws.
(d) The Company Plans intended to qualify under Section 401(a) or
other tax-favored treatment under of Subchapter B of Chapter 1 of Subtitle A of
the Code have received a favorable determination or opinion letter from the IRS.
To the Knowledge of the Company, nothing has occurred with respect to the
operation of the Company Plans that would reasonably be expected to cause the
loss of such qualification or exemption, or the imposition of any material
liability, penalty or tax under ERISA or the Code.
(e) Parent will not have any obligation to make any contribution or
other payment to any Multiemployer Plan which it would not have had but for the
consummation of the Transactions.
(f) All contributions required to have been made under any of the
Company Plans or by law (without regard to any waivers granted under Section 412
of the Code), have been made, and no accumulated funding deficiencies exist in
any of the Company Plans subject to Title IV of ERISA or Section 412 of the
Code.
(g) The "benefit liabilities" as defined in Section 4001(a)(16) of
ERISA of each Title IV Plan using the actuarial assumptions used by the Pension
Benefit Guaranty Corporation ("PBGC") to determine the level of funding required
in the event of the termination of such Title IV Plan do not exceed the assets
of such Title IV Plan.
(h) There are no pending actions, claims or lawsuits arising from or
relating to the Company Plans, (other than routine benefit claims), nor does the
Company have any Knowledge of facts that could form the basis for any such claim
or lawsuit.
(i) All amendments and actions required to bring the Company Plans
into conformity with all of the applicable provisions of the Code, ERISA and
other applicable Laws have been made or taken, except to the extent that such
amendments or actions are not required by law to be made or taken until a date
after the Closing Date.
21
(j) None of the Company Plans provide for post-employment life or
health coverage for any participant or any beneficiary of a participant, except
as may be required under Part 6 of the Subtitle B of Title I of ERISA or
comparable Law and at the expense of the participant or the participant's
beneficiary.
(k) Except as otherwise provided herein or as set forth in Section
3.11 of the Company Disclosure Schedule, neither the execution and delivery of
this Agreement nor the consummation of the Transactions will (i) result in any
payment becoming due to any employee, (ii) increase any benefits otherwise
payable under any Company Plan, (iii) result in the acceleration of the time of
payment or vesting of any such benefits under any such plan, or (iv) require any
contributions or payments to fund any obligations under any Company Plan.
(l) No individual who performs services for the Company (other than
through a contract with an organization) and who has not been treated by the
Company as an employee of the Company for Tax purposes is an employee of the
Company for such purposes.
(m) None of the employees of the Company is represented in his or her
capacity as an employee of the Company by any labor organization. The Company
has not recognized any labor organization, nor has any labor organization been
elected as the collective bargaining agent of any employees, nor has the Company
entered into any collective bargaining agreement or union contract recognizing
any labor organization as the bargaining agent of any employees. There is no
union organization activity involving any of the employees of the Company
pending or, to the Knowledge of the Company, threatened, nor has there ever been
union representation involving any of the employees of the Company. There is no
picketing pending or, to the Knowledge of the Company, threatened, and there are
no strikes, slowdowns, work stoppages, other job actions, lockouts,
arbitrations, grievances or other labor disputes involving any of the employees
of the Company pending or, to the Knowledge of the Company, threatened. There
are no complaints, charges or claims against the Company pending or, to the
Knowledge of the Company, threatened that could be brought or filed with any
Governmental Authority or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment or
failure to employ by the Company, of any individual. Except as disclosed on
Schedule 3.11(m) of the Company Disclosure Schedule, the Company is in
compliance with all Laws relating to the employment of labor, including all such
Laws relating to wages, hours, the Worker Adjustment and Retraining Notification
Act and any similar state or local "mass layoff" or "plant closing" law
("WARN"), collective bargaining, discrimination, civil rights, safety and
health, workers' compensation and the collection and payment of withholding
and/or social security taxes and any similar tax. There has been no "mass
layoff" or "plant closing" (as defined by WARN) with respect to the Company
since January 1, 2005.
SECTION 3.12 Environmental Matters.
(a) The Company is, and has been, in compliance with all applicable
Environmental Laws in all material respects, (B) there is no claim,
investigation, suit, action or other proceeding relating to or arising under any
Environmental Law that is pending or, to the Knowledge of the Company,
threatened against or affecting the Company or any real property currently or,
to the Knowledge of the Company, formerly owned, operated or leased by the
22
Company, (C) the Company has not received any written notice of, or entered into
or assumed, by Contract or operation of Law or otherwise, any obligation,
liability, order, settlement, judgment, injunction or decree relating to or
arising under Environmental Laws, and (C) no facts, circumstances or conditions
exist with respect to the Company or any property currently (or, to the
Knowledge of the Company, formerly) owned, operated or leased by the Company
relating to the disposal or treatment of Hazardous Materials, or with respect to
any property to or at which the Company transported or arranged for the disposal
or treatment of Hazardous Materials, that would reasonably be expected to result
in the Company incurring Environmental Liabilities. The Company has made
available to Parent correct and complete copies of all existing environmental
reports, reviews and audits and all written information pertaining to actual or
potential Environmental Liabilities relating to the Company.
(b) For purposes of this Agreement:
(i) "Environmental Laws" means all Laws relating in any way to
the environment, preservation or reclamation of natural resources, the presence,
management or Release of, or exposure to, Hazardous Materials, or to human
health and safety, including the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. ss. 5101 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Clean Water Act
(33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.),
the Safe Drinking Water Act (42 U.S.C. ss. 300f et seq.), the Toxic Substances
Control Act (15 U.S.C. ss. 2601 et seq.), the Federal Insecticide, Fungicide and
Rodenticide Act (7 U.S.C. ss. 136 et seq.), and the Occupational Safety and
Health Act (29 U.S.C. ss. 651 et seq.), each of their state and local
counterparts or equivalents, each of their foreign and international
equivalents, and any transfer of ownership notification or approval statute
(including the Industrial Site Recovery Act (N.J. Stat. Xxx. ss. 13:1K-6 et
seq.), as each has been amended and the regulations promulgated pursuant
thereto.
(ii) "Environmental Liabilities" means, with respect to any
Person, all liabilities, obligations, responsibilities, remedial actions,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including all reasonable fees, disbursements and expenses of
counsel, experts and consultants and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
claim or demand by any other Person or in response to any violation of
Environmental Law, whether known or unknown, accrued or contingent, whether
based in contract, tort, implied or express warranty, strict liability, criminal
or civil statute, to the extent based upon, related to, or arising under or
pursuant to any Environmental Law, environmental permit, order or agreement with
any Governmental Authority or other Person, which relates to any environmental,
health or safety condition, violation of Environmental Law or a Release or
threatened Release of Hazardous Materials.
23
(iii) "Hazardous Materials" means any material, substance of
waste that is regulated, classified, or otherwise characterized under or
pursuant to any Environmental Law as "hazardous", "toxic", a "pollutant", a
"contaminant", "radioactive" or words of similar meaning or effect, including
petroleum and its by-products, asbestos, polychlorinated biphenyls, radon, mold,
urea formaldehyde insulation, chlorofluorocarbons and all other ozone-depleting
substances.
(iv) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing of or migrating into or through the environment or any natural or
man-made structure.
SECTION 3.13 Contracts.
(a) Set forth in Section 3.13(a) of the Company Disclosure Schedule
is a list of each Contract of the following type, or having the following terms,
to which the Company is a party:
(i) a Contract that purports to limit, curtail or restrict the
ability of the Company or any of its existing or future Affiliates to compete in
any geographic area or line of business or restrict the Persons to whom the
Company or any of its existing or future Affiliates may sell products or deliver
services,
(ii) a partnership or joint venture agreement,
(iii) a Contract for the acquisition, sale or lease of
properties or assets (by merger, purchase or sale of stock or assets or
otherwise) entered into since January 1, 2005, in each case involving
consideration in excess of $100,000,
(iv) a Contract with any (A) Governmental Authority or (B)
director or officer of the Company,
(v) a loan or credit agreement, mortgage, indenture, note or
other Contract or instrument evidencing indebtedness for borrowed money by the
Company or any Contract or instrument pursuant to which indebtedness for
borrowed money may be incurred or is guaranteed by the Company,
(vi) a financial derivatives master agreement or confirmation,
or futures account opening agreements and/or brokerage statements, evidencing
financial hedging or similar trading activities,
(vii) a voting agreement or registration rights agreement
relating to securities of the Company,
(viii) a mortgage, pledge, security agreement, deed of trust or
other Contract granting a Lien on any property or assets of the Company,
(ix) a customer or client Contract
24
(x) a Contract (other than customer or client Contract) that
involves for 2005 or 2006 consideration (whether or not measured in cash) of
greater than $500,000 or has a duration extending beyond December 31, 2006
unless it may be terminated by the Company without penalty;
(xi) a collective bargaining agreement,
(xii) a "standstill" or similar agreement,
(xiii) to the extent material to the business or financial
condition of the Company, taken as a whole, any (A) lease or rental Contract,
(B) product design or development Contract, (C) license or royalty Contract, (D)
merchandising, sales representative or distribution Contract,
(xiv) a Contract granting a right of first refusal or first
negotiation,
(xv) a Contract providing for indemnification of any Person,
other than any Contract described above containing indemnification provisions,
and
(xvi) any commitments or agreements to enter into any of the
foregoing
(the Contracts and other documents required to be listed on Section 3.13(a) of
the Company Disclosure Schedule, together with any and all other Contracts of
such type entered into in accordance with Section 5.2, each a "Material
Contract"). The Company has heretofore made available to Parent correct and
complete copies of each Material Contract in existence as of the date hereof,
together with any and all amendments and supplements thereto and material "side
letters" and similar documentation relating thereto.
(b) Each of the Material Contracts is valid, binding and in full
force and effect and is enforceable in accordance with its terms against the
Company and, to the Knowledge of the Company, against any other party thereto,
in each case subject to the Bankruptcy and Equity Exception. Except as disclosed
in Section 3.13(b) of the Company Disclosure Schedule, the Company is not in
default under any Material Contract nor, to the Knowledge of the Company, does
any condition exist that, with notice or lapse of time or both, would constitute
a default thereunder on the part of the Company. To the Knowledge of the
Company, no other party to any Material Contract is in default thereunder, nor
does any condition exist that with notice or lapse of time or both would
constitute a default by any such other party thereunder. Except as disclosed in
Section 3.13(b) of the Company Disclosure Schedule, the Company has not received
any written notice of termination or cancellation under any Material Contract,
received any notice of any material breach or default under any Material
Contract which breach has not been cured, or granted to any third party any
rights, adverse or otherwise, that would constitute a material breach of any
Material Contract.
25
(c) Section 3.13(c) of the Company Disclosure Schedule sets forth an
accurate and complete list of (x) all contracts between the Company and
customers or clients of the Company which (y) give rise to a right of
termination by such customer or client as a result of the Transactions (i.e. as
a result of change in control provisions) (the "Change In Control Customer
Contracts" ). Since the Balance Sheet Date, and (subject to the last sentence
hereof) other than as a result of, or in connection with, the negotiation,
execution, announcement or performance of this Agreement (including the impact
thereof on relationships, contractual or otherwise, with customers, suppliers,
licensors, distributors, partners or employees) or any action taken (or any
failure to act) by Parent or Merger Sub, no customer or client identified on
Section 3.13(a) of the Company Disclosure Schedule pursuant to clause (ix)
thereof has terminated its relationship with the Company or materially reduced
or changed the pricing or other terms of its business with the Company and, to
the Knowledge of the Company, no such customer has notified the Company in
writing that it intends to terminate or materially reduce or change the pricing
or other terms of its business with the Company. Except as disclosed in Section
3.13(c) of the Company Disclosure Schedule, the Company has not received any
written notice of its failure to satisfy, and to the Knowledge of the Company,
the Company has satisfied any performance standards under any Material Contract
where it is required to do so in order to receive any fees or other payments at
the levels at which it has received fees or payments under such Contract in the
last or the current fiscal year and is not required to return any fees or
payments received by it or to provide credits against any future fees or payment
that would otherwise be due to it under any such Contract, nor is it subject to
any penalties under any such Contract, by reason of its failure to satisfy any
performance standard contained in such Contract. It is understood and agreed
that the foregoing provisions regarding the negotiation, execution, announcement
or performance of this Agreement do not qualify, and shall not have the effect
of relieving the Company from, identifying on Schedule 3.13(c) all of the Change
in Control Customer Contracts.
SECTION 3.14 Title to Properties. The Company (i) has good and valid
title to all real properties and all other material properties and other assets
which are reflected on the most recent consolidated balance sheet of the Company
as being owned by the Company (or acquired after the date thereof) (except
properties sold or otherwise disposed of since the date thereof in the ordinary
course of business consistent with past practice and not in violation of this
Agreement), free and clear of all Liens except (x) statutory liens securing
payments not yet due, (y) security interests, mortgages and pledges that secure
indebtedness that is reflected in the most recent consolidated financial
statements of the Company and (z) such other imperfections or irregularities of
title or other Liens that, individually or in the aggregate, do not and would
not reasonably be expected to materially affect the use of the properties or
assets subject thereto or otherwise materially impair the Company's business
operations as presently conducted (any Lien described in (x), (y) or (z) above,
a "Permitted Lien"), and (ii) is the lessee or sublessee of all leasehold
estates and leasehold interests in all properties or assets which are used in
the Company's business and not owned by the Company as referred to in the
foregoing clause (i). The Company enjoys peaceful and undisturbed possession
under all such leases in all material respects.
26
SECTION 3.15 Intellectual Property.
(a) For purposes of this Agreement:
(i) "Company Intellectual Property" means all Intellectual
Property Rights used by the Company in the conduct of the business of the
Company, or owned or held for use by the Company.
(ii) "Company Technology" means all Technology used by the
Company in the conduct of the business of the Company, or owned or held for use
by the Company.
(iii) "Intellectual Property Rights" shall mean all of the
rights arising from or in respect of the following, whether protected, created
or arising under the Laws of the United States or any foreign jurisdiction: (A)
patents, patent applications, any reissues, reexaminations, divisionals,
continuations, continuations-in-part and extensions thereof (collectively,
"Patents"); (B) trademarks, service marks, trade names (whether registered or
unregistered), service names, industrial designs, brand names, brand marks,
trade dress rights, Internet domain names, identifying symbols, logos, emblems,
signs or insignia, and including all goodwill associated with the foregoing
(collectively, "Marks"); (C) copyrights, whether registered or unregistered
(including copyrights in computer software programs) and registrations and
applications therefor (collectively, "Copyrights"); (D) confidential and
proprietary information, or non-public processes, designs, specifications,
technology, know-how, techniques, formulas, inventions, concepts, trade secrets,
discoveries, ideas and technical data and information, in each case excluding
any rights in respect of any of the foregoing that comprise or are protected by
Copyrights or Patents (collectively, "Trade Secrets"); and (E) all applications,
registrations and permits related to any of the foregoing clauses (A) through
(D).
