Exhibit 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("AGREEMENT") is made
and entered into as of November 21, 2005, by and among: SPECIALIZED HEALTH
PRODUCTS INTERNATIONAL, INC., a Delaware corporation ("PARENT"); MAMMOTH
ACQUISITION SUB, INC., a Delaware corporation and a wholly owned subsidiary of
Parent ("MERGER SUB"); MAMMOTH ACQUISITION SUB, LLC, a Delaware limited
liability company and a wholly owned subsidiary of Parent ("LLC"); and THE
MED-DESIGN CORPORATION, a Delaware corporation (the "COMPANY"). Certain
capitalized terms used in this Agreement are defined in EXHIBIT A.
RECITALS
WHEREAS, the Boards of Directors of each of Parent, Merger Sub, and the
Company and the sole member of LLC deem it advisable and in the best interest of
each entity and its respective stockholders or interest holders that Parent and
the Company combine in order to advance the long-term business interests of
Parent and the Company.
WHEREAS, the strategic combination of Parent and the Company shall be
effected in accordance with the Delaware General Corporation Law (the "DGCL")
and the terms of this Agreement through a transaction in which (i) Merger Sub
will merge with and into the Company (the "MERGER"), the Company will be the
surviving corporation in the Merger and will become a wholly owned subsidiary of
Parent, and the stockholders of the Company will become stockholders of Parent,
and (ii) the Company, as the surviving corporation in the Merger, will merge
with and into LLC (the "LLC MERGER"), and LLC will be the surviving entity in
the LLC Merger (the Merger and the LLC Merger being herein referred to as the
"COMBINATION").
WHEREAS, the Board of Directors of the Company (i) has unanimously
determined that the Combination is advisable and consistent with and in
furtherance of the long-term business strategy of the Company and fair to, and
in the best interests of the Company and its stockholders, (ii) has unanimously
determined that this Agreement is advisable and has approved this Agreement, the
Combination and the other transactions contemplated by this Agreement, and (iii)
has unanimously determined to recommend that the stockholders of the Company
adopt this Agreement.
WHEREAS, the Board of Directors of Parent (i) has unanimously determined
that the Combination is advisable and consistent with and in furtherance of the
long-term business strategy of Parent and is fair to, and in the best interests
of, Parent and its stockholders, (ii) has unanimously approved this Agreement,
the Combination and the other transactions contemplated by this Agreement, and
(iii) has unanimously determined to recommend that the stockholders of Parent
approve the issuance of shares of Parent Common Stock in connection with the
Merger.
WHEREAS, for Federal income tax purposes, it is intended that the
Combination shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"), and that
this Agreement shall constitute a plan of reorganization within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the Treasury Regulations.
1
WHEREAS, in order to induce Parent to enter into this Agreement and to
consummate the Combination, concurrently with the execution and delivery of this
Agreement, certain stockholders of the Company are executing voting agreements
in favor of Parent (the "COMPANY STOCKHOLDER VOTING AGREEMENTS").
WHEREAS, in order to induce the Company to enter into this Agreement and to
consummate the Combination, concurrently with the execution and delivery of this
Agreement, certain stockholders of Parent are executing Voting Agreements in
favor of the Company (the "PARENT STOCKHOLDER VOTING AGREEMENTS").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants, and agreements set forth herein and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "SURVIVING CORPORATION").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the DGCL.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of Xxxxxx Godward LLP, 0000 Xxxxxxxx Xxxx, Xxx Xxxxx, Xxxxxxxxxx, at 10:00 a.m.
Pacific Standard Time on a date to be designated by Parent (the "CLOSING DATE"),
which shall be no later than the fifth business day after the satisfaction or
waiver of the last to be satisfied or waived of the conditions set forth in
Sections 6, 7 and 8 (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). Subject to the provisions of this Agreement, a certificate of
merger satisfying the applicable requirements of the DGCL shall be duly executed
by the Company and concurrently with or as soon as practicable following the
Closing delivered to the Secretary of State of the State of Delaware for filing.
The Merger shall become effective upon the filing of such certificate of merger
with the Secretary of State of the State of Delaware (the "EFFECTIVE TIME").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise determined by Parent prior to the Effective Time:
(A) the Certificate of Incorporation of the Surviving Corporation
shall be amended and restated immediately after the Effective Time to conform to
EXHIBIT B;
2
(B) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time; and
(C) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the respective individuals who are
directors and officers of Merger Sub immediately prior to the Effective Time.
1.5 CONVERSION OF SHARES AND WARRANTS.
(A) At the Effective Time, by virtue of the Merger and without any
further action on the part of Parent, Merger Sub, the Company or any stockholder
of the Company:
(I) any shares of Company Common Stock then held by the Company
or any wholly owned Subsidiary of the Company (or held in the Company's
treasury) shall be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor;
(II) any shares of Company Common Stock then held by Parent,
Merger Sub or any other wholly owned Subsidiary of Parent shall be canceled and
retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor;
(III) except as provided in clauses "(i)" and "(ii)" above and
subject to Sections 1.5(c), 1.5(d), and 1.5(e), each share of Company Common
Stock then outstanding (other than Appraisal Shares as defined in subsection (g)
below) shall be converted into the right to receive a number of shares of Parent
Common Stock equal to the Exchange Ratio; and
(IV) each share of the common stock, $0.001 par value per share,
of Merger Sub then outstanding shall be converted into one share of common stock
of the Surviving Corporation.
(B) Exchange Ratio, Definitions Related Thereto, and Certain Dispute
Mechanics:
(I) "EXCHANGE RATIO" shall equal the quotient obtained by
dividing: (A) Merger Consideration by (B) the sum of (1) the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time, and
(2) the number of shares of Company Common Stock issuable pursuant to all
outstanding options, warrants and other rights to acquire shares of Company
Common Stock outstanding immediately prior to the Effective Time excluding
warrants with an exercise price that is more than $0.53.
(II) Other Definitions:
(1) "MERGER CONSIDERATION" shall equal (A) the Total Parent
Post-Closing Shares less (B) the sum of (1) the number of shares of Parent
Common Stock outstanding immediately prior to the Effective Time, and (2) the
number of shares of Parent Common Stock issuable pursuant to all outstanding
options, warrants and other rights to acquire
3
shares of Parent Common Stock outstanding immediately prior to the Effective
Time, exclusive of options, warrants and other rights with an exercise price
that is more than $0.62.
(2) "TOTAL PARENT POST-CLOSING SHARES" shall equal the
quotient obtained by dividing: (A) the sum of (1) the number of shares of Parent
Common Stock outstanding immediately prior to the Effective Time, and (2) the
number of shares of Parent Common Stock issuable pursuant to all outstanding
options, warrants and other rights to acquire shares of Parent Common Stock,
exclusive of options, warrants and other rights with an exercise price that is
more than $0.62; by (B) 0.668 as adjusted as set forth in subsection (3) below
by the Adjustment Amount.
(3) "ADJUSTMENT AMOUNT" shall mean the number, expressed as
a decimal, equal to (A) the Actual Company Cash Amount at November 30, 2005 less
$8,000,000 ("CASH DIFFERENCE AMOUNT") multiplied by (B) 0.000000025. If the Cash
Difference Amount is a positive number, then the Adjustment Amount shall be
subtracted from 0.668 in determining Total Parent Post-Closing Shares. If the
Cash Difference Amount is a negative number, then it will be treated as a
positive number for purposes of determining the Adjustment Amount and the
Adjustment Amount shall be added to 0.668 in determining the Total Parent
Post-Closing Shares.