(iv) "Publicly Available Software" means any open source or free
Software (including any Software licensed pursuant to a GNU public license) or
other Software that requires as a condition of use, modification or distribution
that other Software incorporated into, derived from or distributed with such
Software (a) be disclosed or distributed in source code form or (b) be licensed
for the purpose of making derivative works
(v) "Software" means computer programs, including any and all
software implementations of algorithms, models and methodologies whether in
source code, object code or other form, databases and compilations, including
any and all data and collections of data, and any descriptions, flow charts and
other documentation used in the ordinary course of business in the use thereof.
(vi) "Technology" means, collectively, designs, formulas,
algorithms, procedures, techniques, ideas, know-how, Software (whether in source
code, object code or human readable form), databases and data collections,
Internet websites and web content, tools, inventions (whether patentable or
unpatentable and whether or not reduced to practice), invention disclosures,
developments, improvements, works of authorship, other similar materials and all
recordings, graphs, drawings, reports, analyses, other writings and any other
embodiment of the above, in any form or media, whether or not specifically
listed herein.
27
(b) Section 3.15(b) of the Company Disclosure Schedule sets forth an
accurate and complete list of all Patents, registered Marks, pending
applications for registrations of any Marks, registered Copyrights and pending
applications for registration of any Copyrights, in each case, owned or filed by
the Company. Section 3.15(b) of the Company Disclosure Schedule lists the
jurisdictions in which each such Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
been filed.
(c) The Company is the sole and exclusive owner of, or has valid and
continuing rights to use, sell and license, all of the Company Intellectual
Property and Company Technology, in each case, owned or purported to be owned by
or licensed to the Company. The use, practice or other commercial exploitation
of the Company Intellectual Property by the Company, the manufacturing,
licensing, marketing, importation, offer for sale, sale or use of the Company
Technology, and the operation of the Company's business does not infringe,
violate, or misappropriate any Intellectual Property Rights of any third Person.
Except as disclosed in Section 3.15(c) of the Company Disclosure Schedule, the
Company is not a party to or the subject of any pending or, to the Knowledge of
the Company, threatened suit, action, investigation or proceeding which involves
a written claim (A) against the Company, of infringement, unauthorized use, or
violation of any Intellectual Property Rights of any Person, or challenging the
ownership, use, validity or enforceability of any Company Intellectual Property
owned by the Company or (B) contesting the right of the Company to use, sell,
exercise, license, transfer or dispose of any Company Intellectual Property or
Company Technology, or any products, processes or materials covered thereby in
any manner.
(d) To the Knowledge of the Company, no Person (including employees
and former employees of the Company) is infringing, violating, misappropriating
or otherwise misusing any Company Intellectual Property, and the Company has not
made any such written claims against any Person (including employees and former
employees of the Company).
(e) No Trade Secret of the Company as presently conducted has been
authorized to be disclosed or has been actually disclosed by the Company to any
employee or any third Person other than pursuant to a confidentiality or
non-disclosure agreement restricting the disclosure and use of the Company
Intellectual Property or Company Technology. The Company has taken reasonably
necessary and appropriate steps to protect and preserve the confidentiality of
all Trade Secrets and any other non-public, proprietary or confidential
information of the Company.
(f) Section 3.15(f) of the Company Disclosure Schedule sets forth a
correct and complete list of all Software that is (i) owned exclusively by the
Company or (ii) used by the Company in its business and not exclusively owned by
the Company or available on reasonable terms through commercial distributors or
in consumer retail stores.
28
(g) Except as set forth in Section 3.15(g) of the Company Disclosure
Schedule, no Publicly Available Software (including, without limitation, all
derivative works thereof) (i) forms part of the Technology owned by the Company,
(ii) is, in whole or in part, embodied or incorporated into any of the Company's
products, or (iii) was or is used in connection with the development or
modification of any Technology owned by the Company or any of the Company's
products.
(h) The Company owns, leases or licenses all Software, hardware,
databases, computer equipment and other information technology (collectively,
"Computer Systems") that are necessary for the operations of the Company's
business. The Computer Systems have not failed to any material extent and, to
the Knowledge of the Company, the data which they process has not been
corrupted. Except as disclosed in Section 3.15(h) of the Company Disclosure
Schedule, the data storage and transmittal capability, functionality and
performance of the Computer Systems as a whole are adequate for the conduct of
the Company's business as it has been conducted in the ordinary course. The
Company has taken reasonable steps in accordance with industry standards to
preserve the availability, security and integrity of the Computer Systems and
the data and information stored on the Computer Systems. The Company maintains
sufficiently clear documentation regarding all Computer Systems, their methods
of operation, and their support and maintenance.
SECTION 3.16 Insurance. Section 3.16 of the Company Disclosure
Schedule sets forth a summary of the material insurance policies held by, or for
the benefit of, the Company as of the date of this Agreement, including the
underwriter of such policies and the amount of coverage thereunder
(collectively, the "Policies") and the Policies are in full force and effect.
The Company is not in breach or default, and has not taken any action (or failed
to take any action) which, with notice or the lapse of time, would constitute
such a breach r default, or permit termination or modification, of any of the
Policies. No notice of cancellation or termination has been received by the
Company with respect to any of the Policies.
SECTION 3.17 Brokers and Other Advisors. No broker, investment
banker, financial advisor or other Person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission, or the reimbursement of
expenses, in connection with the Transactions based upon arrangements made by or
on behalf of the Company.
SECTION 3.18 Health Care Regulatory Compliance.
(a) No Litigation Relating to Licensing Matters. The Company is not
involved in any litigation, proceeding, or investigation by or with any
Governmental Authority relating to any license or permit required, or alleged by
such Governmental Authority to be required, for the operation of its business
which, if determined or resolved adversely, would prevent it from doing business
with any Governmental Authority or any Person regulated by a Governmental
Authority or have an adverse impact on the ability of the Company to conduct
business, other than any local licensing matter that is purely incidental in
nature.
29
(b) Fraud and Abuse. The Company and, to the Knowledge of the
Company, its officers, directors, employees and shareholders, have not knowingly
engaged in any activities that are prohibited under (i) 42 U.S.Code. Section
1320a-7a and 7b, or the regulations promulgated pursuant to such statutes or
similar or related state or local statutes or regulations or (ii) by rules of
professional conduct or which otherwise constitute fraud, including the
following: (w) making or causing to be made a false statement or
misrepresentation of a material fact in any application for any healthcare
benefit or payment; (x) making or causing to be made any false statement or
misrepresentation of a material fact for use in determining rights to any health
care benefit or payment; (y) failing to disclose knowledge by a claimant of the
occurrence of any event affecting the initial or continued right to any
healthcare benefit or payment on its behalf or on behalf of another, with intent
to secure such benefit or payment fraudulently; and (z) soliciting, paying or
receiving any remuneration (including any kickback, bribe, or rebate), directly
or indirectly, overtly or covertly, in cash or in kind or offering to pay such
remuneration (a) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by the Federal Health Care Programs (as
defined below) or any private payor source or (b) in return for purchasing,
leasing, or ordering or arranging for or recommending purchasing, leasing, or
ordering any good, facility, service, or item for which payment may be made in
whole or in part by the Federal Health Care Programs or any private payor
source. For the purposes of this Agreement, the term "Federal Health Care
Programs" means the Medicare program, the Medicaid program and the TRICARE
program.
(c) Third-Party Payors. All contracts with third-party payors were
entered into by the Company in the ordinary course of business. The Company has
properly charged and billed in accordance with the terms of those contracts in
all material respects, including, where applicable, billing and collection of
all deductibles and co-payments.
(d) HIPAA Compliance. The Company is in all material respects in
compliance, to the extent currently applicable, with the provisions of the
Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and all
regulations promulgated pursuant to HIPAA, including the Transaction Code Set
Standards, the Privacy Rules and the Security Rules set forth at 45 C.F.R. Parts
160 and 164.
SECTION 3.19 Accounts and Notes Receivable and Payable.
(a) All accounts and notes receivable of the Company have arisen from
bona fide transactions in the ordinary course of business consistent with past
practice and are payable on ordinary trade terms. None of the accounts or the
notes receivable of the Company (i) are subject to any setoffs or counterclaims
or (ii) represent obligations for goods or services subject to any repurchase,
return, refund or rebate arrangement.
30
(b) All accounts payable of the Company reflected in the Balance
Sheet or arising after the date thereof and existing on the date hereof are the
result of bona fide transactions in the ordinary course of business consistent
with past practice and have been paid or are not yet due and payable.
SECTION 3.20 Related Party Transactions. Except as set forth on
Section 3.20 of the Company Disclosure Schedule, no employee, officer, director,
stockholder, partner or member of the Company, or, to the Knowledge of the
Company, any member of his or her immediate family or any of their respective
Affiliates ("Related Persons") (i) owes any amount to the Company nor, to the
Company's Knowledge, does the Company owe any amount to, or has the Company made
or committed to make any loan or guarantee of any credit or performance to or
for the benefit of, any Related Person, (ii) is involved in any business
arrangement or other relationship with the Company (whether written or oral)
(other than in its capacity as an employee, director, stockholder, partner or
member of the Company), (iii) owns any property or right, tangible or
intangible, that is used by the Company, or (iv) to the Company's Knowledge, has
any claim or cause of action against the Company.
SECTION 3.21 Banks; Power of Attorney. Section 3.21 of the Company
Disclosure Schedule contains a complete and correct list of the names and
locations of all banks in which Company has accounts or safe deposit boxes and
the names of all persons authorized to draw thereon or to have access thereto.
Except as set forth on Section 3.21 of the Company Disclosure Schedule, no
person holds a power of attorney to act on behalf of the Company.
SECTION 3.22 Certain Payments. Except in a manner in compliance with
Law in all material respects, neither the Company nor, to the Knowledge of the
Company, any director, officer, employee or other Person associated with or
acting on behalf of any of them, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business for
the Company, (ii) to pay for favorable treatment for business secured by the
Company, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of the Company, or (iv) in material violation of any
Law, or (b) established or maintained any fund or asset with respect to the
Company that has not be recorded in the books and records of the Company.
SECTION 3.23 Full Disclosure. No representation or warranty of the
Company contained in this Agreement or any of the Company Documents contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained therein not misleading.
SECTION 3.24 Disclaimer of Other Representations and Warranties;
Knowledge.
31
(a) THE COMPANY HAS NOT MADE ANY REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER RELATING TO THE COMPANY OR THE
BUSINESS OF THE COMPANY OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY, OTHER THAN THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY
SET FORTH IN THIS ARTICLE III.
(b) Without limiting the generality of the foregoing, neither the
Company nor any representative of the Company has made, and shall not be deemed
to have made, any representations or warranties in the materials relating to the
business of the Company made available to Parent and Merger Sub, including due
diligence materials, or in any presentation of the business of the Company by
management of the Company or others in connection with the transactions
contemplated hereby, and no statement contained in any of such materials or made
in any such presentation shall be deemed a representation or warranty hereunder
or otherwise or deemed to be relied upon by Parent or Merger Sub in executing,
delivering and performing this Agreement and the transactions contemplated
hereby. It is understood that any cost estimates, projections or other
predictions, any data, any financial information or any memoranda or offering
materials or presentations, including but not limited to any offering memorandum
or similar materials made available by the Company and its representatives, are
not and shall not be deemed to be or to include representations or warranties of
the Company, and are not and shall not be deemed to be relied upon by Parent or
Merger Sub in executing, delivering and performing this Agreement and the
transactions contemplated hereby.
ARTICLE IV
Representations and Warranties of Parent and Merger Sub
-------------------------------------------------------
Parent and Merger Sub hereby jointly and severally make to the
Company the representations and warranties contained in this Article IV.
SECTION 4.1 Organization, Standing and Corporate Power. Each of
Parent and Merger Sub is a corporation duly organized, validly existing and in
good standing under the Laws of the jurisdiction in which it is incorporated.
SECTION 4.2 Authority; Noncontravention.
(a) Each of Parent and Merger Sub has all necessary corporate power
and authority to execute and deliver this Agreement and to perform their
respective obligations hereunder and to consummate the Transactions. The
execution, delivery and performance by Parent and Merger Sub of this Agreement,
and the consummation by Parent and Merger Sub of the Transactions, have been
duly authorized and approved by their respective Boards of Directors (and in the
case of Merger Sub have been approved by Parent as the sole stockholder of
Merger Sub) and no other corporate action on the part of Parent and Merger Sub
is necessary to authorize the execution, delivery and performance by Parent and
Merger Sub of this Agreement and the consummation by them of the Transactions.
This Agreement has been duly executed and delivered by Parent and Merger Sub
32
and, assuming due authorization, execution and delivery hereof by the Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub, enforceable against each of them in accordance with its terms, subject to
the Bankruptcy and Equity Exception.
(b) Neither the execution and delivery of this Agreement by Parent
and Merger Sub, nor the consummation by Parent or Merger Sub of the
Transactions, nor compliance by Parent or Merger Sub with any of the terms or
provisions hereof, will (i) conflict with or violate any provision of the
certificate of incorporation or bylaws of Parent or Merger Sub or (ii) assuming
that the authorizations, consents and approvals referred to in Section 4.4 are
obtained and the filings referred to in Section 4.4 are made, (x) violate any
Law, judgment, writ or injunction of any Governmental Authority or any
arbitration award applicable to Parent or any of its Subsidiaries or any of
their respective properties or assets, or (y) violate, conflict with, result in
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any Lien upon any of
the respective properties or assets of, Parent or Merger Sub or any of their
respective Subsidiaries under, any of the terms, conditions or provisions of any
Contract to which Parent, Merger Sub or any of their respective Subsidiaries is
a party, or by which they or any of their respective properties or assets may be
bound or affected except, in each case for such violations, conflicts, losses,
defaults, terminations, cancellations, accelerations or Liens as, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on Parent (a "Parent Material Adverse Effect").