(4) "ACTUAL COMPANY CASH AMOUNT" shall mean (i) (A) the
aggregate amount of cash and cash equivalents, (B) the principal amount of and
accrued interest on available for sale securities maturing not later than July
1, 2007, (C) prepaid expenses (but only in the case where, and solely to the
extent to, there is a corresponding offsetting obligation that is a Liability
that is deducted from cash and cash equivalents in determining Actual Company
Cash Amount), (D) accounts receivable (including accrued royalties related to
the Becton Xxxxxxxxx products in an aggregate amount not to exceed $280,000),
net of reserves for doubtful accounts, and (E) inventory, net of reserves for
excess or obsolete inventory (such net inventory not to exceed $500,000) as
reflected on the consolidated balance sheet of the Company Entities (as defined
in Section 2.1(a)) as of November 30, 2005 ("ADJUSTMENT BALANCE SHEET") as
finally determined pursuant to Section 1.5(b)(iii) less (ii) (A) the maximum
dollar amount of all Liabilities (other than contingent Liabilities and all real
property lease payments due during the remaining term of such leases of the
Company Entities following November 30, 2005) of the Company Entities as of
November 30, 2005, whether or not accrued or reflected or required to be accrued
or reflected on the Adjustment Balance Sheet and without any discount for any
time value of money or for any contingency, including, without limitation, all
transaction expenses incurred or expected to be incurred by the Company Entities
in connection with the Merger and other transactions contemplated by this
Agreement (including legal, accounting, director and investment banking fees),
the first $400,000 of costs associated with D&O tail insurance plus fifty
percent of the costs associated with D&O tail insurance in excess of $800,000
and up to $1,000,000, all lease and other payments (other than real property
lease payments) due during the remaining term of all operating and capital
leases of the Company Entities, all obligations of the Company Entities to pay
severance to former or existing employees of the Company, whether existing or
arising by virtue of the Merger and the transactions contemplated by this
Agreement, all obligations of the Company Entities under the Asset Purchase
Agreement dated April 1, 2004 between the Company and Luther Needlesafe
Products, Inc., and all legal expenses
4
incurred or expected to be incurred by the Company Entities prior to Closing for
prosecution, maintenance, and enforcement of their intellectual property assets
but excluding expenses to be incurred by the Company Entities in the ordinary
course of business to operate the Company Entities after November 30, 2005
through the date of Closing other than the accrued lease and intellectual
property expenses, (B) a reasonable dollar amount of reserve for any known
monetary contingent Liabilities, whether or not accrued or reflected or required
to be accrued or reflected on the Adjustment Balance Sheet, and (C) $470,000
("TOTAL LIABILITIES"); provided, however, in the event that after November 30,
2005, the Company negotiates the surrender of such lease or sublease of its
leased real estate thereunder that is finalized in a written, definitive
agreement approved in accordance with Section 4.2(b)(xvii)(1) of this Agreement
prior to the date that is at least seven calendar days prior to earlier of the
Company Stockholders' Meeting or the Parent Stockholders' Meeting (as each term
is defined in Section 5 below) (the "ADJUSTMENT DATE") and in so doing reduces
the remaining liability (net of sublease rent) below $470,000, then the Actual
Company Cash Amount shall be the amount determined pursuant to this Section plus
the Lease Adjustment Amount (as defined below); provided further that as of the
Adjustment Date, if the Closing is scheduled to occur or is reasonably likely to
occur after February 28, 2006, then the Actual Company Cash Amount shall be
reduced by $100,000; provided further that if the litigation referenced on Part
2.21(a) of the Company Disclosure Schedule (the "LITIGATION") is not settled by
November 30, 2005, then the Actual Company Cash Amount shall be reduced by
$200,000 (the "LITIGATION ADJUSTMENT"); and provided further that in the event
that the Litigation is not settled by November 30, 2005, but does settle on or
after November 30, 2005 and prior to the Adjustment Date, and the Company
negotiates such settlement in accordance with Section 4.2(b)(xvii)(2) of this
Agreement, then the Litigation Adjustment shall be added back to the Actual
Company Cash Amount and the actual amount to be paid, incurred or recovered, as
the case may be, by the Company under such settlement after taking into account
the costs associated with the Litigation and such settlement (e.g., legal fees
related to issued patents or currently pending patent applications or otherwise
incurred) through the date of settlement shall be deducted from or added to (as
the case may be) the Actual Company Cash Amount. The "LEASE ADJUSTMENT AMOUNT"
shall mean an amount equal to (A) the difference between $470,000 and the
remaining Liability (net of sublease rent) for the Company Entities under the
lease (B) less any broker fees incurred in connection with the surrender or
sublease.
(III) As promptly as practicable, but no later than 10 calendar
days after November 30, 2005, the Company shall cause to be prepared and
delivered to Parent (a) the Adjustment Balance Sheet prepared in accordance with
GAAP (excluding GAAP footnotes) and the accounting practices and policies used
by the Company to prepare its audited financial statements for the year ended
December 31, 2004, (b) to the extent not reflected on the Adjustment Balance
Sheet, a calculation of Total Liabilities, with underlying worksheets and
documentation in reasonable detail supporting the calculations and (c) a
statement presenting the Actual Company Cash Amount, as of November 30, 2005,
including all calculations related thereto in reasonable detail (the "CASH
STATEMENT"). The Cash Statement shall be accompanied by a certificate signed by
the Chief Executive Officer and Chief Financial Officer of the Company stating
that to the best of their knowledge the Cash Statement is true and correct in
all material respects.
5
(1) If Parent disagrees with the Company's Adjustment
Balance Sheet, the determination of Total Liabilities and/or its calculation of
the Actual Company Cash Amount delivered pursuant to Section 1.5(b) (iii),
Parent may, within seven calendar days after delivery of the Cash Statement and
other deliverables, deliver a notice to the Company disagreeing with such
calculation and setting forth Parent's calculation of such the Actual Company
Cash Amount.
(2) If a notice of disagreement shall be duly delivered
pursuant to Section 1.5(b)(iii)(1), Parent and the Company shall, during the
five calendar days following such delivery, use their commercially reasonable
efforts to reach agreement on the disputed items or amounts in order to
determine, as may be required, the amount of the Actual Company Cash Amount. If
during such period, Parent and the Company are unable to reach such agreement,
they shall promptly thereafter cause Deloitte & Touche LLP (the "ACCOUNTING
REFEREE") to review this Agreement and the disputed items or amounts for the
purpose of calculating the Actual Company Cash Amount (it being understood that
in making such calculation, the Accounting Referee shall be functioning as an
expert and not as an arbitrator). In making such calculation, the Accounting
Referee shall consider only those items or amounts in the Adjustment Balance
Sheet, Total Liabilities and Cash Statement and the Company's calculation of the
Actual Company Cash Amount as to which Parent has disagreed. The Accounting
Referee shall deliver to Parent and the Company, as promptly as practicable (but
in any case no later than five calendar days from the date of engagement of the
Accounting Referee), a report setting forth such calculation. Such report shall
be final and binding upon Parent and the Company. The cost of such review and
report shall be borne equally by Parent and the Company.
(3) Parent and the Company shall, and shall cause their
respective Representatives to, cooperate and assist in the preparation of the
Adjustment Balance Sheet and the Cash Statement and the calculation of the
Actual Company Cash Amount and in the conduct of the reviews and any dispute
resolution referred to in this Section 1.5(b), including, without limitation,
the making available to the extent necessary to each other and the Accounting
Referee books, records, work papers and personnel.
(C) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company or under which the
Company has any rights, then the shares of Parent Common Stock issued in
exchange for such shares of Company Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Parent Common Stock may
accordingly be marked with appropriate legends. The Company shall take all
action that may be necessary to ensure that, from and after the Effective Time,
Parent is entitled to exercise any such repurchase option or other right set
forth in any such restricted stock purchase agreement or other agreement.
(D) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates or scrip for any such fractional
shares shall be issued. Any holder of Company Common Stock who would otherwise
be entitled to receive a
6
fraction of a share of Parent Common Stock (after aggregating all fractional
shares of Parent Common Stock issuable to such holder) shall, in lieu of such
fraction of a share and, upon surrender of such holder's Company Stock
Certificate(s) (as defined in Section 1.6), be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest, determined by multiplying
such fraction by 0.62.
(E) The Exchange Ratio and the amount paid in lieu of fractional
shares shall be adjusted to reflect appropriately the effect of the Company
Reverse Stock Split, if applicable, the Parent Reverse Stock Split and any other
stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock), extraordinary
cash dividends, reorganization, recapitalization, reclassification, combination,
exchange of shares or other like change with respect to Parent Common Stock
occurring on or after the date hereof and prior to the Effective Time.
(F) At the Effective Time, each then outstanding warrant to purchase
Company Common Stock (each, a "COMPANY WARRANT" and collectively "COMPANY
WARRANTS"), whether or not exercisable at the Effective Time and regardless of
the respective exercise prices thereof, will be assumed by Parent. Each Company
Warrant so assumed by Parent under this Agreement will continue to have, and be
subject to, the same terms and conditions set forth in the applicable Company
Warrant immediately prior to the Effective Time, except that (i) each Company
Warrant will be exercisable (or will become exercisable in accordance with its
terms) for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock that were issuable upon
exercise of such Company Warrant immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded down to the nearest whole number of
shares of Parent Common Stock and (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed Company
Warrant will be equal to the quotient determined by dividing the exercise price
per share of Company Common Stock at which such Company Warrant was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent.
(G) To the extent arising under applicable law and notwithstanding
anything in this Agreement to the contrary, shares (the "APPRAISAL SHARES") of
Company Common Stock issued and outstanding immediately prior to the Effective
Time that are held by any holder 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 "APPRAISAL STATUTE") shall not be
converted into the right to receive the applicable share of Parent Common Stock
as provided in Section 1.5(a)(iii) above, but instead such holder shall be
entitled to payment of the fair value of such shares in accordance with the
provisions of the Appraisal Statute. At the Effective Time, the Appraisal Shares
shall no longer be outstanding and shall automatically be cancelled and shall
cease to exist, and each holder of Appraisal Shares shall cease to have any
rights with respect thereto, except the right to receive the fair value of such
shares in accordance with the provisions of the Appraisal Statute.
Notwithstanding the foregoing, if any such holder shall fail to perfect or
otherwise shall waive, withdraw or lose the right to appraisal under the
Appraisal Statute, or a court of competent jurisdiction shall determine that
such holder is not entitled to the relief provided by the Appraisal Statute,
then the right of
7
such holder to be paid the fair value of such holder's Appraisal Shares under
the Appraisal Statute shall cease and such Appraisal Shares shall be deemed to
have been converted at the Effective Time into, and shall have become, the right
to receive the applicable share of Parent Common Stock as provided in Section
1.5(a)(iii). The Company shall serve prompt notice to Parent of any demands for
appraisal of any shares of the Company's Common Stock, withdrawals of such
demands and any other instruments served pursuant to the DGCL received by the
Company, and Parent shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any such
demands, nor shall the Company agree to or commit to making any such payment or
settlement.
1.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time: (a) all
shares of Company Common Stock outstanding immediately prior to the Effective
Time shall automatically be canceled and retired and shall cease to exist, and
all holders of certificates representing shares of Company Common Stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company; and (b) the stock transfer books of the
Company shall be closed with respect to all shares of Company Common Stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of Company Common Stock shall be made on such stock transfer books
after the Effective Time. If, after the Effective Time, a valid certificate
previously representing any shares of Company Common Stock (a "COMPANY STOCK
CERTIFICATE") is presented to the Exchange Agent (as defined in Section 1.7) or
to the Surviving Corporation or Parent, such Company Stock Certificate shall be
canceled and shall be exchanged as provided in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(A) On or prior to the Closing Date, Parent shall select a reputable
bank or trust company to act as exchange agent in the Merger (the "EXCHANGE
AGENT"). As soon as practicable after the Effective Time, Parent shall deposit
with the Exchange Agent (i) certificates representing the shares of Parent
Common Stock issuable pursuant to this Section 1, and (ii) cash sufficient to
make payments in lieu of fractional shares in accordance with Section 1.5(d).
The shares of Parent Common Stock and cash amounts so deposited with the
Exchange Agent, together with any dividends or distributions received by the
Exchange Agent with respect to such shares, are referred to collectively as the
"EXCHANGE FUND."
(B) As soon as reasonably practicable after the Effective Time, the
Exchange Agent will mail to the record holders of Company Stock Certificates (i)
a letter of transmittal in customary form and containing such provisions as
Parent may reasonably specify (including a provision confirming that delivery of
Company Stock Certificates shall be effected, and risk of loss and title to
Company Stock Certificates shall pass, only upon delivery of such Company Stock
Certificates to the Exchange Agent), and (ii) instructions for use in effecting
the surrender of Company Stock Certificates in exchange for certificates
representing Parent Common Stock. Upon surrender of a Company Stock Certificate
to the Exchange Agent for exchange, together with a duly executed letter of
transmittal and such other documents as may be reasonably required by the
Exchange Agent or Parent, (1) the holder of such Company Stock Certificate
8
shall be entitled to receive in exchange therefor a certificate representing the
number of whole shares of Parent Common Stock that such holder has the right to
receive pursuant to the provisions of Section 1.5 (and cash in lieu of any
fractional share of Parent Common Stock), and (2) the Company Stock Certificate
so surrendered shall be canceled. Until surrendered as contemplated by this
Section 1.7(b), each Company Stock Certificate shall be deemed, from and after
the Effective Time, to represent only the right to receive shares of Parent
Common Stock (and cash in lieu of any fractional share of Parent Common Stock)
as contemplated by Section 1. If any Company Stock Certificate shall have been
lost, stolen or destroyed, Parent may, in its discretion and as a condition to
the issuance of any certificate representing Parent Common Stock, require the
owner of such lost, stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit and to deliver a bond (in such sum as Parent may
reasonably direct) as indemnity against any claim that may be made against the
Exchange Agent, Parent or the Surviving Corporation with respect to such Company
Stock Certificate.
(C) Notwithstanding anything to the contrary contained in this
Agreement, no shares of Parent Common Stock (or certificates therefor) shall be
issued in exchange for any Company Stock Certificate to any Person who may be an
"affiliate" (as that term is used in Rule 145 under the Securities Act) of the
Company until such Person shall have delivered to Parent and the Company a duly
executed Affiliate Agreement as contemplated by Section 5.10.
(D) No dividends or other distributions declared or made with respect
to Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock that such holder has the right to receive in the
Merger until such holder surrenders such Company Stock Certificate in accordance
with this Section 1.7 (at which time such holder shall be entitled, subject to
the effect of applicable escheat or similar laws, to receive all such dividends
and distributions, without interest).
(E) Any portion of the Exchange Fund that remains undistributed to
holders of Company Stock Certificates as of the date 180 calendar days after the
date on which the Merger becomes effective shall be delivered to Parent upon
demand, and any holders of Company Stock Certificates who have not theretofore
surrendered their Company Stock Certificates in accordance with this Section 1.7
shall thereafter look only to Parent for satisfaction of their claims for Parent
Common Stock, cash in lieu of fractional shares of Parent Common Stock and any
dividends or distributions with respect to Parent Common Stock.
(F) Each of the Exchange Agent, Parent and the Surviving Corporation
shall be entitled to deduct and withhold from any consideration payable or
otherwise deliverable pursuant to this Agreement to any holder or former holder
of Company Common Stock such amounts as may be required to be deducted or
withheld therefrom under the Code or any provision of state, local or foreign
tax law or under any other applicable Legal Requirement. To the extent such
amounts are so deducted or withheld, such amounts shall be treated for all
purposes under this Agreement as having been paid to the Person to whom such
amounts would otherwise have been paid.
9
(G) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of Company Common Stock or to any other Person with
respect to any shares of Parent Common Stock (or dividends or distributions with
respect thereto), or for any cash amounts, delivered to any public official
pursuant to any applicable abandoned property law, escheat law or similar Legal
Requirement.
1.8 TAX CONSEQUENCES. For federal income tax purposes, the Combination is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.9 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full right,
title and possession of and to all rights and property of Merger Sub and the
Company, the officers and directors of the Surviving Corporation and Parent
shall be fully authorized (in the name of Merger Sub, in the name of the Company
and otherwise) to take such action.
1.10 THE LLC MERGER. Immediately following the Effective Time, Parent shall
cause LLC to file with the Secretary of State of the State of Delaware a
properly executed certificate of merger for the LLC Merger (the "LLC Certificate
of Merger") conforming to the requirements of the DGCL. The LLC Merger shall
become effective at the time the LLC Certificate of Merger is filed with the
Secretary of State of the State of Delaware.
1.11 EFFECTS OF THE LLC MERGER.
(A) At the time at which the LLC Merger is filed with the Secretary of
State of Delaware, as described in Section 1.10 (the "LLC Effective Time"), (i)
the separate existence of the Company shall cease and the Company shall be
merged with and into LLC, with LLC as the surviving entity in the LLC Merger
(LLC and the Company are sometimes referred to below as the "LLC Constituent
Entities" and LLC following the LLC Merger is sometimes referred to below as the
"Continuing LLC"), and (ii) the Certificate of Formation and the Operating
Agreement of LLC as in effect immediately prior to the Effective Time shall be
unchanged by the LLC Merger.
(B) At and after the LLC Effective Time, the Continuing LLC shall
possess all the rights, privileges, powers, and franchises of a public as well
as of a private nature, and be subject to all the restrictions, disabilities,
and duties of each of the LLC Constituent Entities; and all singular rights,
privileges, powers, and franchises of each of the LLC Constituent Entities, and
all property, real, personal, and mixed, and all debts due to either of the LLC
Constituent Entities on whatever account, and all other things in action or
belonging to each of the LLC Constituent Entities, shall be vested in the
Continuing LLC, and all property, rights, privileges, powers, and franchises,
and all and every other interest shall be thereafter as effectually the property
of the Continuing LLC as they were of the LLC Constituent Entities, and the
title to any real estate vested by deed or otherwise, in either of the LLC
Constituent Entities, shall not revert or be in any way impaired; but all rights
of creditors and all liens upon any property of either of
10
the LLC Constituent Entities shall be preserved unimpaired, and all debts,
liabilities, and duties of the LLC Constituent Entities shall thereafter attach
to the Continuing LLC, and may be enforced against it to the same extent as if
such debts and liabilities had been incurred by it.