SECTION 4.3 Governmental Approvals. Except for (i) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware
pursuant to the DGCL and (ii) filings required under, and compliance with other
applicable requirements of, the HSR Act, no consents or approvals of, or
filings, declarations or registrations with, any Governmental Authority are
necessary for the execution and delivery of this Agreement by Parent and Merger
Sub or the consummation by Parent and Merger Sub of the Transactions, other than
such other consents, approvals, filings, declarations or registrations that, if
not obtained, made or given, could not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.4 Ownership and Operations of Merger Sub. Parent owns on
the date hereof beneficially and of record all of the outstanding capital stock
of Merger Sub and, on the Closing Date, will own beneficially, directly or
indirectly through one or more other wholly-owned direct or indirect
subsidiaries, all of the outstanding capital stock of Merger Sub. Merger Sub was
formed solely for the purpose of engaging in the Transactions, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
SECTION 4.5 Brokers and Other Advisors. Except as set forth on
Schedule 4.5, no broker, investment banker, financial advisor or other Person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of Parent or any of its Subsidiaries.
33
SECTION 4.6 Required Financing. Parent and Merger Sub have sufficient
currently-available funds on hand to consummate the Merger, including, without
limitation, to (a) pay the Merger Consideration pursuant to Sections 2.1 and
2.2, and (b) pay any fees and expenses in connection with the Merger or the
financing thereof.
SECTION 4.7 Litigation. There is no suit, claim, action, proceeding
or investigation pending or, to the Knowledge of Parent, threatened against
Parent or Merger Sub and neither Parent nor Merger Sub is subject to any
outstanding order, writ, judgment, injunction or decree of any Governmental
Authority that, in either case, would be reasonably likely, individually or in
the aggregate, to (a) prevent or materially delay the consummation of the Merger
or (b) otherwise prevent or materially delay performance by Parent or Merger Sub
of any closing condition set forth in Section 6.2(d) hereof or of their material
obligations under this Agreement.
SECTION 4.8 Inspection; No Other Representations. Each of Parent and
Merger Sub is an informed and sophisticated entity, and has engaged expert
advisors experienced in the evaluation and acquisition of companies such as the
Company as contemplated hereunder. Each of Parent and Merger Sub has undertaken
such investigation and has been provided with and has evaluated such documents
and information as it has deemed necessary to enable it to make an informed and
intelligent decision with respect to the execution, delivery and performance of
this Agreement and the Transactions. Parent and Merger Sub have received all
materials relating to the business of the Company that they have requested and
have been afforded the opportunity to obtain any additional information
necessary to verify the accuracy of any such information or of any
representation or warranty made by the Company hereunder or to otherwise
evaluate the merits of the transactions contemplated hereby. Each of Parent and
Merger Sub acknowledges that the Company has given such person complete and open
access to the key employees, documents and facilities of the Company. The
Company and its representatives have answered to Parent's and Merger Sub's
satisfaction all inquiries that Parent, Merger Sub or their representatives have
made concerning the business of the Company or otherwise relating to the
transactions contemplated hereby. Without limiting the generality of the
foregoing, each of Parent and Merger Sub acknowledges that (a) the Company does
not make any representation or warranty with respect to (i) any projections,
estimates or budgets delivered to or made available to Parent or Merger Sub of
future revenues, future results of operations (or any component thereof), future
cash flows or future financial condition (or any component thereof) of the
Company or the future business and operations of the Company or (ii) any other
information or documents made available to Parent or Merger Sub or their
counsel, accountants or advisors with respect to the Company or any of their
respective businesses, assets, liabilities or operations, except as expressly
set forth in this Agreement, and (b) neither Parent nor Merger Sub has relied or
will rely upon any of the information described in subclauses (i) and (ii) of
clause (a) above in executing, delivering and performing this Agreement and the
transactions contemplated hereby.
34
ARTICLE V
Additional Covenants and Agreements
-----------------------------------
SECTION 5.1 Communications with and from Company Stockholders. The
Company shall promptly provide to Parent a copy of any written communications
regarding the Merger or this Agreement sent by the Company to any stockholder of
the Company or received by the Company from any stockholder.
SECTION 5.2 Conduct of Business. Except as expressly permitted by
this Agreement, as required by applicable Law or as permitted by the prior
written consent (which shall not be unreasonably withheld) of the Parent, during
the period from the date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement pursuant to Article VII, the Company
shall: (i) conduct its business in the ordinary course consistent with past
practice in all material respects, (ii) comply in all material respects with all
applicable Laws and the requirements of all Material Contracts, (iii) use
commercially reasonable efforts to maintain and preserve intact its business
organization and the goodwill of those having business relationships with it,
including to retain the services of its present officers and key employees, and
(iv) keep in full force and effect all material insurance policies maintained by
the Company, other than changes to such policies made in the ordinary course of
business. Without limiting the generality of the foregoing, except as expressly
permitted or required by this Agreement, as required by applicable Law or as
specified in Schedule 5.2 or permitted by the prior written consent (which shall
not be unreasonably withheld) of the Parent, during the period from the date of
this Agreement to the earlier of the Effective Time or the termination of this
Agreement pursuant to Article VII, the Company shall not:
(a) (i) issue, sell, grant, dispose of, pledge or otherwise encumber
any shares of its capital stock, voting securities or equity interests, or any
securities or rights convertible into, exchangeable or exercisable for, or
evidencing the right to subscribe for any shares of its capital stock, voting
securities or equity interests, or any rights, warrants, options, calls,
commitments or any other agreements of any character to purchase or acquire any
shares of its capital stock, voting securities or equity interests or any
securities or rights convertible into, exchangeable or exercisable for, or
evidencing the right to subscribe for, any shares of its capital stock, voting
securities or equity interests, provided that (A) the Company may issue shares
of Company Common Stock upon the exercise of Options that are outstanding on the
date of this Agreement and in accordance with the terms thereof, (B) the Company
may issue shares of Company Preferred Stock upon the exercise of Warrants that
are outstanding on the date of this Agreement in accordance with such Warrants'
terms, (C) shares of Class B Common Stock may be issued to holders of Series C
Preferred Stock or Series C Warrants who elect to convert such shares of Series
C Preferred Stock or exercise such Warrants, as applicable, and (C) shares of
Class B Common Stock and Series E Preferred Stock may be issued to holders of
Series D Preferred Stock or holders of Series D Warrants who elect to convert
such shares of Series D Preferred Stock or exercise such Warrants, as
applicable; (ii) redeem, purchase or otherwise acquire any of its outstanding
shares of capital stock, voting securities or equity interests, or any rights,
warrants, options, calls, commitments or any other agreements of any character
to acquire any shares of its capital stock, voting securities or equity
35
interests; (iii) declare, set aside for payment or pay any dividend on, or make
any other distribution in respect of, any shares of its capital stock or
otherwise make any payments to its stockholders in their capacity as such; (iv)
split, combine, subdivide or reclassify any shares of its capital stock or (v)
amend (including by reducing the exercise price or extending the term) or waive
any of its rights under, any provision of the Stock Plans or any Option issued
thereunder;
(b) incur or assume any indebtedness for borrowed money or guarantee
any indebtedness (or enter into a "keep well" or similar agreement) or issue or
sell any debt securities or options, warrants, calls or other rights to acquire
any debt securities of the Company, other than any overdraft borrowings by the
Company incurred in the ordinary course of business in amounts not in excess of
$10,000 in the aggregate outstanding at any time under existing credit
agreements listed on Section 3.13(a) of the Company Disclosure Schedule;
(c) sell, transfer, lease, mortgage, encumber or otherwise dispose of
or subject to any Lien (including pursuant to a sale-leaseback transaction or an
asset securitization transaction), other than for Permitted Liens, any of its
properties or assets to any Person, except (i) pursuant to Contracts in force on
the date of this Agreement and listed on Section 5.2(c) of the Company
Disclosure Schedule, correct and complete copies of which have been made
available to Parent, or (ii) dispositions of obsolete or worthless assets;
(d) make any capital expenditures, except in the ordinary course of
business consistent with past practice and in an amount not in excess of $50,000
in the aggregate for the Company during any three consecutive month period;
(e) directly or indirectly acquire (i) by merging or consolidating
with, or by purchasing all of or a substantial equity interest in, or by any
other manner, any Person or division, business or equity interest of any Person
or (ii) except as permitted under Section 5.2(d), otherwise acquire any assets
except in the ordinary course of business consistent with past practice,
provided, further, that no such acquisition in the ordinary course of any assets
that, individually, have a purchase price in excess of $10,000 or any group of
related assets that, in the aggregate, have a purchase price in excess of $
40,000 shall be made without reasonable prior notice to Parent and shall not be
made over the Parent's objection (which shall not be unreasonably interposed);
(f) make any investment (by contribution to capital, property
transfers, purchase of securities or otherwise) in, or loan or advance (other
than travel and similar advances to its employees in the ordinary course of
business consistent with past practice) to, any Person;
(g) (1) enter into, terminate or amend in any material respect any
Contract with a customer or client or, other than in the ordinary course of
business consistent with past practice, any other Material Contract or any other
Contract that is material to the Company, (2) enter into or extend the term or
scope of any Contract that purports to restrict the Company, or any existing or
future Affiliate of the Company, from engaging in any line of business or in any
36
geographic area, (3) enter into any Contract that would be breached by, or
require the consent of any third party in order to continue in full force
following, consummation of the Transactions, or (4) release any Person from, or
modify or waive any provision of, any confidentiality, standstill or similar
agreement or fail to take all action necessary to enforce each such
confidentiality, standstill and similar agreement (in each case, other than any
such agreement with Parent);
(h) increase in any manner the compensation of any of its directors,
officers or employees or enter into, establish, amend or terminate any
employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other welfare,
stock option or other equity (or equity-based), pension, retirement, vacation,
severance, deferred compensation or other compensation or benefit plan, policy,
program, agreement, trust, fund or arrangement with, for or in respect of, any
stockholder, director, officer, other employee, consultant or Affiliate, other
than (1) as required pursuant to applicable Law or the terms of an agreement,
plan or program identified in Section 3.11(a) of the Company Disclosure
Schedule, (2) increases in salaries, wages and benefits of non-management
employees made in the ordinary course of business and in amounts and in a manner
consistent with past practice, (3) acceleration of the vesting of Options
outstanding on the date hereof and (4) as described on Schedule 5.2 of the
Company Disclosure Schedules;
(i) make or change any material election concerning Taxes or Tax
Returns, file any amended Tax Return, enter into any closing agreement with
respect to Taxes, settle any material Tax claim or assessment or surrender any
right to claim a refund of Taxes or obtain any Tax ruling;
(j) make any changes in financial or tax accounting methods,
principles or practices (or change an annual accounting period), except insofar
as may be required by a change in GAAP or applicable Law;
(k) amend the Company Charter Documents;
(l) adopt a plan or agreement of complete or partial liquidation,
dissolution, restructuring, recapitalization, merger, consolidation or other
reorganization;
(m) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction in accordance with their terms of liabilities, claims or
obligations reflected or reserved against in the most recent consolidated
financial statements (or the notes thereto) of the Company or incurred since the
date of such financial statements in the ordinary course of business consistent
with past practice (provided, that the foregoing shall not require the Company
to obtain the consent of Parent for the settlement of the performance disputes
disclosed on Exhibit 9.12 attached hereto, so long as the cost of such
settlement does not exceed the amounts required to be accrued for such
settlement as provided by such exhibit and such settlement does not otherwise
impose any restrictions or impose any other burden on the Company's business);
37
(n) issue any broadly distributed communication of a general nature
to employees (including general communications relating to benefits and
compensation) or to customers or clients without the prior approval of Parent,
except for communications that do not relate to the Transactions;
(o) settle or compromise any litigation, proceeding or investigation
material to the Company (this covenant being in addition to the Company's
agreement set forth in Section 5.9); or
(p) [intentionally omitted];
(q) enter into, modify or terminate any labor or collective
bargaining agreement of the Company or, through negotiation or otherwise, make
any commitment or incur any liability to any labor organization with respect to
the Company;
(r) enter into, or modify, amend or terminate, any Contract which (1)
would have a term of more than one year (unless the Company or the Subsidiary
may cancel such Contract in its discretion without incurring any liability) or
(2) could reasonably be expected to have a Company Material Adverse Effect
(provided, however, that in no event will the Company be considered in breach of
this clause (ii) in connection with entering into a Contract after the date
hereof for which it has received the written consent of Parent); or
(s) agree, in writing or otherwise, to take any of the foregoing
actions, or intentionally take, or agree to take, any action which would (1)
cause any of the representations or warranties of the Company set forth in this
Agreement to be untrue in any material respect or (2) in any material respect
impede or delay the ability of the Company to satisfy any of its conditions to
the Merger set forth in this Agreement.
For purposes of the Company seeking to obtain the consent of Parent where
required by any of the foregoing provisions of this Section, the parties
acknowledge and agree that Parent shall designate one person, who shall
initially be Xxxx Xxxxx, Parent's Chief Operating Officer, as the individual
authorized to provide the Company with any such consent, and the Parent agrees
to cause such individual to respond to a request for any such consent from the
Company on a reasonably prompt basis.
SECTION 5.3 No Solicitation by the Company; Etc.
(a) The Company shall, and shall cause its directors, officers,
employees, investment bankers, financial advisors, attorneys, accountants,
agents and other representatives (collectively, "Representatives") to,
immediately cease and cause to be terminated any discussions or negotiations
with any Person conducted heretofore with respect to a Takeover Proposal. The
Company shall not, and shall cause its Representatives not to, directly or
indirectly (i) solicit, initiate, cause, facilitate or knowingly encourage
(including by way of furnishing information) any inquiries or proposals that
38
constitute, or would reasonably be expected to lead to, a Takeover Proposal, and
use its commercially reasonable efforts to obtain the return form all such
Persons, or to cause the destruction of, all copies of confidential information
previously provided to such parties by the Company or its Representatives, (ii)
participate in any discussions or negotiations with any third party regarding a
Takeover Proposal or (iii) enter into any agreement related to a Takeover
Proposal; provided, however, that if, after the date hereof, the Board of
Directors of the Company receives an unsolicited, bona fide written Takeover
Proposal made after the date hereof in circumstances not involving a breach of
this Agreement, and the Board of Directors of the Company, by majority vote of
the entire Board, reasonably determines in good faith that such Takeover
Proposal may reasonably be expected to lead to a Superior Proposal and with
respect to which such Board determines in good faith, after consulting with and
receiving the advice of outside counsel, that the taking of such action is
necessary in order for such Board to comply with its fiduciary duties to the
Company's stockholders under Delaware law, then the Company may, after providing
Parent not less than 24 hours written notice of its intention to take such
actions, (A) furnish information with respect to the Company to the Person
making such Takeover Proposal, but only after such Person enters into a
customary confidentiality agreement with the Company (which confidentiality
agreement must be no less favorable to the Company than the Confidentiality
Agreement), provided that (1) such confidentiality agreement may not include any
provision calling for an exclusive right of the counterparty to negotiate with
the Company and (2) the Company advises Parent of all non-public information
delivered to such Person concurrently with its delivery to such Person and
concurrently with its delivery to such Person the Company delivers to Parent all
such information not previously provided to Parent, and (B) participate in
discussions and negotiations with such Person regarding such Takeover Proposal.