1.12 CONVERSION OF SECURITIES IN LLC MERGER. By virtue of the LLC Merger
and without any further action on the part of the Company, LLC or Continuing
LLC, (i) each limited liability company interest of LLC then outstanding shall
remain outstanding and each certificate therefor shall continue to evidence one
limited liability company interest of the Continuing LLC and (ii) each share of
common stock of the Company then outstanding shall be converted into limited
liability company interest of the Continuing LLC.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent, Merger Sub and LLC as
follows:
2.1 SUBSIDIARIES; DUE ORGANIZATION; ETC.
(A) The Company has no Subsidiaries, except for the corporations
identified in Part 2.1(a) (i) of the Company Disclosure Schedule; and neither
the Company nor any of the other corporations identified in Part 2.1(a) (i) of
the Company Disclosure Schedule owns any capital stock of, or any equity
interest of any nature in, any other Entity, other than the Entities identified
in Part 2.1(a) (ii) of the Company Disclosure Schedule. (The Company and each of
its Subsidiaries are referred to collectively in this Agreement as the "COMPANY
ENTITIES.") None of the Company Entities has agreed or is obligated to make, or
is bound by any Contract under which it may become obligated to make, any future
investment in or capital contribution to any other Entity. None of the Company
Entities has, at any time, been a general partner of, or has otherwise been
liable for any of the debts or obligations of, any general partnership, limited
partnership or other Entity.
(B) Each of the Company Entities is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all necessary corporate power and authority: (i) to
conduct its business in the manner in which its business is currently being
conducted; (ii) to own and use its assets in the manner in which its assets are
currently owned and used; and (iii) to perform its obligations under all
Contracts by which it is bound.
(C) Each of the Company Entities is qualified to do business as a
foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of its business requires such qualification,
except for those jurisdictions where such failure to so qualify would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. The Company has made available
to Parent accurate and complete copies of the certificate of incorporation,
bylaws and other charter and organizational documents of the respective Company
Entities, including all amendments thereto.
11
2.3 CAPITALIZATION, ETC.
(A) The authorized capital stock of the Company consists of: (i)
30,000,000 shares of Company Common Stock, of which 16,874,486 shares have been
issued and are outstanding as of the date of this Agreement and (ii) 4,700,000
shares of Company Preferred Stock, none of which is issued and outstanding as of
the date of this Agreement. Except as set forth in Part 2.3(a) (i) of the
Company Disclosure Schedule, the Company does not hold any shares of its capital
stock in its treasury. All of the outstanding shares of Company Common Stock
have been duly authorized and validly issued, and are fully paid and
nonassessable. As of the date of this Agreement, there are no shares of Company
Common Stock held by any of the other Company Entities. Except as set forth in
Part 2.3(a)(i) of the Company Disclosure Schedule: (i) none of the outstanding
shares of Company Common Stock is entitled or subject to any preemptive right,
right of participation, right of maintenance or any similar right; (ii) none of
the outstanding shares of Company Common Stock is subject to any right of first
refusal in favor of the Company; and (iii) there is no Company Entity Contract
relating to the voting or registration of, or restricting any Person from
purchasing, selling, pledging or otherwise disposing of (or granting any option
or similar right with respect to), any shares of Company Common Stock. None of
the Company Entities is under any obligation, or is bound by any Contract
pursuant to which it may become obligated, to repurchase, redeem or otherwise
acquire any outstanding shares of Company Common Stock.
(B) As of the date of this Agreement: (i) 1,842,352 shares of Company
Common Stock are reserved for future issuance pursuant to stock options granted
and outstanding under the Company's 2001 Equity Incentive Plan; and (ii) 51,833
shares of Company Common Stock are reserved for future issuance pursuant to
stock options granted and outstanding under the Company's Non-Qualified Stock
Option Plan. The Company Entities have no employee stock purchase plan, nor have
the Company Entities ever had an employee stock purchase plan. (Options to
purchase shares of Company Common Stock (whether granted by the Company pursuant
to the Company's stock option plans, assumed by the Company in connection with
any merger, acquisition or similar transaction or otherwise issued or granted)
are referred to in this Agreement as "COMPANY OPTIONS.") Part 2.3(b) of the
Company Disclosure Schedule sets forth the following information with respect to
each Company Option outstanding as of the date of this Agreement: (i) the
particular plan (if any) pursuant to which such Company Option was granted; (ii)
the name of the optionee; (iii) the number of shares of Company Common Stock
subject to such Company Option; (iv) the exercise price of such Company Option;
(v) the date on which such Company Option was granted; (vi) the applicable
vesting schedule, and the extent to which such Company Option is vested and
exercisable as of the date of this Agreement; and (vii) the date on which such
Company Option expires. The Company has made available to Parent accurate and
complete copies of all stock option plans pursuant to which any of the
outstanding Company Options were issued, and the forms of all stock option
agreements evidencing such options.
(C) Except as set forth in Part 2.3(b) and Part 2.3(c) of the Company
Disclosure Schedule there is no: (i) outstanding subscription, option, call,
warrant or right (whether or not currently exercisable) to acquire any shares of
the capital stock or other securities of any of the Company Entities; (ii)
outstanding security, instrument or obligation that
12
is or may become convertible into or exchangeable for any shares of the capital
stock or other securities of any of the Company Entities; (iii) stockholder
rights plan (or similar plan commonly referred to as a "poison pill") or
Contract under which any of the Company Entities is or may become obligated to
sell or otherwise issue any shares of its capital stock or any other securities;
or (iv) condition or circumstance that may give rise to or provide a basis for
the assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other securities
of any of the Company Entities.
(D) All outstanding capital stock, options and other securities of the
Company Entities have been issued and granted in all material respects in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
(E) All of the outstanding shares of capital stock of the corporations
identified in Part 2.1(a) (ii) of the Company Disclosure Schedule have been duly
authorized and are validly issued, are fully paid and nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof, and are owned beneficially and of record by the Company, free and clear
of any Encumbrances.
2.4 SEC FILINGS; FINANCIAL STATEMENTS.
(A) The Company has made available to Parent accurate and complete
copies of all registration statements, proxy statements and other statements,
reports, schedules, forms and other documents filed by the Company with the SEC
since January 1, 2002, and all amendments thereto (the "COMPANY SEC DOCUMENTS").
Except as set forth in Part 2.4 of the Company Disclosure Schedule, all
statements, reports, schedules, forms and other documents required to have been
filed by the Company with the SEC have been so filed on a timely basis. None of
the Company's Subsidiaries is required to file any documents with the SEC. As of
the time it was filed with the SEC (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing): (i) each
of the Company SEC Documents complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act (as the case
may be); and (ii) none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(B) The financial statements of the Company (including any related
notes) contained in the Company SEC Documents: (i) complied as to form in all
material respects with the published rules and regulations of the SEC applicable
thereto, except as noted in the Company Disclosure Schedule; (ii) were prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered (except as may be indicated in the notes to such financial statements or
on Part 2.4(b) of the Company Disclosure Schedule or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC, and (iii) fairly present in
all material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows of the Company and its
consolidated subsidiaries for the periods covered thereby.
13
(C) The Company has timely filed all certifications and statements
required by (x) Rule 13a-14 under the Exchange Act or (y) 18 U.S.C. Section 1350
(Section 906 of the Xxxxxxxx-Xxxxx Act of 2002) with respect to any Company SEC
Documents. The Company maintains disclosure controls and procedures required by
Rule 13a-15 or Rule 15d-15 under the Exchange Act.
(D) The Company has in place internal controls over financial
reporting that are designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP and include policies and
procedures that: (i) pertain to the maintenance of records that in reasonable
detail accurately reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP,
and that receipts and expenditures of the Company are being made only in
accordance with authorization of management and the advisors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of
the unauthorized acquisition, use or disposition of the assets of the Company
that could have a material effect on the financial statements.
(E) Since January 1, 2002, there have been no formal internal
investigations regarding financial reporting or accounting policies and
practices discussed with, reviewed by or initiated at the direction of the chief
executive officer, chief financial officer or general counsel of the Company,
the board of directors of the Company or any committee thereof, other than
ordinary course audits or review of accounting polices and practices or internal
controls required by the Xxxxxxxx-Xxxxx Act of 2002.
2.5 ABSENCE OF CHANGES. Except as disclosed in Part 2.5 of the Company
Disclosure Schedule, since December 31, 2004 through the date of this Agreement,
the Company Entities have conducted their businesses only in the ordinary course
and in a manner consistent with past practice and, since such date, there has
not been (i) any Material Adverse Effect on the Company Entities, (ii) any
damage, destruction, or loss (whether or not covered by insurance) with respect
to any property of the Company Entities having a Material Adverse Effect on the
Company Entities, (iii) any material change by the Company Entities in their
accounting methods, principles, or practices, or (iv) any other action or event
that would have required the consent of Parent pursuant to Section 4.2(b) of
this Agreement had such action or event occurred after the date of this
Agreement.
2.6 TITLE TO ASSETS. The Company Entities own, and have good and valid
title to, all assets purported to be owned by them, including: (i) all assets
reflected on the Company Unaudited Interim Balance Sheet (except for inventory
sold or otherwise disposed of in the ordinary course of business and other
surplus property disposed of as described in Part 2.6 of the Company Disclosure
Schedule, since the date of the Company Unaudited Interim Balance Sheet); and
(ii) all other assets reflected in the books and records of the Company Entities
as being owned by the Company Entities. All of said assets are owned by the
Company Entities free and clear of any Encumbrances, except for (1) any lien for
current taxes not yet due and payable, (2) minor liens that have arisen in the
ordinary course of business and that do not (in any case or in the aggregate)
materially detract from the value of the assets subject thereto or
14
materially impair the operations of any of the Company Entities, and (3) liens
described in Part 2.6 of the Company Disclosure Schedule.
2.7 RECEIVABLES; CUSTOMERS; INVENTORIES.
(A) All existing accounts receivable of the Company Entities
(including those accounts receivable reflected on the Company Unaudited Interim
Balance Sheet that have not yet been collected and those accounts receivable
that have arisen since the date of the Company Unaudited Interim Balance Sheet,
and have not yet been collected) (i) represent valid obligations of customers of
the Company Entities arising from bona fide transactions entered into in the
ordinary course of business, (ii) are current and, to the best of the Company's
knowledge, will be collected in full when due, without any counterclaim or set
off, subject to any allowance for bad debt on the Company Unaudited Interim
Balance Sheet.
(B) Part 2.7(b) of the Company Disclosure Schedule contains an
accurate and complete list as of the date indicated thereon (which in no event
shall be more than two calendar days prior to the date of this Agreement) of all
outstanding loans and advances made by any of the Company Entities to any
employee, director, consultant or independent contractor, other than routine
travel advances made to employees in the ordinary course of business.
(C) Part 2.7(c) of the Company Disclosure Schedule accurately
identifies, and provides an accurate and complete breakdown of the revenues
received from, each customer or other Person that accounted for (i) more than
10% of the consolidated gross revenues of the Company Entities in fiscal year
2004, or (ii) more than 10% of the consolidated gross revenues of the Company
Entities in the fiscal quarter ended September 30, 2005. The Company has not
received any notice or other communication (in writing or otherwise), and has
not received any other information, indicating that any customer or other Person
identified in Part 2.7(c) of the Company Disclosure Schedule may cease dealing
with any of the Company Entities or may otherwise reduce the volume of business
transacted by such Person with any of the Company Entities below historical
levels.
(D) The inventory of the Company Entities having a value reflected on
the Company Unaudited Interim Balance Sheet was, and the current inventory (the
"COMPANY INVENTORY") of the Company Entities is, properly valued in accordance
with GAAP and is in usable and, in the case of finished goods, saleable,
condition in the ordinary course of business at an amount not less than the
amounts carried therein. The Company Inventory is not excessive and, taken as a
whole, is adequate in relation to the current trading requirements of the
business of each of the Company Entities, and none of the Company Inventory is
obsolete, slow moving, unmarketable or inappropriate in relation to the current
business of each of the Company Entities. The finished goods, work in progress,
raw materials and other materials and supplies included in such Company
Inventory are of a standard which is not lower than the generally accepted
standard prevailing in the industries of which the business of each Company
Entity forms a part.
2.8 REAL PROPERTY; EQUIPMENT; LEASEHOLD. All material items of equipment
and other tangible assets owned by or leased to the Company Entities are
adequate for the uses to
15
which they are being put, are in good and safe condition and repair (ordinary
wear and tear excepted) and are adequate for the conduct of the business of the
Company Entities in the manner in which such business is currently being
conducted. Except as set forth in Part 2.8 of the Company Disclosure Schedule,
none of the Company Entities own any real property or any interest in real
property. Part 2.8 of the Company Disclosure Schedule contains an accurate and
complete list of all the Company Entities' real property leases.
2.9 INTELLECTUAL PROPERTY.
(A) Products and Services. Part 2.9(a) of the Company Disclosure
Schedule accurately identifies and describes each Company Product currently
being designed, developed, manufactured, marketed, distributed, provided,
licensed, or sold by any of the Company Entities.
(B) Registered IP. Part 2.9(b) of the Company Disclosure Schedule
accurately identifies: (a) each item of Registered IP in which any of the
Company Entities has or purports to have an ownership interest of any nature
(whether exclusively, jointly with another Person, or otherwise); (b) the
jurisdiction in which such item of Registered IP has been registered or filed
and the applicable registration or serial number; (c) any other Person that has
an ownership interest in such item of Registered IP and the nature of such
ownership interest; and (d) each Company Product identified in Part 2.9(a) of
the Company Disclosure Schedule that embodies, utilizes, or is based upon or
derived from (or, with respect to Company Products currently under development,
that is expected to embody, utilize, or be based upon or derived from) such item
of Registered IP. The Company has provided to Parent complete and accurate
copies of all applications, material correspondence with any Governmental Body,
and other material documents related to each such item of Registered IP.
(C) Inbound Licenses. Part 2.9(c) of the Company Disclosure Schedule
accurately identifies: (a) each Contract pursuant to which any Intellectual
Property Right or Intellectual Property is or has been licensed, sold, assigned,
or otherwise conveyed or provided to the Company (other than non-exclusive
licenses to third-party software that is not incorporated into, or used in the
development, manufacturing, testing, distribution, maintenance, or support of,
any Company Product and that is not otherwise material to the business of any of
the Company Entities); and (b) whether the licenses or rights granted to the
Company Entities in each such Contract are exclusive or non-exclusive.
(D) Outbound Licenses. Part 2.9(d) of the Company Disclosure Schedule
accurately identifies each Contract pursuant to which any Person has been
granted any license under, or otherwise has received or acquired any right
(whether or not currently exercisable) or interest in, any Company IP. Except
for the Contracts identified on Part 2.9(d) of the Company Disclosure Schedule,
none of the Company Entities are bound by, and no Company IP is subject to, any
Contract containing any covenant or other provision that in any way limits or
restricts the ability of any of the Company Entities to use, exploit, assert, or
enforce any Company IP anywhere in the world.
(E) Royalty Obligations. Part 2.9(e) of the Company Disclosure
Schedule contains a complete and accurate list and summary of all royalties,
fees, commissions, and other
16
amounts payable by any of the Company Entities to any other Person (other than
sales commissions paid to employees according to the Company Entities' standard
commissions plan) upon or for the manufacture, sale, or distribution of any
Company Product or the use of any Company IP.
(F) Standard Form IP Agreements. The Company has made available to
Parent a complete and accurate copy of each standard form of Company IP Contract
used by any of the Company Entities at any time since inception, including each
standard form of (a) employee agreement containing any assignment or license of
Intellectual Property Rights; (b) consulting or independent contractor agreement
containing any intellectual property assignment or license of Intellectual
Property Rights; and (c) confidentiality or nondisclosure agreement. Part 2.9(f)
of the Company Disclosure Schedule accurately identifies each Company IP
Contract that deviates in any material respect from the corresponding standard
form agreement provided to Parent, including any agreement with an employee,
consultant, or independent contractor in which the employee, consultant, or
independent contractor expressly reserved or retained rights in any Intellectual
Property or Intellectual Property Rights incorporated into or used in connection
with any Company Product or otherwise related to the business, research, or
development of any of the Company Entities.
(G) Ownership Free and Clear. The Company Entities exclusively own all
right, title, and interest to and in the Company IP (other than Intellectual
Property Rights exclusively licensed to the Company Entities, as identified in
Part 2.9(c) of the Company Disclosure Schedule) free and clear of any
Encumbrances (other than licenses and rights granted pursuant to the Contracts
identified in Part 2.9(d) of the Company Disclosure Schedule). Without limiting
the generality of the foregoing:
(I) Perfection of Rights. All documents and instruments necessary
to establish, perfect, and maintain the rights of the Company Entities in the
Company Registered IP have been validly executed, delivered, and filed in a
timely manner with the appropriate Governmental Body.
(II) Employees and Contractors. Each Person who is or was an
employee or contractor of any of the Company Entities and who is or was involved
in the creation or development of any Company Product or Company IP has signed a
valid, enforceable agreement containing an assignment of Intellectual Property
Rights pertaining to such Company Product or Company IP to such Company Entity
and confidentiality provisions protecting the Company IP. No current or former
stockholder, officer, director, or employee of the Company has any claim, right
(whether or not currently exercisable), or interest to or in any Company IP. To
the knowledge of the Company, no employee of any of the Company Entities is (a)
bound by or otherwise subject to any Contract restricting him from performing
his duties for any of the Company Entities or (b) in breach of any Contract with
any former employer or other Person concerning Intellectual Property Rights or
confidentiality due to his activities as an employee of any of the Company
Entities.
(III) Government Rights. No funding, facilities, or personnel of
any Governmental Body or any public or private university, college, or other
educational or research
17
institution were used, directly or indirectly, to develop or create, in whole or
in part, any Company IP.
(IV) Protection of Proprietary Information. Each of the Company
Entities has taken all reasonable steps to maintain the confidentiality of and
otherwise protect and enforce their rights in all proprietary information
pertaining to the Company Entities or any Company Product. Without limiting the
generality of the foregoing, no portion of the source code for any software ever
owned or developed by any of the Company Entities and now used in its business
has been disclosed or licensed to any escrow agent or other Person.