Without limiting the foregoing, it is understood that any violation of the
foregoing restrictions by the Company's Representatives shall be deemed to be a
breach of this Section 5.3 by the Company. The Company shall provide Parent with
a correct and complete copy of any confidentiality agreement entered into
pursuant to this paragraph within 24 hours of the execution thereof.
(b) In addition to the other obligations of the Company set forth in
this Section 5.3, the Company shall promptly advise Parent, orally or in
writing, and in no event later than 24 hours after receipt, if any proposal,
offer, inquiry or other contact is received by, any information is requested
from, or any discussions or negotiations (or continuation of discussions or
negotiations) are sought to be initiated with, the Company in respect of any
Takeover Proposal, and shall, in any such notice to Parent, indicate the
identity of the Person making such proposal, offer, inquiry or other contact and
the terms and conditions of any proposals or offers or the nature of any
inquiries or contacts (and shall include with such notice copies of any written
materials received from or on behalf of such Person relating to such proposal,
offer, inquiry or request), and thereafter shall promptly keep Parent fully
informed of all material developments affecting the status and terms of any such
proposals, offers, inquiries or requests (and the Company shall provide Parent
with copies of any additional written materials received that relate to such
proposals, offers, inquiries or requests) and of the status of any such
discussions or negotiations.
39
(c) Except as expressly permitted by this Section 5.3(c), neither the
Board of Directors of the Company nor any committee thereof shall (i)(A)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Parent, the Company Board Recommendation or the approval or
declaration of advisability by such Board of Directors of this Agreement and the
Merger and the other transactions contemplated hereby or (B) approve or
recommend, or propose publicly to approve or recommend, any Takeover Proposal
(any action described in this clause (i) being referred to as a "Company Adverse
Recommendation Change") or (ii) approve or recommend, or propose publicly to
approve or recommend, or cause or authorize the Company to enter into, any
letter of intent, agreement in principle, memorandum of understanding, merger,
acquisition, purchase or joint venture agreement or other agreement related to
any Takeover Proposal (other than a confidentiality agreement in accordance with
Section 5.3(a)). Notwithstanding the foregoing, the Board of Directors of the
Company may make a Company Adverse Recommendation Change in response to an event
occurring after the date hereof, if it determines in good faith that the
Takeover Proposal constitutes a Superior Proposal and after consulting with and
receiving advice from outside counsel, that the failure to make such withdrawal,
modification or recommendation would constitute a breach by the Board of
Directors of the Company of its fiduciary duties to the Company's stockholders
under Delaware law; provided, however, that no Company Adverse Recommendation
Change may be made in response to a Superior Proposal until after the third day
following Parent's receipt of written notice from the Company (a "Company
Adverse Recommendation Notice") advising Parent that the Board of Directors of
the Company intends to make such Company Adverse Recommendation Change and
specifying the terms and conditions of such Superior Proposal (it being
understood and agreed that any amendment to the financial terms or other
material terms of such Superior Proposal shall require a new Company Adverse
Recommendation Notice and a new three (3) day period).
(d) For purposes of this Agreement, "Takeover Proposal" means any
inquiry, proposal or offer from any Person or "group" (as defined in Section
13(d) of the Exchange Act), other than for purposes of this Section Parent and
its Subsidiaries, relating to any (A) direct or indirect acquisition (whether in
a single transaction or a series of related transactions) of assets of the
Company, (B) direct or indirect acquisition (whether in a single transaction or
a series of related transactions) of 15% or more of any class of equity
securities of the Company, (C) tender offer or exchange offer that if
consummated would result in any Person or "group" beneficially owning 15% or
more of any class of equity securities of the Company or (D) merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company; in each
case, other than the Transactions.
(e) Nothing in this Section 5.3 shall prohibit the Board of Directors
of the Company from taking and disclosing to the Company's stockholders a
position contemplated by Rule 14e-2(a) promulgated under the Exchange Act if
such Board determines in good faith, after consultation with outside counsel,
that failure to so disclose such position would constitute a violation of
applicable Law; provided, however, that in no event shall the Company or its
Board of Directors or any committee thereof take, or agree or resolve to take,
any action prohibited by Section 5.3(c).
40
(f) Notwithstanding the foregoing provisions of this Section that
permit the Board of Directors of the Company to make a Company Adverse
Recommendation Change, a failure of the Company, upon having taken such action,
to perform this Agreement, including to consummate the Merger if the conditions
provided by Article VI are satisfied, shall nevertheless constitute a breach of
this Agreement.
SECTION 5.4 Best Efforts.
(a) Subject to the terms and conditions of this Agreement (including
Section 5.4(d)), each of the parties hereto shall cooperate with the other
parties and use (and shall cause their respective Subsidiaries to use) their
respective commercially reasonable efforts to (i) take, or cause to be taken,
all actions, and do, or cause to be done, all things, necessary, proper or
advisable to cause the conditions to Closing to be satisfied as promptly as
practicable and to consummate and make effective, in the most expeditious manner
practicable, the Transactions, including preparing and filing promptly and fully
all documentation to effect all necessary filings, notices, petitions,
statements, registrations, submissions of information, applications and other
documents (including any required or recommended filings under applicable
Antitrust Laws), and (ii) obtain all approvals, consents, registrations,
permits, authorizations and other confirmations from any Governmental Authority
or third party necessary, proper or advisable to consummate the Transactions.
For purposes hereof, "Antitrust Laws" means the Xxxxxxx Act, as amended, the
Xxxxxxx Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other applicable Laws issued by a Governmental Authority that
are designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade or lessening of
competition through merger or acquisition.
(b) In furtherance and not in limitation of the foregoing, (i) each
party hereto agrees to make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act with respect to the Transactions as promptly as
practicable and in any event within three (3) business days of the date hereof
and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and use its
reasonable best efforts to take, or cause to be taken, all other actions
consistent with this Section 5.4 necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable. Parent covenants and agrees that it shall be solely responsible for
any filing or related fees incurred in connection with the aforementioned
filings under the HSR Act.
(c) Each of the parties hereto shall use its reasonable best efforts
to (i) cooperate in all respects with each other in connection with any filing
or submission with a Governmental Authority in connection with the Transactions
and in connection with any investigation or other inquiry by or before a
Governmental Authority relating to the Transactions, including any proceeding
initiated by a private party, and (ii) keep the other party informed in all
material respects and on a reasonably timely basis of any material communication
received by such party from, or given by such party to, the Federal Trade
41
Commission, the Antitrust Division of the Department of Justice, or any other
Governmental Authority and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding any of
the Transactions. Subject to applicable Laws relating to the exchange of
information, each of the parties hereto shall have the right to review in
advance, and to the extent practicable each will consult the other on, all the
information relating to the other party and their respective Subsidiaries, as
the case may be, that appears in any filing made with, or written materials
submitted to, any third party and/or any Governmental Authority in connection
with the Transactions.
(d) In furtherance and not in limitation of the covenants of the
parties contained in this Section 5.4, each of the parties hereto shall use its
reasonable best efforts to resolve such objections, if any, as may be asserted
by a Governmental Authority or other Person with respect to the Transactions.
Notwithstanding the foregoing or any other provision of this Agreement, the
Company shall not, without Parent's prior written consent, commit to any
divestiture transaction or agree to any restriction on its business, and nothing
in this Section 5.4 shall (i) limit any applicable rights a party may have to
terminate this Agreement pursuant to Section 7.1 so long as such party has up to
then complied in all material respects with its obligations under this Section
5.4 or (ii) require Parent to offer, accept or agree to (A) dispose or hold
separate any part of its or the Company's businesses, operations, assets or
product lines (or a combination of Parent's and the Company's respective
businesses, operations, assets or product lines), (B) not compete in any
geographic area or line of business, and/or (C) restrict the manner in which, or
whether, Parent, the Company, the Surviving Corporation or any of their
Affiliates may carry on business in any part of the world.
SECTION 5.5 Public Announcements. The initial press release with
respect to the execution of this Agreement shall be a joint press release to be
reasonably agreed upon by Parent and the Company. Thereafter, neither the
Company nor Parent shall issue or cause the publication of any press release or
other public announcement (to the extent not previously issued or made in
accordance with this Agreement) with respect to the Merger, this Agreement or
the other Transactions without the prior consent of the other party (which
consent shall not be unreasonably withheld or delayed), except as may be
required by Law or in the case of the Parent by its listing agreement with
Nasdaq as determined in its good faith judgment (in which case such party shall
not issue or cause the publication of such press release or other public
announcement without prior consultation insofar as practicable with the
Company).
SECTION 5.6 Access to Information; Confidentiality. Subject to
applicable Laws relating to the exchange of information, the Company agrees
that, prior to the Effective Time or the termination of this Agreement in
accordance with Article VII, Parent shall be entitled, through its officers,
employees and representatives (including its legal advisors and accountants), to
make such investigation of the properties, businesses and operations of the
Company and such examination of the books, records and financial condition of
the Company as it reasonably requests and to make extracts and copies of such
books and records. Any such investigation by Parent shall not unreasonably
interfere with any of the businesses or operations of the Company. Neither
Parent nor any of its officers, employees or representatives shall, prior to the
Closing Date, have any contact whatsoever with any customer, lender, lessor,
vendor, supplier, employee or consultant of the Company, except in consultation
42
with the Company and then only with the express prior approval of the Company,
which approval shall not be unreasonably withheld. All requests by Parent for
access or information shall be submitted or directed exclusively to an
individual or individuals to be designated by the Company. In order that Parent
may have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Company, the Company shall use commercially reasonable efforts to cause
the officers, employees, consultants, agents, accountants, attorneys and other
representatives of the Company to cooperate fully with such representatives in
connection with such review and examination. Except for disclosures permitted by
the terms of the Confidentiality Agreement, dated in December 2004, between
Parent and the Company (as it may be amended from time to time, the
"Confidentiality Agreement"), Parent and its Representatives shall hold
information received from the Company pursuant to this Section 5.6 in confidence
in accordance with the terms of the Confidentiality Agreement.
SECTION 5.7 Notification of Certain Matters. The Company shall give
prompt written notice to Parent, and Parent shall give written prompt notice to
the Company, of (i) any notice or other communication received by such party
from any Governmental Authority in connection with the Transactions or from any
Person alleging that the consent of such Person is or may be required in
connection with the Transactions, if the subject matter of such communication or
the failure of such party to obtain such consent could be material to the
Company, the Surviving Corporation or Parent or the ability of the parties to
consummate the Transactions, (ii) any actions, suits, claims, investigations or
proceedings commenced or, to such party's knowledge, threatened against,
relating to or involving or otherwise affecting such party or any of its
Affiliates which relate to the Transactions, (iii) the discovery of any fact or
circumstance that, or the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which, would cause any representation or
warranty made by such party contained in this Agreement (A) that is qualified as
to materiality or Material Adverse Effect to be untrue or (B) that is not so
qualified to be untrue in any material respect, and the Company shall as part of
such notice include an amendment of the Company Disclosure Schedule to the
extent necessary to make the Company Disclosure Schedule true and correct in
light of, and as of the time of, such discovery or occurrence or non-occurrence
(including the commencement or threat of any action, suit, claim, investigation
or proceeding referred to in clause (ii) of this sentence), (iv) any material
failure of such party to comply with or satisfy any covenant or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.7 shall not (x) cure any breach of any
representation or warranty of the party giving such notice or any non-compliance
by the party giving such notice with any other provision contained in this
Agreement or (y) limit the remedies available to the party receiving such notice
(except as otherwise specifically provided in Section 8.2(a)).
SECTION 5.8 Indemnification and Insurance.
(a) From and after the Effective Time, the Parent shall not amend or
permit the amendment of the certificate of incorporation or bylaws of the
Surviving Corporation, as previously delivered to the Company and the
Stockholder Representative, in a way that shall eliminate, limit, impair, reduce
or condition the indemnity provided the individuals who at or prior to the
Effective Time were directors or officers of the Company (collectively, the
"Indemnitees") with respect to any act or omission by any of them in his or her
43
capacity as a director, officer or employee of the Company prior to the
Effective Date as such indemnity is provided by the Company Charter Documents as
in effect on the date of this Agreement, provided such indemnification is
permitted under applicable Law. From and after the Effective Time, Parent shall
cause the Surviving Corporation to indemnify said directors and officers in
respect of acts or omissions occurring prior to the Effective Time to the extent
provided in, and in accordance with the terms of, the certificate of
incorporation and/or bylaws of the Surviving Corporation and, if applicable, any
written indemnification agreements which exists with any such Persons as of the
Effective Time (correct and complete copies of which have been made available to
the Parent).
(b) Prior to the Effective Time, after consultation with Parent, the
Company shall purchase an extended reporting period endorsement under the
Company's existing directors' and officers' liability insurance coverage for the
Company's directors and officers in a form reasonably acceptable to Parent which
shall provide such directors and officers with coverage for six years following
the Effective Time of not less than the existing coverage under, and have other
terms not materially less favorable on the whole to, the insured persons than
the directors' and officers' liability insurance coverage presently maintained
by the Company, so long as the aggregate cost is less than $ 120,000: provided
that the Company agrees to cooperate in good faith with Parent in order to
obtain the lowest premium for such coverage. In the event that $ 120,000 is
insufficient for such coverage, the Company may spend up to that amount to
purchase such lesser coverage as may be obtained with such amount. Parent shall
cause the Surviving Entity to refrain from taking any act that would cause such
coverage to cease to remain in full force and effect.
(c) The Indemnitees to whom this Section 5.8 applies shall be third
party beneficiaries of this Section 5.8. The provisions of this Section 5.8 are
intended to be for the benefit of each Indemnitee and his or her heirs. The
obligations under this Section 5.8 shall not be terminated or modified in such a
manner as to adversely affect any such Indemnitee without his or her written
consent.
(d) In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any Person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Parent
assume the obligations set forth in this Section 5.8.
SECTION 5.9 Securityholder Litigation. The Company shall give Parent
the opportunity to participate, prior to the Effective Time, in the defense or
settlement of any securityholder litigation against the Company and/or its
directors relating to the Transactions, and no such settlement shall be agreed
to before the Effective Time without Parent's prior consent, which consent shall
not be unreasonably withheld.
44
SECTION 5.10 Fees and Expenses. Except as may otherwise be provided
herein, all fees and expenses incurred in connection with this Agreement, the
Merger and the Transactions shall be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated.
SECTION 5.11 Stockholder Notices; Closing of Stock Transfer Books.
Promptly after the date hereof, the Company will prepare and distribute to the
Company Stockholders the notices required by Sections 228(e) and 262(d)(2) of
the DGCL, and any other applicable provisions of the DGCL informing them that
appraisal rights are available for their shares pursuant to Section 262 of the
DGCL and otherwise complying with all requirements under the DGCL and providing
that any notices required to be given thereby for the exercise of any rights
thereunder be given not later than the Determination Date. Parent will have the
right to review all such notices and statements prior to their distribution.
Such materials shall not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
Company's obligations pursuant to the first sentence of this Section 5.11 shall
not be affected by the commencement, public proposal, public disclosure or
communication to the Company of any Takeover Proposal. In addition, the Company
agrees to immediately notify Parent in writing upon its receipt of any notices
or other communications with respect to Dissenting Shares.
SECTION 5.12 Change In Control Customer Contracts. The Company shall,
prior to the Closing Date, (i) notify each third party to the Change In Control
Customer Contracts listed on Section 3.13 of the Company Disclosure Schedule of
the Transactions and (ii) request a waiver of any termination rights arising as
a result of the Transactions from each such party.
SECTION 5.13 Tax Matters.
(a) The Company shall prepare (or cause to be prepared) and file (or
cause to be filed) when due (taking into account all extensions properly
obtained) all Tax Returns required to be filed by or with respect to the Company
on or prior to the Closing Date. All such Tax Returns shall be prepared in a
manner consistent with past practice; provided that there is a reasonable basis
for the positions claimed on such Tax Returns. The Company shall deliver to
Parent copies of each such Tax Return at least twenty (20) days prior to the due
date for filing such Tax Return, and shall permit Parent to review and approve
such Tax Return prior to filing (which approval shall not be unreasonably
withheld or delayed); provided that the failure of Parent to deliver a written
objection to the Company within 10 days of receipt of such Tax Return shall be
deemed to constitute approval. If the parties have not resolved any dispute
relating to any such Tax Return prior to the due date for filing such Tax
Return, then the Company shall file such Tax Return as prepared, but such filing
shall not prejudice the rights of any party to pursue such dispute.
45
(b) Following the Closing, Parent shall prepare (or cause to be
prepared) and file (or cause to be filed) when due (taking into account all
extensions properly obtained) all Tax Returns required to be filed by or with
respect to the Company after the Closing Date. All such Tax Returns relating to
Pre-Closing Tax Periods and Straddle Periods shall be prepared in a manner
consistent with past practice; provided that there is a reasonable basis for the
positions claimed on such Tax Returns. Parent shall deliver to the Stockholder
Representative copies of each such Tax Return relating to Pre-Closing Tax
Periods and Straddle Periods, along with a statement (a "Tax Statement") showing
the Seller's share of any Taxes owed that are reflected on such Tax Return
(which shall be computed in accordance with the calculation of a Tax Loss), at
least twenty (20) days prior to the due date for filing such Tax Return, and
shall permit the Stockholder Representative to review and approve such Tax
Return and Tax Statement prior to filing (which approval shall not be
unreasonably withheld or delayed); provided that the failure of the Stockholder
Representative to deliver a written objection to Parent within 10 days of
receipt of such Tax Return shall be deemed to constitute approval. If the
parties have not resolved any dispute relating to any such Tax Return prior to
the due date for filing such Tax Return, then Parent shall file such Tax Return
as prepared, but such filing shall not prejudice the rights of any party to
pursue such dispute.
(c) Not later than two (2) days prior to the due date for the payment
of Taxes on any Tax Returns relating to Pre-Closing Periods or Straddle Periods
for which Parent has the responsibility to file (or cause to be filed), the
Stockholder Representative shall cause the Escrow Fund to pay to Parent the
amount shown on the corresponding Tax Statement; provided, however, that in the
event that the Stockholder Representative disputes the amount shown on the Tax
Statement, the dispute resolution provisions of Section 8.3 shall apply and, as
shall be provided in the Escrow Agreement, the Stockholder Representative shall
not be required to cause the Escrow Fund to pay Parent any contested amount in
respect of such Tax Returns until the dispute is resolved. No payment pursuant
to this Section 5.13(c) shall excuse the Escrow Fund from its indemnification
obligations pursuant to Section 8.2 if the amount of Taxes as ultimately
determined (on audit or otherwise) for the periods covered by such Tax Returns
exceeds the amount of the Escrow Fund's payment under this Section 5.13(c).
(d) Notwithstanding anything to the contrary contained in this
Agreement, Parent shall have the sole right to control, through counsel of its
own choosing, the defense or settlement of any claim or proceeding relating to a
Tax Loss; provided that, with respect to any Tax Loss for which the Escrow Fund
shall be liable under the indemnification provisions hereunder, Parent (i) shall
keep the Stockholder Representative apprised of all developments relating to
such claim or proceeding, (ii) shall provide the Stockholder Representative with
copies of all correspondence from any taxing authority relating to any such
claim or proceeding, (iii) shall provide the Stockholder Representative in
advance with any proposed submission relating to such claim or proceeding, (iv)
shall consult with the Stockholder Representative in good faith concerning any
such submission and the conduct of the proceeding, and (v) shall not settle any
such claim or proceeding without the prior written consent of the Stockholder
Representative (which shall not be unreasonably withheld or delayed).
46
ARTICLE VI
Conditions Precedent
--------------------
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party hereto to effect the Merger
shall be subject to the satisfaction (or waiver, if permissible under applicable
Law) on or prior to the Closing Date of the following conditions:
(a) Antitrust Clearance. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have expired; and
(b) No Injunctions or Restraints. No Law, injunction, judgment or
ruling enacted, promulgated, issued, entered, amended or enforced by any
Governmental Authority, and no arbitration award, enjoining, restraining,
preventing or prohibiting consummation of the Merger or making the consummation
of the Merger illegal (collectively, "Restraints") shall be in effect.
SECTION 6.2 Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are further subject to
the satisfaction (or waiver, if permissible under applicable Law) on or prior to
the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement (without giving effect to
any notice or amendment of the Company Disclosure Schedule made pursuant to
Section 5.7(ii) or (iii) are true and correct, in each case as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations and warranties expressly
relate to an earlier date in which case as of made as of such earlier date;
provided, however, that notwithstanding that any representation or warranty of
the Company contained herein that has not been qualified by a requirement that
it have a Material Adverse Effect has been breached, as determined without
giving effect to any other requirement of materiality contained therein, the
condition required by this Section 6.1(a) shall be deemed satisfied unless any
such breach of a representation or warranty by the Company or all such breaches
collectively have a Material Adverse Effect, and Parent shall have received a
certificate signed on behalf of the Company by the chief executive officer and
the chief financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect.
(c) No Company Material Adverse Effect. No event, condition or
circumstance shall have occurred or been discovered since the date of this
Agreement such that there has been any Company Material Adverse Effect.
47
(d) No Litigation, Etc. There shall not be any action, investigation,
proceeding or litigation instituted, commenced, pending or threatened by or
before any Governmental Authority that would, or that seeks to or is reasonably
likely to, (i) restrain, enjoin, prevent, prohibit or make illegal the
acquisition of some or all of the shares of Company Common Stock by Parent or
Merger Sub or the consummation of the Merger or the other Transactions, (ii)
impose limitations on the ability of Parent or its Affiliates effectively to
exercise full rights of ownership of all shares of the Surviving Corporation
including the right to vote all such shares on all matters properly presented to
stockholders, (iii) restrain, enjoin, prevent, prohibit or make illegal, or
impose limitations on, Parent's or any of its Affiliates' ownership or operation
of all or any material portion of the businesses and assets of the Company or,
as a result of the Transactions, restrain, enjoin, prevent, prohibit or make
illegal, or impose limitations on, any portion of the business or assets of
Parent or any of its Subsidiaries or , (iv) result in a Governmental
Investigation being commenced or continued after the Effective Time or in
Governmental Damages being imposed on the Surviving Corporation or Parent or any
of their respective Affiliates, (v) as a result of the Transactions, compel
Parent or any of its Affiliates to dispose of any shares of the Surviving
Corporation or to dispose of or hold separate any material portion of the
businesses or assets of the Company and its Subsidiaries (taken together as a
whole), or (vi) impose damages (other than Governmental Damages referred to in
the foregoing clause (iv) of this sentence) on Parent or any of its Subsidiaries
or on the Company as a result of the Transactions in amounts that are material
in relation to the Company or the Transactions. As used herein, (i)
"Governmental Damages" shall mean (A) any penalties or fines paid or payable to
a Governmental Authority or (B) any restitution paid or payable to a third
party, in either case as a result of the (x) conviction (including as a result
of the entry of a guilty plea, a consent judgment or a plea of nolo contendere)
of the Company or any of its Subsidiaries of a crime or (y) a settlement with a
Governmental Authority for the purpose of closing a Governmental Investigation;
provided, however, that any de minimis penalties, fines or payments shall not be
deemed to be Governmental Damages; and (ii) "Governmental Investigation" shall
mean an investigation by a Governmental Authority for the purpose of imposing
criminal sanctions.
(e) Appraisal Rights. Appraisal rights shall not have been exercised
and notice of the intention to exercise such rights shall not have been given in
accordance with the provisions of Section 262(d) of the DGCL by holders of the
Company Common Stock and Company Preferred Stock with respect to, in the
aggregate and in the case of Preferred Stock convertible to Common Stock on an
as-if-converted basis, more than five percent (5%) of the issued and outstanding
shares of Company Common Stock as of immediately prior to the Effective Time,
and Parent shall have received a certificate signed on behalf of the Company by
the chief executive officer and the chief financial officer of the Company to
such effect.
(f) Required Consents. The Company shall have obtained all material
third party consents, waivers and approvals listed on Schedule 6.2(f) of the
Company Disclosure Schedule, each such consent, waiver and approval being in
form and substance reasonably satisfactory to Parent and not requiring as a term
thereof or condition thereto any materially adverse condition or requirement on
the conduct of business by the Company, any of its Subsidiaries, Parent or any
of its subsidiaries.
48
(g) Employment Agreements. Each officer of the Company identified on
Exhibit 6.2(g) shall have duly entered into, executed and delivered to Parent,
for the benefit of Parent and the Surviving Corporation, an employment
agreement, including a release of any claims of liability against the Surviving
Corporation or Parent, and such amendment of the agreements or instruments
governing his Modified Options, effective as of the Closing, as is provided by
Exhibit 6.2(g).
(h) FIRPTA Certificate. Parent shall have received a statement issued
by the Company in compliance with Treasury Regulation Section 1.1445-2(c)(3) and
in a form reasonably satisfactory to Parent certifying that the Company Stock is
not a U.S. real property interest.
(i) Good Standing Certificates. The Company shall have delivered, or
caused to be delivered, to Parent certificates of good standing as of a recent
date with respect to the Company issued by the Secretary of State of the State
of Delaware and appropriate certificate attesting to its authorization to do
business in each state in which the Company is qualified to do business as a
foreign corporation (except for such states the failure to qualify in which
would not be reasonably expected to have a Material Adverse Effect on the
Company).
SECTION 6.3 Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is further subject to the satisfaction (or
waiver, if permissible under applicable Law) on or prior to the Closing Date of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement that are
qualified as to materiality or Parent Material Adverse Effect shall be true and
correct, and the representations and warranties of Parent and Merger Sub
contained in this Agreement that are not so qualified shall be true and correct
in all material respects, in each case as of the date of this Agreement and as
of the Closing Date as though made on the Closing Date, except to the extent
such representations and warranties expressly relate to an earlier date, in
which case as of such earlier date, and the Company shall have received a
certificate signed on behalf of Parent by an executive officer of Parent to such
effect.
(b) Performance of Obligations of Parent and Merger Sub. Parent and
Merger Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date, and the Company shall have received a certificate signed on behalf of
Parent by an executive officer of Parent to such effect.
SECTION 6.4 Frustration of Closing Conditions. None of the Company,
Parent or Merger Sub may rely on the failure of any condition set forth in
Section 6.1, 6.2 or 6.3, as the case may be, to be satisfied as grounds for its
not consummating the Merger when otherwise required hereunder if such failure
was caused by such party's failure to use its commercially reasonable efforts to
consummate the Merger and the other Transactions, as required by and subject to
the provisions of Section 5.4.
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ARTICLE VII
Termination
-----------
SECTION 7.1 Termination. This Agreement may be terminated and the
Transactions abandoned at any time prior to the Effective Time:
(a) by the mutual written consent of the Company and Parent duly
authorized by each of their respective Boards of Directors (or a duly authorized
committee thereof); or
(b) by either of the Company or Parent:
(i) if the Merger shall not have been consummated on or before
February 28, 2006, except that, in the event the Closing has not occurred by
such date solely because the Governmental Approvals referred to in Schedule
6.2(f) of the Company Disclosure Schedule have not been received by such date,
such date shall automatically be extended to March 31, 2005 (the "Walk-Away
Date"), provided, however, that the right to terminate this Agreement under this
Section 7.1(b)(i) shall not be available to a party if the failure of the Merger
to have been consummated on or before the Walk-Away Date was primarily due to
the failure of such party to perform any of its obligations under this
Agreement; or
(ii) if any injunction or restraining order having the effect
set forth in Section 6.1(b) shall be in effect and shall have become final and
nonappealable; or
(c) by Parent:
(i) if the Company shall have breached or failed to perform any
of its representations, warranties, covenants or agreements set forth in this
Agreement (or if any of the representations or warranties of the Company set
forth in this Agreement shall fail to be true), which breach or failure (A)
would (if it occurred or was continuing as of the Closing Date) give rise to the
failure of a condition set forth in Section 6.2(a) or (b) and (B) is not cured
by the Company within 15 business days following receipt of written notice from
Parent of such breach or failure or is incapable of being cured before the
Walk-Away Date; or
(ii) if (A) the Company shall have violated Section 5.3 in any
material respect, (B) a Company Adverse Recommendation Change shall have
occurred or (C) the Board of Directors of the Company or an authorized committee
thereof (1) shall not have rejected any Takeover Proposal within seven days of
the making thereof (including, for these purposes, by taking no position with
respect to the acceptance by the Company's stockholders of a tender offer or
exchange offer, which shall constitute a failure to reject such Takeover
Proposal) or (2) shall have failed to reconfirm the Company Board Recommendation
within three days after receipt of a written request from Parent that it do so
if such request is made following the making by any Person of a Takeover
Proposal; or
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(d) by the Company if Parent shall have breached or failed to perform
any of its representations, warranties, covenants or agreements set forth in
this Agreement (or if any of the representations or warranties of Parent set
forth in this Agreement shall fail to be true), which breach or failure (1)
would (if it occurred or was continuing as of the Closing Date) give rise to the
failure of a condition set forth in Section 6.3(a) or (b) and (2) is not cured
by Parent within 15 business days following receipt of written notice from the
Company of such breach or failure or is incapable of being cured before the
Walk-Away Date.