(V) Past IP Dispositions. Except for the Contracts set forth on
Part 2.9(c) of the Company Disclosure Schedule, none of the Company Entities has
assigned or otherwise transferred ownership of, or agreed to assign or otherwise
transfer ownership of, any material Intellectual Property Right to any other
Person.
(VI) Standards Bodies. None of the Company Entities is or has
ever been a member or promoter of, or a contributor to, any industry standards
body or similar organization that could require or obligate any of the Company
Entities to grant or offer to any other Person any license or right to any
Company IP.
(VII) Sufficiency. Except as set forth in Part 2.9(g) of the
Company Disclosure Schedule, each of the Company Entities owns or otherwise has,
and after the Closing will have, all Intellectual Property Rights needed to
conduct its business as currently conducted.
(H) Valid and Enforceable. To the knowledge of the Company, except as
set forth on Part 2.9(h) of the Company Disclosure Schedule, all Company IP is
valid, subsisting, and enforceable. Without limiting the generality of the
foregoing:
(I) Misuse and Inequitable Conduct. None of the Company Entities
has engaged in patent or copyright misuse or any fraud or inequitable conduct in
connection with any Company IP that is Registered IP.
(II) Trademarks. To the knowledge of the Company, no material
trademark or trade name owned, used, or applied for by any of the Company
Entities conflicts or interferes with any trademark or trade name owned, used,
or applied for by any other Person. No event or circumstance (including a
failure to exercise adequate quality controls and an assignment in gross without
the accompanying goodwill) has occurred or exists that has resulted in, or would
reasonably be expected to result in, the abandonment of any material trademark
(whether registered or unregistered) owned, used, or applied for by any of the
Company Entities.
(III) Legal Requirements and Deadlines. No Registered IP of any
Company Entity has been abandoned or allowed to lapse such that the abandonment
or lapse would constitute a breach of an agreement between a Company Entity and
any third party. Part 2.9(h) (iii) of the Company Disclosure Schedule accurately
identifies and describes as of the date of this Agreement each action, filing,
and payment that must be taken or made on or before the date that is 120
calendar days after the date of this Agreement in order to maintain such item of
Company IP in full force and effect.
18
(IV) Interference Proceedings and Similar Claims. No
interference, opposition, reissue, reexamination, or other Proceeding is or has
been pending or, to the knowledge of the Company, threatened, in which the
scope, validity, or enforceability of any Company IP is being, has been, or
could reasonably be expected to be contested or challenged. To the knowledge of
the Company, there is no basis for a claim that any Company IP is invalid or
unenforceable.
(I) Third-Party Infringement of Company IP. To the knowledge of the
Company, except as set forth on Part 2.9(i) of the Company Disclosure Schedule,
no Person has infringed, misappropriated, or otherwise violated, and no Person
is currently infringing, misappropriating, or otherwise violating, any Company
IP. Part 2.9(i) of the Company Disclosure Schedule accurately identifies (and
the Company has provided to Parent a complete and accurate copy of) each letter
or other written or electronic communication or correspondence that has been
sent or otherwise delivered by or to any of the Company Entities or any
representative of the Company regarding any actual, alleged, or suspected
infringement or misappropriation of any Company IP, and provides a brief
description of the current status of the matter referred to in such letter,
communication, or correspondence.
(J) Effects of This Transaction. Neither the execution, delivery, or
performance of this Agreement (or any of the ancillary agreements) nor the
consummation of any of the transactions contemplated by this Agreement (or any
of the ancillary agreements) will, with or without notice or lapse of time,
result in, or give any other Person the right or option to cause or declare, (a)
a loss of, or Encumbrance on, any Company IP; (b) a breach of or default under
any Company IP Contract; (c) the release, disclosure, or delivery of any Company
IP by or to any escrow agent or other Person; or (d) the grant, assignment, or
transfer to any other Person of any license or other right or interest under,
to, or in any of the Company IP.
(K) No Infringement of Third Party IP Rights. To the knowledge of the
Company, except as set forth in Part 2.9(k) of the Company Disclosure Schedule,
(a) none of the Company Entities has ever infringed (directly, contributorily,
by inducement, or otherwise), misappropriated, or otherwise violated or made
unlawful use of any Intellectual Property Right of any other Person or engaged
in unfair competition, (b) no Company Product, and no method or process used in
the manufacturing of any Company Product, infringes, violates, or makes unlawful
use of any Intellectual Property Right of, or contains any Intellectual Property
misappropriated from, any other Person, and (c) there is no legitimate basis for
a claim that any of the Company Entities or any Company Product has infringed or
misappropriated any Intellectual Property Right of another Person or engaged in
unfair competition or that any Company Product, or any method or process used in
the manufacturing of any Company Product, infringes, violates, or makes unlawful
use of any valid and enforceable Intellectual Property Right of, or contains any
valid and enforceable Intellectual Property misappropriated from, any other
Person.
(L) Infringement Claims. No infringement, misappropriation, or similar
claim or Proceeding is pending or, to the knowledge of the Company, threatened
against any of the Company Entities or against any other Person who is or may be
entitled to be indemnified, defended, held harmless, or reimbursed by any of the
Company Entities with respect to such
19
claim or Proceeding. Except as set forth on Part 2.9(l) of the Company
Disclosure Schedule, none of the Company Entities has ever received any notice
or other communication (in writing or otherwise) relating to any actual,
alleged, or suspected infringement, misappropriation, or violation by any of the
Company Entities, any of their employees or agents, or any Company Product of
any Intellectual Property Rights of another Person, including any letter or
other communication suggesting or offering that the Company obtain a license to
any Intellectual Property Right of another Person.
(M) Other Infringement Liability. None of the Company Entities is
bound by any Contract to indemnify, defend, hold harmless, or reimburse any
other Person with respect to, or otherwise assumed or agreed to discharge or
otherwise take responsibility for, any existing or potential intellectual
property infringement, misappropriation, or similar claim (other than
indemnification provisions in the Company Entities' standard forms of Company IP
Contracts or in Contracts otherwise identified in Part 2.9 of the Company
Disclosure Schedule).
(N) Infringement Claims Affecting In-Licensed IP. To the knowledge of
the Company, no claim or Proceeding involving any Intellectual Property or
Intellectual Property Right licensed to any of the Company Entities is pending
or has been threatened, except for any such claim or Proceeding that, if
adversely determined, would not adversely affect (a) the use or exploitation of
such Intellectual Property or Intellectual Property Right by any of the Company
Entities, or (b) the design, development, manufacturing, marketing,
distribution, provision, licensing or sale of any Company Product.
(O) The Company has no Company Privacy Policy.
(P) The Company Entities do not maintain, or have other Persons
maintain for any of the Company Entities, any electronic or other database
containing (in whole or in part) Personal Data (the "COMPANY DATABASES").
(Q) Each of the Company Entities has complied at all times and in all
material respects with all of the Company Privacy Policies and with all
applicable Legal Requirements pertaining to privacy, User Data, or Personal
Data.
(R) Neither the execution, delivery, or performance of this Agreement
(or any of the ancillary agreements) nor the consummation of any of the
transactions contemplated by this Agreement (or any of the ancillary
agreements), nor Parent's possession or use of the User Data or any data or
information in the Company Databases, will result in any violation of any
Company Privacy Policy or any Legal Requirement pertaining to privacy, User
Data, or Personal Data.
2.10 CONTRACTS. Part 2.10 of the Company Disclosure Schedule lists (i) all
material contracts of the Company Entities (within the meaning of Item 601(10)
of Regulation S-K) that have not been filed as exhibits to the Company SEC
Documents; and (ii) all amendments to the Company Material Contracts (as defined
below), whether or not such contracts were filed as exhibits to the Company SEC
Documents, unless such amendments were also filed as exhibits to the Company SEC
Documents. The contracts listed on Part 2.10 of the Company Disclosure
20
Schedule together with the contracts filed as exhibits to the Company SEC
Documents are referred to collectively as the "COMPANY MATERIAL CONTRACTS". All
Company Material Contracts, as amended pursuant to amendments filed as exhibits
to the Company SEC Documents or listed on Part 2.10 of the Company Disclosure
Schedule, have either expired or remain in full force and effect, in each case
in accordance with their terms as stated in such documents. The Company Entities
have not breached, or received in writing any claim or threat that they have
breached, any of the terms and conditions of any Company Material Contract in
such a manner as would permit any other party to cancel or terminate the same or
would permit any other party to seek material damages from the Company Entities
under any Company Material Contract, and the Company Entities are not aware of
the existence of a material breach of a Company Material Contract by any other
party thereto. The Company Entities are not engaged, and has not agreed to
engage, in any discussions related to the material amendment of any Company
Material Contract.