SECTION 7.2 Means and Effect of Termination. In the event a party
wishes to terminate this Agreement as provided in Section 7.1, written notice
thereof shall be given to the other party or parties, specifying the provision
hereof pursuant to which such termination is made, and this Agreement shall
forthwith become null and void (other than the provisions of the first sentence
of Section 3.17, the last sentence of Sections 5.6 and 5.10, this Section 7.2,
Section 7.3 and, insofar as pertinent to the application thereof, Article IX,
all of which shall survive termination of this Agreement), and there shall be no
other liability on the part of Parent, Merger Sub or the Company or their
respective directors, officers and Affiliates in connection therewith, provided
that nothing herein shall relieve any party from liability for fraud or any
willful breach of this Agreement.
SECTION 7.3 Termination Fee.
(a) In the event that:
(i) (A) a Takeover Proposal shall have been made known to the
Company or shall have been made directly to its stockholders generally or any
Person shall have publicly announced an intention (whether or not conditional or
withdrawn) to make a Takeover Proposal, (B) thereafter, this Agreement is
terminated by the Company pursuant to Section 7.1(b)(i), (C) Parent has not
breached this Agreement in any material respect and (D) the Company enters into
a definitive agreement with respect to, or consummates, a transaction
contemplated by any Takeover Proposal within twelve (12) months after the date
this Agreement is terminated;
(ii) this Agreement is terminated by Parent pursuant to Section
7.1(c)(ii); or
(iii) (A) a Takeover Proposal shall have been made known to the
Company or shall have been made directly to its stockholders generally or any
Person shall have publicly announced an intention (whether or not conditional or
withdrawn) to make a Takeover Proposal and thereafter, (B) this Agreement is
terminated by Parent pursuant to Section 7.1(c)(i) in circumstances not covered
by Section 7.3(c)(ii), and the Company's breach or failure triggering such
termination shall have been willful, and (C) the Company enters into a
definitive agreement with respect to, or consummates, a transaction contemplated
by any Takeover Proposal within twelve (12) months of the date this Agreement is
terminated;
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then in any such event under clause (i), (ii) or (iii) of this Section 7.3(a),
the Company shall pay to Parent a termination fee of $5,000,000 in cash (the
"Termination Fee"). The right of the Company to receive a Termination Fee as
provided by this Section 7.3 shall not limit any right Parent may have to
receive damages or to any other remedy or relief by reason of any breach by the
Company of this Agreement (but the receipt by Parent of a Termination Fee may be
considered in determining the amount of damages sustained by Parent as a result
of such breach).
(b) Any payment required to be made pursuant to clause (i), (ii) or
(iii) of Section 7.3(a) shall be made to Parent promptly following either the
termination of this Agreement in the case referred to Section 7.3(a)(ii) or the
execution of a definitive agreement with respect to a Takeover Proposal in the
cases referred to in Sections 7.3(a)(i) or (iii). All such payments shall be
made by wire transfer of immediately available funds to an account to be
designated by Parent.
(c) In the event that the Company shall fail to pay the Termination
Fee pursuant to Sections 7.3(a) and (b) when due, such fee shall accrue interest
for the period commencing on the date such fee became past due, at a rate equal
to the rate of interest publicly announced by Citibank, in the City of New York
from time to time during such period, as such bank's Prime Lending Rate plus
four percent (4%) (four hundred basis points). In addition, if the Company shall
fail to pay such fee when due, the Company shall also pay to Parent all of
Parent's costs and expenses (including attorneys' fees) in connection with
efforts to collect such fee.
(d) The Company acknowledges that the fee and the other provisions of
Sections 7.3(a), (b) and (c) are an integral part of the Transactions and that,
without the Company's agreement to these provisions, Parent would not enter into
this Agreement.
ARTICLE VIII
Survival of Representations and Warranties; Indemnification
-----------------------------------------------------------
SECTION 8.1 Survival of Representations and Warranties.
(a) The representations and warranties of the Company contained in
this Agreement shall survive the Closing until the date which is eighteen (18)
months following the Closing Date (the "Expiration Date" ), whereupon all of
such representations and warranties shall expire. Any claim for a Loss asserted
in good faith on or prior to the Expiration Date which sets forth in a written
notice given to the Stockholder Representative in reasonable detail (based on
the facts then available) the nature and estimated scope of such claim will be
timely made for purposes hereof. Any claim for indemnification with respect to
any of such matters that is not asserted by such notice on or prior to the
Expiration Date may not be pursued and is hereby irrevocably waived after such
time.
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(b) All covenants and agreements made by the parties to this
Agreement which contemplate performance following the Closing Date shall survive
the Closing Date in accordance with their terms. All covenants and agreements
that contemplate performance prior to the Closing Date shall not survive the
Closing Date; provided, however, that if any such covenant or agreement is
breached on or prior to the Closing Date, the non-breaching party shall, subject
to Section 8.4, retain all rights and remedies hereunder with respect to such
breach following the Closing Date.
SECTION 8.2 Indemnification.
(a) Indemnification. Until the Expiration Date (except as provided in
Section 8.3(b)) and subject to the provisions of this Article VIII, the Escrow
Fund shall be available in the manner provided in the Escrow Agreement to
indemnify, defend and hold harmless Parent, the Surviving Corporation, and their
respective subsidiaries, directors, officers, employees, consultants,
independent contractors, agents and representatives (the "Parent Indemnified
Parties") from and against any and all Losses (irrespective of whether or not
such Losses arise out of or in connection with a third party claim) to the
extent, but only to the extent, relating to, resulting from or arising out of:
(i) any failure of the representations and warranties made by
the Company set forth in this Agreement or in any Company Document to be true
and correct,
(ii) any breach of any covenant or other agreement on the part
of the Company under this Agreement or any Company Document, or
(iii) any Tax Losses,
such foregoing Losses being referred to herein as "Parent Indemnifiable Losses;"
provided, however, that, (x) the Parent Indemnified Parties may not recover any
amount for Parent Indemnifiable Losses arising from inaccuracies of, or breaches
of, the representations or warranties contained herein (i) unless and until the
aggregate amount of all Parent Indemnifiable Losses exceeds $400,000 (the
"Deductible"), and then only with respect to Parent Indemnifiable Losses in
excess of the Deductible, and (ii) in addition to, and not in limitation or to
the exclusion of the application of the Deductible, only in respect of Parent
Indemnifiable Losses arising from the inaccuracies of, or breaches of, the
representations or warranties contained herein solely by reason of events that
occurred in the ordinary course of business of the Company after the date hereof
of which notice has been given to Parent by the Company pursuant to Section 5.7,
unless and until such Losses exceed $50,000 plus, if the Closing has not
occurred by February 3, 2006, an additional amount of $25,000 (such $50,000 or
$75,000 amount, as the case may be, the "Additional Deductible"), and then only
with respect to such Losses in excess of the Additional Deductible, provided
that the Deductible and Additional Deductible shall not apply to breaches of any
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representations or warranties contained in Sections 3.1, 3.2, 3.3, 3.4 and
3.10), and (y) the sole recourse for Parent Indemnifiable Losses for which the
Parent Indemnified Parties shall be entitled to indemnification shall be the
Escrow Fund. For purposes of calculating Losses hereunder, after a breach or
failure by the Company referred to in Section 8.2(a) or (b) has been
established, any materiality or Material Adverse Effect qualifications in the
representations, warranties, covenants and agreements shall be ignored for
purposes of determining the amount of the Loss.
(b) Additional Limits on Indemnification. Notwithstanding any
provision set forth in this Article VIII to the contrary:
(i) No Parent Indemnified Party shall be entitled to
indemnification hereunder with respect to any Losses that are punitive, special
or exemplary;
(ii) Parent acknowledges and agrees that for purposes hereof,
Losses shall be calculated based on the amount of Loss that remains after (A)
deducting therefrom any insurance proceeds and any indemnity, contribution or
other similar payment actually received by a Parent Indemnified Party from any
third party with respect thereto (and a Parent Indemnified Party shall exhaust
all of its remedies against applicable insurers, indemnitors or contributors
prior to seeking indemnification hereunder or agree to refund any indemnity
payment received by it to the extent of any such recovery), and (B) taking into
account any Federal, state, local or foreign tax benefits actually realized by
such Parent Indemnified Parties that actually reduce cash Taxes payable by such
Parent Indemnified Parties within 18 months following the Closing Date by reason
of any Loss;
(iii) No Parent Indemnified Party shall be entitled to
indemnification hereunder for any Loss arising from a breach of any
representation, warranty or covenant or Tax Loss set forth herein (and the
amount of any Loss incurred in respect of such breach shall not be included in
the calculation of any limitations on indemnification set forth herein) to the
extent that such liability is included in the Estimated Net Working Capital or
the Final Net Working Capital; and
(iv) Each Parent Indemnified Party or Company Indemnified Party,
as applicable, shall take all commercially reasonable measures to mitigate all
Losses upon and after becoming aware of any event which could reasonably be
expected to give rise to Losses.
SECTION 8.3 Escrow Arrangements.
(a) Escrow Fund. For the period of its existence as herein provided,
the Escrow Fund shall be available to compensate the Parent Indemnified Parties
for any Losses incurred or sustained by them and for which they are entitled to
recovery under this Article VIII and shall be distributed to Parent for such
purpose from time to time as provided by Section 8.3 and the Escrow Agreement.
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(b) Claims for Indemnification. For the purposes hereof, an
"Officer's Certificate" shall mean a certificate signed by any officer of Parent
and delivered to the Escrow Agent and the Stockholder Representative: (i)
stating that Parent has paid, incurred, sustained or accrued, or reasonably
anticipates that it will imminently be obligated to pay, incur, sustain or
accrue, Losses, (ii) specifying in reasonable detail the individual items of
Loss included in the amount so stated, the date insofar as practicable each such
item was paid, incurred, sustained or accrued or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or
covenant or the nature of the Tax Loss to which such item is related, and (iii)
the amount of cash to be delivered to Parent (for the benefit of the pertinent
Parent Indemnified Party) in compensation for such Losses. Upon receipt by the
Escrow Agent at any time on or before the Expiration Date of an Officer's
Certificate, the Escrow Agent shall, subject to the provisions of Section 8.3(c)
and (d), deliver to Parent, as promptly as practicable, an amount of cash from
the Escrow Fund equal to the amount of Losses set forth in such Officer's
Certificate; provided, however, that to the extent an Officer's Certificate
alleges only the basis for anticipated Losses, no amount shall be distributed
until such Losses are actually paid, incurred or sustained. If the Stockholder
Representative does not object in writing within the 30-day period set forth in
Section 8.3(c) after delivery by Parent of the Officer's Certificate to the
Stockholder Representative, such failure to so object shall constitute an
irrevocable acknowledgment by the Stockholder Representative on behalf of the
Company Stockholders that the Indemnified Party is entitled to the full amount
of the claim for Losses set forth in such Officer's Certificate; provided,
however, that to the extent an Officer's Certificate alleges only the basis for
anticipated Losses, no amount shall be distributed until such Losses are
actually paid, incurred or substantiated (notwithstanding the Stockholder
Representative's failure to object in writing).
(c) Objections to Claims against the Escrow Fund. At the time of
delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of
such certificate shall be delivered simultaneously to the Stockholder
Representative, and for a period of thirty days after such delivery, the Escrow
Agent shall make no delivery to Parent of any portion of the Escrow Funds
pursuant to Section 8.3(c) unless the Escrow Agent shall have received written
authorization from the Stockholder Representative to make such delivery. After
the expiration of such 30-day period, the Escrow Agent shall make payment
pursuant to Section 8.3(c), provided that no such payment may be made if the
Stockholder Representative shall object in a written statement to the claim made
in the Officer's Certificate, and such statement shall have been delivered to
the Escrow Agent prior to the expiration of such 30-day period.
(d) Resolution of Conflicts; Arbitration.
(i) If the Stockholder Representative shall object in writing to
any claim or claims made in any Officer's Certificate to recover Losses from the
Escrow Fund within thirty (30) days after delivery of such Officer's
Certificate, then the Stockholder Representative and Parent shall attempt in
good faith to agree upon the rights of the respective parties with respect to
each of such claims. If the Stockholder Representative and Parent should so
agree, a memorandum setting forth such agreement shall be prepared and signed by
both parties and, in the case of a claim against the Escrow Fund, shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any
such memorandum and make distributions from the Escrow Fund in accordance with
the terms thereof.
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(ii) If no such agreement can be reached after good faith
negotiation and prior to sixty (60) days after delivery of an Officer's
Certificate, either Parent or the Stockholder Representative may demand
arbitration of the matter unless the amount of the Loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration. In any
such event the matter shall be settled by arbitration conducted by one
arbitrator mutually agreeable to Parent and the Stockholder Representative. In
the event that, within thirty (30) days after submission of any dispute to
arbitration, Parent and the Stockholder Representative cannot mutually agree on
one arbitrator, then, within fifteen (15) days after the end of such thirty
(30)-day period, Parent and the Stockholder Representative shall each select one
arbitrator. The two arbitrators so selected shall select a third arbitrator. If
one party but not the other fails to select an arbitrator during this fifteen
(15)-day period, then the parties agree that the arbitration will be conducted
by the one arbitrator selected by the party which has made such a selection.
(iii) Any such arbitration shall be held in New York, New York
under the rules and procedures then in effect of the American Arbitration
Association. The arbitrator(s) shall determine how all expenses relating to the
arbitration shall be paid, including the respective expenses of each party, the
fees of each arbitrator and the administrative fee of the American Arbitration
Association. The arbitrator or arbitrators, as the case may be, shall set a
limited time period and establish procedures designed to reduce the cost and
time for discovery while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrator or majority of the three arbitrators, as the
case may be, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrator, or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys'
fees and costs, to the same extent as a competent court of law or equity, should
the arbitrators or a majority of the three arbitrators, as the case may be,
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator or a majority of the three arbitrators, as the case
may be, as to the validity and amount of any claim in such Officer's Certificate
shall be final, binding, and conclusive upon the parties to this Agreement. Such
decision shall be written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or order awarded
by the arbitrator(s), and the Escrow Agent shall be entitled to rely on, and
make distributions from the Escrow Fund in accordance with, the terms of such
award, judgment, decree or order as applicable. Within ten (10) days of a
decision of the arbitrator(s) requiring payment by one party to another, such
party shall make the payment to such other party. The Stockholder Representative
shall be entitled to pay such amounts from the Stockholder Representative
Reserve.
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(iv) Judgment upon any award rendered by the arbitrator(s) may
be entered in any court having jurisdiction. The foregoing arbitration provision
shall apply to any dispute between the Stockholder Representative and the Parent
Indemnified Party under this Article VIII, whether relating to claims upon the
Escrow Fund or to the other indemnification obligations set forth in this
Article VIII.
(e) Third-Party Claims. A Parent Indemnified Party shall give the
Stockholders' Representative written notice of any claim, assertion, event or
proceeding by or in respect of a third party as to which such Parent Indemnified
Party may request indemnification hereunder or as to which the Deductible or, if
applicable, Additional Deductible may be applied as soon as is practicable and
in any event within fifteen calendar days of the time that such Parent
Indemnified Party learns of such claim, assertion, event or proceeding;
provided, however, that the failure to so notify the Stockholders'
Representative shall not affect rights to indemnification hereunder except to
the extent that the Company Stockholders are prejudiced by such failure. The
Stockholders' Representative shall have the right to direct, through counsel of
its own choosing, the defense or settlement of any such claim or proceeding
(other than a claim for Tax Losses) at its own expense. If the Stockholders'
Representative elects to assume the defense of any such claim or proceeding, the
Stockholders' Representative shall consult with the Parent Indemnified Party for
the purpose of allowing the Parent Indemnified Party to participate in such
defense, but in such case the expenses of the Parent Indemnified Party shall be
paid by the Parent Indemnified Party. A Parent Indemnified Party shall provide
and shall cause the Surviving Corporation to provide, as applicable, the
Stockholders' Representative and counsel with reasonable access to its records
and personnel relating to any claim or proceeding subject to indemnity hereunder
during normal business hours and, if the Stockholder Representative has assumed
the defense thereof, shall otherwise cooperate with the Stockholders'
Representative in the defense or settlement thereof. Whether or not the
Stockholders' Representative elects to direct the defense of any such claim or
proceeding, a Parent Indemnified Party shall not pay, or permit to be paid, any
part of any claim or demand arising from such asserted liability unless the
Stockholders' Representative consents in writing to such payment (which consent
shall not be unreasonably withheld) or unless the Stockholders' Representative,
subject to the last sentence of this Section 8.3(e), withdraws from the defense
of such asserted liability or unless a final judgment from which no appeal may
be taken by or on behalf of the Company Stockholders is entered against Parent
Indemnified Party for such liability. If the Stockholders' Representative fails
to defend or if, after commencing or undertaking any such defense, the
Stockholders' Representative fails to prosecute or withdraws from such defense,
Parent Indemnified Party shall have the right to undertake the defense or
settlement thereof, and shall be entitled to be reimbursed out of the Escrow
Fund for any Losses resulting therefrom.
(f) The failure of the indemnified party to give reasonably prompt
notice of any indemnification claim shall not release, waive or otherwise affect
the indemnifying party's obligations with respect thereto except to the extent
that the indemnifying party can demonstrate actual loss and prejudice as a
result of such failure.
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(g) Stockholder Representative Reserve. $250,000 from the Escrow Fund
shall be set aside as the Stockholder Representative reserve (the "Stockholder
Representative Reserve"). " The Stockholder Representative may, at its sole
discretion, apply the Stockholder Representative Reserve in the manner as shall
be provided in the Escrow Agreement toward any liability or expenses it incurs
hereunder, including expenses incurred in connection with its assumption of the
defense of a third party claim as contemplated above.
SECTION 8.4 Exclusive Remedy. Except as provided in Section 7.2 and
this Section 8.4, from and after the Effective Time, resort to indemnification
pursuant to this Article VIII and the Escrow Fund shall be the exclusive right
and remedy of Parent Indemnified Parties for any Loss arising out of or related
to any breach of this Agreement or to the transactions contemplated by this
Agreement. Except for claims for equitable relief and claims with respect to
fraud solely against the Person or Persons committing or alleged to have
committed such fraud, recovery from the Escrow Fund pursuant to this Article
VIII shall be the sole and exclusive remedy of the Parent Indemnified Parties
for any breach of any provision of this Agreement or any matter that is
otherwise indemnifiable hereunder if the Merger contemplated hereby is
consummated.
SECTION 8.5 Tax Losses.
(a) For purposes of Section 8.2(a)(iii), "Tax Losses" means any and
all Losses attributable to Taxes (or the non-payment thereof) of the Company and
its Subsidiaries for all Pre-Closing Tax Periods (including the portion of any
Straddle Period attributable to the Pre-Closing Tax Period).
(b) For purposes of allocating income, gain, deductions and losses
attributable to the period up to and including the Effective Time for a Straddle
Period, (i) real, personal and intangible property Taxes shall be allocated on a
per diem basis, (ii) exemptions, allowances or deductions that are calculated on
an annual basis, such as the deduction for depreciation, will be apportioned
ratably between such periods on a per diem basis and (iii) other Taxes
(including income taxes and taxes in lieu of income taxes to the extent not
governed by clause (ii)), shall be allocated based on a closing of the books as
of the close of business on the Closing Date (including, without limitation, a
closing of the books on the Closing Date for purposes of allocating income,
gain, deductions and losses attributable to the Company).
SECTION 8.6 Tax Treatment of Indemnity Payments. The Company and
Parent agree to treat any indemnity payment made pursuant to this Article VIII
as an adjustment to the Merger Consideration for federal, state, local and
foreign income tax purposes unless a contrary treatment is required under
applicable Law.
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ARTICLE IX
Miscellaneous
-------------
SECTION 9.1 Stockholder Representative.
(a) TA IX L.P. shall represent and act as agent for all the other
Company Stockholders for the purposes specified in this Agreement (in such
capacity, the "Stockholder Representative" "). As Stockholder Representative, he
shall be authorized and empowered, as agent of and on behalf of all stockholders
of the Company entitled to receive any consideration pursuant to this Agreement
by reason of the Merger or otherwise having an interest in any matter concerning
this Agreement, to give and receive notices and communications as provided
herein, to object to any claims for Parent Indemnifiable Losses, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to, such
claims or Losses, to receive payments on behalf of the Company Stockholders due
and owing pursuant to this Agreement and acknowledge receipt thereof, to waive
after the Effective Time any breach or default of Parent or Merger Sub of any
obligation to be performed by it under this Agreement, to receive service of
process on behalf of each Company Stockholder in connection with any claims
against such Company Stockholder arising under or in connection with this
Agreement, any document or instrument provided for hereby or any of the
Transactions, and to take all other actions that are either (i) necessary or
appropriate in the judgment of the Stockholder Representative for the
accomplishment of the foregoing or (ii) specifically mandated by the terms of
this Agreement. Such agency may be changed by the Company Stockholders from time
to time upon not less than thirty (30) days prior written notice to Parent;
provided, however, that the Stockholder Representative may not be removed unless
at least a majority in interest of the Company Stockholders (determined on the
basis of the amount of Merger Consideration receivable by such Company
Stockholders consent in writing to such removal and to the identity of an agent
who shall substitute therefor, which substitute shall thereupon be the
"Stockholders Representative." In the event of the death, incapacity or
resignation of the Stockholder Representative, the vacancy in the position of
Stockholder Representative may likewise be filled by at least a majority in
interest of the Company Stockholders (determined on the basis of the amount of
Merger Consideration receivable by such Company Stockholders by like notice to
the Parent. No bond shall be required of the Stockholder Representative, and the
Stockholder Representative shall not receive any compensation for its services.
Notices or communications to or from the Stockholder Representative shall
constitute notice to or from the Company Stockholders.
(b) In dealing with this Agreement and any notice, instrument,
agreement or document relating thereto, and in exercising or failing to exercise
all or any of the powers conferred upon the Stockholder Representative hereunder
or thereunder, (i) the Stockholder Representative and its agents, counsel,
accountants and other representatives shall not assume any, and shall incur no,
responsibility whatsoever (in each case, to the extent permitted by applicable
Law) to the Company Stockholders, Parent or the Surviving Corporation by reason
of any error in judgment or other act or omission performed or omitted hereunder
or in connection with this Agreement or any such other agreement, instrument or
59
document, other than in respect of an act or omission done in bad faith or with
gross negligence on the part of the Stockholder Representative, and (ii) the
Stockholder Representative shall be entitled to rely in good faith on the advice
of counsel, public accountants or other independent experts experienced in the
matter at issue, and any error in judgment or other act or omission of the
Stockholder Representative pursuant to such advice shall in no event subject the
Stockholder Representative to liability to the Company Stockholders, Parent or
the Surviving Corporation. Pursuant to the following sentence, and to the
fullest extent permitted by applicable Law, the Company Stockholders shall be,
severally based on each Company Stockholder's pro rata share of the Merger
Consideration and not jointly, obligated to indemnify the Stockholder
Representative and hold the Stockholder Representative harmless against any
loss, liability or expense incurred without gross negligence or bad faith on the
part of the Stockholder Representative and arising out of or in connection with
the acceptance or administration of the Stockholder Representative's duties
hereunder, including the reasonable fees and expenses of any legal counsel
retained by the Stockholder Representative.
(c) The grant of authority provided for in this Section 9.1: (i) is
coupled with an interest and is being granted, in part, as an inducement to
Parent and Merger Sub to enter into this Agreement and the Escrow Agreement, and
shall be irrevocable and survive the dissolution, liquidation or bankruptcy of
the Company or the death, incompetency, liquidation or bankruptcy of any Company
Stockholder, shall be binding on any successor thereto, and (ii) shall survive
the delivery of an assignment by any Company Stockholder of the whole or any
fraction of his, her or its interest in the Escrow Fund.
(d) In connection with the performance of its obligations hereunder,
the Stockholder Representative shall have the right at any time and from time to
time to select and engage, at the cost and expense of the Company Stockholders
(as contemplated by Section 9.1(b), attorneys, accountants, investment bankers,
advisors, consultants and clerical personnel and obtain such other professional
and expert assistance, and maintain such records, as the Stockholder
Representative may deem necessary or desirable and incur other out-of-pocket
expenses related to performing its services hereunder.
(e) All of the immunities and powers granted to the Stockholder
Representative under this Agreement shall survive the Closing and/or any
termination of this Agreement.
(f) A decision, act, consent or instruction of the Stockholder
Representative, including an extension or waiver of this Agreement pursuant to
Article VII or Section 9.3, as applicable, shall constitute a decision of the
Company Stockholders and holders of Company Stock Options and shall be final,
binding and conclusive upon the Company Stockholders; Parent and the Surviving
Corporation may rely upon any such decision, act, consent or instruction of the
Stockholder Representative as being the decision, act, consent or instruction of
all the Company Stockholders. Parent and the Surviving Corporation are hereby
relieved from any Liability to any Person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholder
Representative.
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(g) The Stockholder Representative has all requisite power, authority
and legal capacity to execute and deliver this Agreement and each other
agreement, document, or instrument or certificate contemplated by this Agreement
or to be executed by the Stockholder Representative in connection with the
consummation of the transactions contemplated by this Agreement (together with
this Agreement, the "Stockholder Representative Documents"), and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and each of the Stockholder Representative Documents, the
performance of its respective obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all required action on the part of the Stockholder Representative.
This Agreement has been, and each of the Stockholder Representative Documents
will be at or prior to the Closing, duly and validly executed and delivered by
the Stockholder Representative and (assuming the due authorization, execution
and delivery by the other parties hereto and thereto) this Agreement
constitutes, and each of the Stockholder Representative Documents when so
executed and delivered will constitute, legal, valid and binding obligations of
the Stockholder Representative enforceable against it in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
SECTION 9.2 Amendment or Supplement. At any time prior to the
Effective Time, this Agreement may be amended or supplemented in any and all
respects, by written agreement of the parties hereto, authorized by action taken
by their respective Boards of Directors; provided, however, that no amendment or
change to the provisions hereof shall be made which by Law would require further
approval by the Company Stockholders without such approval.
SECTION 9.3 Extension of Time, Waiver, Etc. At any time prior to the
Effective Time, any party may, subject to Section 9.2 and applicable Law, (a)
waive any inaccuracies in the representations and warranties of any other party
hereto, (b) extend the time for the performance of any of the obligations or
acts of any other party hereto or (c) waive compliance by the other party with
any of the agreements contained herein or, except as otherwise provided herein,
waive any of such party's conditions. Notwithstanding the foregoing, no failure
or delay by the Company, Parent or Merger Sub in exercising any right hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right hereunder. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
61
SECTION 9.4 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
operation of Law or otherwise, by any of the parties without the prior written
consent of the other parties, except that Merger Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to any wholly owned Subsidiary of Parent, but no such assignment shall
relieve Merger Sub of any of its obligations hereunder. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and their respective successors and permitted
assigns. Any purported assignment not permitted under this Section shall be null
and void.
SECTION 9.5 Counterparts. This Agreement may be executed in
counterparts (each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement) and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the Company Disclosure Schedule and the Confidentiality Agreement (a)
constitute the entire agreement, and supersede all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof and thereof and (b) except for the
provisions of Section 5.8 and Article VIII, are not intended to and shall not
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
SECTION 9.7 Governing Law; Jurisdiction; Waiver of Jury Trial.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware without regard to the principles,
policies or provisions thereof concerning conflict or choice of laws.
(b) Each of the parties hereto hereby irrevocably waives any and all
rights to trial by jury in any legal proceeding arising out of or related to
this Agreement or the Transactions.
SECTION 9.8 Specific Enforcement. The Company, Parent and Merger Sub
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
Company, Parent and Merger Sub shall be entitled to an injunction or injunctions
to prevent breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any Delaware state court or any federal court of
competent jurisdiction, without any bond or other security being required of it
therefor, this being in addition to any other remedy to which they are entitled
at law or in equity.