2.11 FDA AND REGULATORY MATTERS.
(A) Except as set forth in Part 2.11 of the Company Disclosure
Schedule, (i) with respect to the Company Products and, to the extent
applicable, any currently under development (A) the Company Entities have
obtained all necessary and applicable approvals, clearances, authorizations,
licenses and registrations required by the United States or foreign governments
or government agencies, to permit the design, development, manufacture,
labeling, sale, distribution and promotion of the Company Products in
jurisdictions where it currently conducts such activities (the "ACTIVITIES TO
DATE") with respect to each Company Product (collectively, the "COMPANY
LICENSES"), except where the failure to hold such Company Licenses has not been
material to the Company Entities and would not reasonably be expected to be
material to the Company Entities; (B) the Company Entities are in material
compliance with all terms and conditions of each Company License and with all
applicable laws pertaining to the Activities to Date with respect to each
Company Product which is not required to be the subject of a Company License;
(C) the Company Entities are in compliance in all material respects with all
Legal Requirements regarding registration, license, certification for each site
at which a Company Product is manufactured, labeled, sold, or distributed; and
(D) to the extent any Company Product has been exported from the United States,
the Company or, as applicable, a subsidiary of the Company exporting such
Company Product, has exported such Company Product in compliance in all material
respects with all Legal Requirements, and (ii) the Company Entities are in
compliance in all material respects with all applicable reporting requirements
for all Company Licenses or plant registrations described in clause (i) above.
(B) The Company Entities are in material compliance with all FDA and
non-United States equivalent agencies and similar state and local laws
applicable to the maintenance, compilation and filing of reports, including
medical device reports, with regard to the Company Products. Part 2.11(b) of the
Company Disclosure Schedule sets forth a list of all applicable adverse event
reports related to the Company Products, including any Medical Device Reports
(as defined in 21 CFR 803).
(C) Since January 1, 2000, none of the Company Entities has received
any written notice or other written communication from the FDA or any other
Governmental Body
21
(i) contesting the pre-market clearance or approval of, the uses of or the
labeling and promotion of any of the Company Products or (ii) otherwise alleging
any violation of any laws by any of the Company Entities with respect to any
Company Product.
(D) There have been no recalls, field notifications or seizures
ordered or adverse regulatory actions taken (or, to the knowledge of the
Company, threatened) by the FDA or any other Governmental Body with respect to
any of the Company Products, including any facilities where any such Company
Products are produced, processed, packaged or stored and none of the Company
Entities has within the last three (3) years, either voluntarily or at the
request of any Governmental Body, initiated or participated in a recall of any
Company Product or provided post-sale warnings regarding any Company Product.
(E) All filings with and submissions to the FDA and any corollary
entity in any other jurisdiction made by any of the Company Entities with regard
to the Company Products, whether oral, written or electronically delivered, were
true, accurate and complete in all material respects as of the date made, and,
to the extent required to be updated, as so updated remain true, accurate and
complete in all material respects as of the date hereof, and do not materially
misstate any of the statements or information included therein, or omit to state
a material fact necessary to make the statements therein not misleading.
2.12 LIABILITIES. None of the Company Entities has any accrued, contingent
or other Liabilities of any nature, either matured or unmatured, except for: (a)
Liabilities identified as such in the Company Unaudited Interim Balance Sheet or
the notes thereto; (b) Liabilities that have been incurred by the Company
Entities since the date of the Company Unaudited Interim Balance Sheet in the
ordinary course of business, consistent with past practices; (c) Liabilities
incurred under this Agreement and the other agreements contemplated hereby; (d)
Liabilities described in Part 2.12 of the Company Disclosure Schedule; and (e)
other immaterial Liabilities that in the aggregate are not material.
2.13 COMPLIANCE WITH LEGAL REQUIREMENTS. Since January 1, 2000, each of the
Company Entities has complied in all material respects with all applicable Legal
Requirements. Since January 1, 2000, none of the Company Entities has received
any notice or other communication from any Governmental Body or other Person
regarding any actual or possible violation of, or failure to comply in all
material respects with, any Legal Requirement.
2.14 CERTAIN BUSINESS PRACTICES. None of the Company Entities nor, to the
knowledge of the Company, any director, officer, agent or employee of any of the
Company Entities has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
2.15 GOVERNMENTAL AUTHORIZATIONS.
22
(A) The Company Entities hold all material Governmental Authorizations
necessary to enable the Company Entities to conduct their respective businesses
in the manner in which such businesses are currently being conducted. All such
Governmental Authorizations are valid and in full force and effect. Each Company
Entity is in substantial compliance with the terms and requirements of such
Governmental Authorizations. None of the Company Entities has received any
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any material Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any material Governmental Authorization. No Governmental Body
has at any time since January 1, 2000, challenged in writing the right of any of
the Company Entities to design, manufacture, offer or sell any of its products
or services.
2.16 TAX MATTERS.
(A) Each of the Company Entities has filed all material Tax Returns
that it was required to file under applicable Legal Requirements. All such Tax
Returns were correct and complete in all material respects and have been
prepared in substantial compliance with all applicable Legal Requirements. All
Taxes due and owing by each of the Company Entities (whether or not shown on any
Tax Return) have been paid. None of the Company Entities is currently the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where the Company
Entities do not file Tax Returns that any of them is or may be subject to
taxation by that jurisdiction. There are no liens for Taxes (other than Taxes
not yet due and payable) upon any of the assets of any of the Company Entities.
(B) Each of the Company Entities has withheld and paid all Taxes
required to have been withheld and paid in connection with any amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
(C) To the knowledge of the Company, no additional Taxes will be
assessed for any period for which Tax Returns have been filed. No Proceedings
relating to Taxes are pending or being conducted with respect to any of the
Company Entities. No Proceedings relating to Taxes are pending or being
conducted with respect to any of the Company Entities. None of the Company
Entities has received from any Governmental Body any (i) notice indicating an
intent to open an audit or other review, (ii) request for information related to
Tax matters, or (iii) notice of deficiency or proposed adjustment of or any
amount of Tax proposed, asserted, or assessed by any Governmental Body against
any of the Company Entities.
(D) Part 2.16(d) of the Company Disclosure Schedule lists all income
and other material Tax Returns filed with respect to each of the Company
Entities for taxable periods ended on or after January 1, 2000, indicates those
Tax Returns that have been audited, and indicates those Tax Returns that
currently are subject to audit. The Company has made available to Parent correct
and complete copies of all Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by any of the Company Entities.
23
(E) None of the Company Entities has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(F) None of the Company Entities is a party to any Contract that has
resulted or would reasonably be expected to result, separately or in the
aggregate, in the payment of (i) any "excess parachute payment" within the
meaning of section 280G of the Code (or any corresponding provisions of state,
local or foreign Tax law) and (ii) any amount that will not be fully deductible
as a result of section 162(m) of the Code (or any corresponding provisions of
state, local or foreign Tax law). The Company has not been a United States real
property holding corporation within the meaning of section 897(c)(2) of the Code
during the applicable period specified in section 897(c)(1)(A)(ii) of the Code.
None of the Company Entities is a party to or bound by any Tax allocation or
sharing agreement. Each of the Company Entities has (A) not been a member of an
"Affiliated Group" filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) or (B) no Liability for the
Taxes of any Person (other than such Company Entities) under regulation 1.1502-6
of the Code (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(G) The unpaid Taxes of the Company Entities (A) did not, as of the
date of the Company Unaudited Interim Balance Sheet, exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the Company
Unaudited Interim Balance Sheet, and (B) do not exceed that reserve as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of the Company Entities in filing their Tax Returns. Since
the date of the Company Unaudited Interim Balance Sheet, none of the Company
Entities has incurred any liability for Taxes arising from extraordinary gains
or losses, determined in accordance with GAAP, outside the ordinary course of
business and inconsistent with past custom and practice.
(H) None of the Company Entities will be required to include any item
of income in, or exclude any item of deduction from, taxable income for any
taxable period (or portion there) ending after the Closing Date as a result of
any: (A) change in method of accounting for taxable period ending on or prior to
the Closing Date; (B) "closing agreement" as described in section 7121 of the
Code (or any corresponding or similar provision of state, local or foreign
income Tax law) executed on or prior to the Closing Date; (C) intercompany
transactions or any excess loss account described in Treasury Regulations under
section 1502 of the Code (or any corresponding or similar provisions of state,
local or foreign income Tax law); (D) installment sale or open transaction
disposition made on or prior to the Closing Date; or (E) prepaid amount received
on or prior to the Closing Date.
(I) None of the Company Entities has distributed stock of another
Person, or has had its stock distributed by another Person, in a transaction
that was purported or intended to be governed in whole or in part by section 355
or section 361 of the Code.