SECTION 9.9 Consent to Jurisdiction. Each of the parties hereto (i)
consents to submit itself to the personal jurisdiction of any Delaware state
court or any federal court located in the State of Delaware with respect to any
action or proceeding arising out of any dispute pertaining to this Agreement or
62
any of the Transactions, (ii) agrees that it will not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave from any such
court and (iii) agrees that it will not bring any action relating to this
Agreement or any of the Transactions in any other court (and any appropriate
court for the prosecution of any appeal from or against any decision or action
thereof).
SECTION 9.10 Notices. All notices, requests and other communications
to any party hereunder shall be in writing and shall be deemed given if
delivered personally, sent by facsimile (receipt of which is confirmed) or sent
by overnight courier (providing proof of delivery) to the parties at the
following addresses:
If to Parent or Merger Sub, to:
Magellan Health Services, Inc.
00 Xxx Xxxx
Xxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxx Xxxxxxxx, General Counsel
Facsimile: 000-000-0000
with a copy (which shall not constitute notice) to:
Weil, Gotshal & Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx
Facsimile: (000) 000-0000
If to the Company, to:
National Imaging Associates, Inc.
Continental Plaza
000 Xxxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxx, President
Facsimile: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxx Procter LLP
Exchange Place
Boston, MA 02109
Attention: Xxxxx X. Xxxxxx and Xxxxxx X. Xxxxxxxxx
Facsimile: (000) 000-0000
63
or such other address or facsimile number as such party may hereafter specify by
like notice to the other parties hereto. All such notices, requests and other
communications shall be deemed received on the date of receipt by the recipient
thereof if received prior to 5 P.M. in the place of receipt and such day is a
business day in the place of receipt. Otherwise, any such notice, request or
communication shall be deemed not to have been received until the next
succeeding business day in the place of receipt.
SECTION 9.11 Severability. If any term or other provision of this
Agreement is determined by a court of competent jurisdiction to be invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other terms, provisions and conditions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement, to the fullest extent
permitted by applicable law, so as to effect the original intent of the parties
as closely as possible, to the end that the transactions contemplated hereby
may, except in respect of such modified provision, be consummated as
contemplated hereby.
SECTION 9.12 Definitions.
(a) As used in this Agreement, the following terms have the meanings
ascribed thereto below:
"Affiliate" shall mean, as to any Person, any other Person that,
directly or indirectly, controls, or is controlled by, or is under common
control with, such Person. For this purpose, "control" (including, the
correlative terms, "controlled by" and "under common control with") shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of management or policies of a Person, whether through the ownership
of securities or partnership or other ownership interests, by contract or
otherwise.
"business day" shall mean a day except a Saturday, a Sunday or other
day on which the SEC or banks in the City of New York are authorized or required
by Law to be closed.
"Company Documents" shall mean each agreement, document or instrument
or certificate contemplated by this Agreement to be executed by the Company in
connection with the transactions contemplated by this Agreement (including,
without limitation, the Company Disclosure Schedule).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" shall mean generally accepted accounting principles in the
United States.
"Governmental Authority" shall mean any government, court, regulatory
or administrative agency, commission or authority or other governmental
instrumentality, federal, state or local, domestic, foreign or multinational.
00
"XXX Xxx" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended.
"Knowledge" of any Person that is not an individual or a Governmental
Authority shall mean, with respect to any matter in question, the actual
knowledge, after due inquiry, of (i) in the case of the Company, any of the
following people: Xxxx Xxxxxxx, Xxxxxx Xxxxxxx, Xxxxx Xxxxx, Xxxxx Xxxxx and
Xxxxxx Xxxx, (ii) in the case of Parent or Merger Sub, the chief executive
officer, chief financial officer and General Counsel, and (iii) any other
Person, such Person's executive officers.
"Liability" means any debt, loss, damage, adverse claim, liability or
obligation (whether direct or indirect, known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, or due or to become due, and whether in contract, tort, strict
liability or otherwise).
"Liens" shall mean any liens, pledges, charges, mortgages,
encumbrances, adverse rights or claims and security interests of any kind or
nature whatsoever (including any restriction on the right to vote or transfer,
except for such transfer restrictions of general applicability as may be
provided under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, and the "blue sky" laws of the various
States of the United States).
"Losses" shall mean with regard to any breach of representation or
warranty, breach of covenant or third-party claim or investigation or other
matter in respect of which a person is entitled to indemnity hereunder any
out-of pocket cost or expense (including attorneys fees and disbursements
reasonably incurred and court costs), any monetary damages, fines or penalties,
and any losses or other liabilities sustained by such person (including as a
consequence of any injunction issued or other equitable relief granted against
such person) as a result of or in connection with such matter.
"Material Adverse Effect" shall mean with respect to any Person, any
event, change in circumstance or state of facts which has, or would reasonably
be expected at any time within the three year period following the occurrence of
such event, change of circumstance or state of facts to have, a material adverse
effect on the business, assets, liabilities (actual or contingent), condition
(financial or otherwise) or results of operations of such Person, taken as a
whole, except for any such effects resulting from (i) the negotiation,
execution, announcement or performance of this Agreement or the consummation of
the transactions contemplated by this Agreement, including the impact thereof on
relationships, contractual or otherwise, with customers, suppliers, licensors,
distributors, partners or employees, (ii) changes in general economic or
political conditions or the securities markets in general (whether as a result
of acts of terrorism, war (whether or not declared), armed conflicts or
otherwise) or (iii) changes in conditions generally applicable to businesses in
the same or similar industries of such Person including, without limitation, (A)
changes in laws, regulations, rules, ordinances, policies, mandates, guidelines
or other requirements of any Governmental Authority generally applicable to such
businesses or industries or (B) changes in generally accepted accounting
principles as applied in the United States on a consistent basis or its
application.
65
"Modified Options" shall mean the Options held on the date hereof by
the officers of the Company referred to in Exhibit 6.2(g) and identified as such
on Exhibit 6.2(g) or that shall be identified pursuant thereto and shall also
include such Options as modified as of the Effective Time as provided by Exhibit
6.2(g), provided that no Option shall be considered a Modified Option as of
immediately before the Effective Time unless the requirements of Exhibit 6.2(g)
for treatment of such Option as a Modified Option shall have been satisfied.
Parent shall give the Company notice before the Closing of what Options
constitute Modified Options.
"Net Working Capital" shall mean the sum of (x) the Company's cash
and cash equivalents in hand in bank or other money market accounts as of the
Closing, plus the accounts receivable (net of any allowances) and other current
assets (other than any current portion of a deferred tax asset) of the Company,
reduced by (y) the sum of the accounts payable, accrued payroll and other
current accrued expenses and shall include (whether or not required to be so
accrued) the Liabilities described in Exhibit 9.12 in accordance with the
principles set forth in such Exhibit. The forgoing shall specifically exclude
(i) deferred income taxes, (ii) any accrual for any value attributable to the
Options or Warrants, and (iii) any accrual for Company Expenses associated with
this Agreement and the transactions contemplated hereby and any accrual for the
cost of the extended reporting period endorsement under the Company's existing
directors' and officers' liability insurance coverage referred to in Section
5.8(b)). In each case these amounts are to be determined consistent with the
past practices of the Company and in accordance with the accounting principles
used in the audited financial statements for the year ended December 31, 2004.
"Option" means each option award to purchase shares of Company Common
Stock granted under the Stock Plans.
"ordinary course of business" means the ordinary and usual course of
day-to-day operations of the business of the Company through the date hereof
consistent with past practice.
"Person" shall mean an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity, including a
Governmental Authority.
"Pre-Closing Tax Period" means any taxable period ending on or before
the date of the Closing.
"Stock Plans" means the National Imaging Associates, Inc. 1996
Amended and Restated Stock Bonus and Option Plan and the 2002 Long Term
Incentive Compensation Plan, in each case as in effect on the date hereof or as
amended and in effect as of the Effective Time, as the case may be.
66
"Straddle Period" means any taxable period beginning on or prior to
and ending after the date of the Closing.
"Subsidiary" when used with respect to any party, shall mean any
corporation, limited liability company, partnership, association, trust or other
entity the accounts of which would be consolidated with those of such party in
such party's consolidated financial statements if such financial statements were
prepared in accordance with GAAP, as well as any other corporation, limited
liability company, partnership, association, trust or other entity of which
securities or other ownership interests representing more than 50% of the equity
or more than 50% of the ordinary voting power (or, in the case of a partnership,
more than 50% of the general partnership interests) are, as of such date, owned
by such party or one or more Subsidiaries of such party or by such party and one
or more Subsidiaries of such party.
"Superior Proposal" means any unsolicited, bona fide written Takeover
Proposal made by a third party to acquire all of the equity securities, or all
or substantially all of the assets of the Company, which Takeover Proposal the
Company's Board of Directors determines in its good faith judgment to be more
favorable to the holders of Company Common Stock from a financial point of view
than the Transactions.
"Taxing Authority" means the IRS and any other Governmental Authority
responsible for the administration of any Tax.
"Transactions" refers collectively to this Agreement and the
transactions contemplated hereby to be consummated by the parties, including the
Merger and the payment of the Merger Consideration and application of the Escrow
Amount.
The following terms are defined on the page of this Agreement set forth after
such term below:
Additional Deductible..........................53 Closing.........................................1
Aggregate Option Exercise Price Proceeds........5 Closing Date....................................1
Aggregate Warrant Exercise Price Proceeds.......6 Closing Statement...............................7
Agreement.......................................1 Code...........................................12
Antitrust Laws.................................41 Common Certificate..............................5
Arbitrator......................................8 Company.........................................1
Balance Sheet..................................17 Company Adverse Recommendation Change..........40
Balance Sheet Date.............................17 Company Adverse Recommendation Notice..........40
Bankruptcy and Equity Exception................15 Company Charter Documents......................14
Base Amount.....................................7 Company Common Stock............................3
Base Purchase Price.............................4 Company Disclosure Schedule....................13
Certificate.....................................5 Company Equity Holder...........................8
Certificate of Merger...........................2 Company Expenses...............................13
Change In Control Customer Contracts...........26 Company Intellectual Property..................27
Company Material Adverse Effect................14
67
Company Plans..................................21 Multiemployer Plan.............................21
Company Preferred Stock.........................3 Net Working Capital Overage.....................8
Company Security...............................11 Net Working Capital Shortfall...................8
Company Stock...................................3 Officer's Certificate..........................55
Company Stockholder Approval...................15 Option Consideration............................5
Company Stockholders............................4 Option Shares...................................5
Company Technology.............................27 Optionholder....................................5
Computer Systems...............................29 Parent..........................................1
Confidentiality Agreement......................43 Parent Indemnifiable Losses....................53
Contract.......................................16 Parent Indemnified Parties.....................53
Copyrights.....................................27 Parent Material Adverse Effect.................33
Deductible.....................................53 Patents........................................27
DGCL............................................1 Paying Agent...................................10
Dissenting Shares...............................9 PBGC...........................................21
Dissenting Stockholders.........................9 Pending Claim Amount...........................10
Effective Time..................................2 Per Common Share Merger Consideration...........4
Environmental Laws.............................23 Permits........................................18
Environmental Liabilities......................23 Permitted Lien.................................26
ERISA..........................................20 Policies.......................................29
Escrow Agent...................................10 Preferred Certificate...........................4
Escrow Agreement...............................10 Preferred Stock Merger Consideration............4
Escrow Amount..................................10 Pro Rata Share..................................8
Escrow Release Date............................10 Publicly Available Software....................27
Estimated Excess................................7 Related Persons................................31
Estimated Net Working Capital...................7 Release........................................24
Estimated Underage..............................7 Remaining Amount...............................10
Expiration Date................................52 Representatives................................38
Federal Health Care Programs...................30 Restraints.....................................47
Final Net Working Capital.......................8 Review Period...................................7
Final Working Capital Adjustment Amount.........8 Second Escrow Release Date.....................10
Financial Statements...........................16 Series B Preference Amount......................3
First Escrow Release Date......................10 Series C Preference Amount......................3
Governmental Approval..........................16 Series C Warrant................................6
Governmental Damages...........................48 Series D Preference Amount......................3
Governmental Investigation.....................48 Series D Warrant................................6
Hazardous Materials............................24 Series D Warrant Preference.....................6
HIPAA..........................................30 Series E Preference Amount......................4
Indemnitees....................................44 Software.......................................27
Intellectual Property Rights...................27 Stockholder Representative.....................59
Laws...........................................18 Stockholder Representative Documents...........61
Marks..........................................27 Stockholder Representative Reserve.............58
Material Contract..............................25 Surviving Corporation...........................1
Merger..........................................1 Takeover Proposal..............................40
Merger Consideration............................5 Tax Losses.....................................58
Merger Sub......................................1
68
Tax Returns....................................20
Tax Statement..................................46
Taxes..........................................20
Technology.....................................27
Termination Fee................................52
Trade Secrets..................................27
Walk-Away Date.................................50
WARN...........................................22
Warrant.........................................6
Warrant Consideration...........................6
Warrant Shares..................................7
Warrantholder...................................6
SECTION 9.13. Interpretation.
(a) When a reference is made in this Agreement to an Article, a
Section, Exhibit or Schedule, such reference shall be to an Article of, a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Except if otherwise
explicitly provided, any agreement, instrument or statute defined or referred to
herein or in any agreement or instrument that is referred to herein means such
agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a Person are also to its permitted successors and
assigns.
(b) The parties hereto have participated jointly in the negotiation
and drafting of this Agreement and, in the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as jointly
drafted by the parties hereto and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provision
of this Agreement.
[signature page follows]
69
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
PARENT
------
MAGELLAN HEALTH SERVICES, INC.
By: /s/ Xxxx X. Xxxxxxx
----------------------------------------
Name: Xxxx X. Xxxxxxx
Title: CFO
MERGER SUB
----------
MAGELLAN SUB CO. I, INC.
By: /s/ Xxxx X. Xxxxxxx
----------------------------------------
Name: Xxxx X. Xxxxxxx
Title: Vice President
COMPANY
-------
NATIONAL IMAGING ASSOCIATES, INC.
By: /s/ Xxxx Xxxxxxx
----------------------------------------
Name: Xxxx Xxxxxxx
Title: President and Chief Executive
Officer
STOCKHOLDER REPRESENTATIVE
--------------------------
TA IX L.P.
By: TA Associates IX LLC, its General Partner
By: TA Associates, Inc., its Manager
By: /s/ Xxxxx Xxxx
----------------------------------------------
Name: Xxxxx Xxxx
Title: Managing Director