(J) Except as disclosed in Section 2.16(j) of the Company Disclosure
Schedule, no Company Option, Company Employee Plan or Company Contract violates
or is
24
otherwise subject to Section 409A of the Code. All of the Company Options and
stock appreciation rights that were granted after October 3, 2004, or which vest
or vested (in whole or in part) after December 31, 2004, have (or, if already
terminated, had) an exercise price that was not less than the fair market value
of the underlying stock as of the date such option or right was granted. The
Company Entities are not a party to, or otherwise obligated under, any contract,
agreement, plan or arrangement that provides for the gross-up of the Tax imposed
by Section 409A(a)(1)(B) of the Code.
(K) None of the Company Entities has participated, within the meaning
of Treasury Regulation Section 1.6011-4(c), in (i) any "reportable transaction"
within the meaning of Section 6011 of the Code and the Treasury Regulations
thereunder, (ii) any "confidential corporate tax shelter" within the meaning of
Section 6111 of the Code and the Treasury Regulations thereunder, or (iii) any
"potentially abusive tax shelter" within the meaning of Section 6112 of the Code
and the Treasury Regulations thereunder.
(L) The amount of the Company Entities' consolidated net operating
loss carryovers, consolidated capital loss carryovers and general business
credit carryovers as of December 31, 2004 are listed in Section 2.16(l) of the
Company Disclosure Schedule. The Company Entities have no net operating losses
or other Tax attributes presently subject to limitation under Sections 382, 383
or 384 of the Code, or the federal consolidated return regulations (other than
limitations imposed as a result of the transactions contemplated by this
Agreement).
2.17 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(A) Part 2.17(a) of the Company Disclosure Schedule accurately sets
forth, with respect to each employee of each of the Company Entities (including
any employee of any of the Company Entities who is on a leave of absence or on
layoff status):
(I) the name of such employee, the Company Entity by which such
employee is employed and the date as of which such employee was originally hired
by such Company Entity;
(II) such employee's title;
(III) the aggregate dollar amount of the compensation (including
wages, salary, commissions, director's fees, fringe benefits, bonuses,
profit-sharing payments and other payments or benefits of any type) received by
such employee from the applicable Company Entity with respect to services
performed in 2004, and services performed through September 30, 2005; and
(IV) such employee's annualized compensation as of the date of
this Agreement.
(B) Part 2.17(b) of the Company Disclosure Schedule accurately
identifies each former employee of any of the Company Entities who is receiving
or is scheduled to receive (or whose spouse or other dependent is receiving or
is scheduled to receive) any benefits
25
(whether from any of the Company Entities or otherwise) relating to such former
employee's employment with any of the Company Entities; and Part 2.17(b) of the
Company Disclosure Schedule accurately describes such benefits.
(C) Except as set forth in Part 2.17(c) of the Company Disclosure
Schedule, the employment of each of the Company Entities' employees is
terminable by the applicable Company Entity at will. The Company has made
available to Parent accurate and complete copies of all employee manuals and
handbooks, disclosure materials, policy statements and other materials relating
to the employment of the current and former employees of each of the Company
Entities.
(D) [Intentionally omitted.]
(E) Part 2.17(e) of the Company Disclosure Schedule accurately sets
forth, with respect to each independent contractor of each of the Company
Entities working for such Company Entity on or after January 1, 2000:
(I) the name of such independent contractor, the Company Entity
with which such independent contractor is contracted and the date as of which
such independent contractor was originally hired by such Company Entity;
(II) a description of such independent contractor duties and
responsibilities;
(III) the aggregate dollar amount of the compensation (including
all payments or benefits of any type) received by such independent contractor
from the applicable Company Entity with respect to services performed in 2004,
and services performed through September 30, 2005; and
(IV) the terms of compensation of such independent contractor.
(F) Except as set forth in Part 2.17(f) of the Company Disclosure
Schedule, none of the Company Entities is a party to or bound by, and since
January 1, 2000, none of the Company Entities has ever been a party to or bound
by, any employment agreement or any union contract, collective bargaining
agreement or similar Contract.
(G) None of the Company Entities is or has ever been engaged, in any
unfair labor practice of any nature. There has never been any slowdown, work
stoppage, labor dispute or union organizing activity, or any similar activity or
dispute, affecting any of the Company Entities or any of their employees. There
is not now pending, and no Person has threatened to commence, any such slowdown,
work stoppage, labor dispute or union organizing activity or any similar
activity or dispute. No event has occurred, and to the knowledge of the Company,
no condition or circumstance exists, that might directly or indirectly give rise
to or provide a basis for the commencement of any such slowdown, work stoppage,
labor dispute or union organizing activity or any similar activity or dispute.
There are no actions, suits, claims, labor disputes or grievances pending or, to
the knowledge of the Company, threatened or reasonably anticipated
26
relating to any labor, safety or discrimination matters involving any Company
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints.
(H) None of the current or former independent contractors of any of
the Company Entities who has worked for the Company Entities on or after January
1, 2000, could properly be reclassified as an employee. There are not, and at no
time since January 1, 2000 have been, any independent contractors who have
provided services to any of the Company Entities or any Company Affiliate for a
period of six consecutive months or longer. Since January 1, 2000, none of the
Company Entities has ever had any temporary or leased employees, other than
temporary employees provided through temporary agencies that were used no more
than two consecutive business weeks or for more than 30 total days. No
independent contractor of the Company is eligible to participate in any Company
Employee Plan.
(I) Part 2.17(i) of the Company Disclosure Schedule contains an
accurate and complete list as of the date hereof of each Company Employee Plan
and each Company Employee Agreement. None of the Company Entities intends nor
have any of them committed to establish or enter into any new Company Employee
Plan or Company Employee Agreement, or to modify any Company Employee Plan or
Company Employee Agreement (except to conform any such Company Employee Plan or
Company Employee Agreement to the requirements of any applicable Legal
Requirements, in each case as previously disclosed to Parent in writing or as
required by this Agreement).
(J) The Company has made available to Parent: (i) correct and complete
copies of all documents setting forth the terms of each Company Employee Plan
and each Company Employee Agreement, including all amendments thereto and all
related trust documents; (ii) the three most recent annual reports (Form Series
5500 and all schedules and financial statements attached thereto), if any,
required under ERISA or the Code in connection with each Company Employee Plan;
(iii) if the Company Employee Plan is subject to the minimum funding standards
of Section 302 of ERISA, the most recent annual and periodic accounting of
Company Employee Plan assets; (iv) the most recent summary plan description
together with the summaries of material modifications thereto, if any, required
under ERISA with respect to each Company Employee Plan; (v) all material written
Contracts relating to each Company Employee Plan, including administrative
service agreements and group insurance contracts; (vi) all written materials
provided to any Company Employee relating to any Company Employee Plan and any
proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events that would result in any
liability to any of the Company Entities or any Company Affiliate that would
cause the Company Entities to incur a material liability that is not accrued on
the Company Unaudited Interim Balance Sheet; (vii) all correspondence to or from
any Governmental Body relating to any Company Employee Plan; (viii) all COBRA
forms and related notices; (ix) all insurance policies in the possession of any
of the Company Entities or any Company Affiliate pertaining to fiduciary
liability insurance covering the fiduciaries for each Company Employee Plan; (x)
all discrimination tests required under the Code for each Company Employee Plan
intended to be qualified under Section 401(a) of the Code for the three most
recent plan years; and (xi) the most recent IRS determination or
27
opinion letter issued with respect to each Company Employee Plan intended to be
qualified under Section 401(a) of the Code.
(K) Each of the Company Entities and Company Affiliates have performed
all obligations required to be performed by them under each Company Employee
Plan and are not in default or violation of, and the Company does not have
knowledge of any default or violation by any other party to, the terms of any
Company Employee Plan, and each Company Employee Plan has been established and
maintained substantially in accordance with its terms and in substantial
compliance with all applicable Legal Requirements, including ERISA and the Code.
Any Company Employee Plan intended to be qualified under Section 401(a) of the
Code has obtained a favorable determination letter (or opinion letter, if
applicable) as to its qualified status under the Code. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Company Employee Plan. There are no claims or Proceedings
pending, or, to the knowledge of the Company, threatened or reasonably
anticipated (other than routine claims for benefits), against any Company
Employee Plan or against the assets of any Company Employee Plan. Each Company
Employee Plan (other than any Company Employee Plan to be terminated prior to
the Closing in accordance with this Agreement) can be amended, terminated or
otherwise discontinued after the Closing in accordance with its terms, without
liability to Parent, the Company Entities or any Company Affiliate (other than
ordinary administration expenses). There are no audits, inquiries or Proceedings
pending or, to the knowledge of the Company, threatened by the IRS, DOL, or any
other Governmental Body with respect to any Company Employee Plan. None of the
Company Entities nor any Company Affiliate has ever incurred any penalty or tax
with respect to any Company Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code. Each of the Company Entities and Company
Affiliates have made all contributions and other payments required by and due
under the terms of each Company Employee Plan.
(L) None of the Company Entities nor any Company Affiliate has ever
maintained, established, sponsored, participated in, or contributed to any: (i)
Company Pension Plan subject to Title IV of ERISA; or (ii) "multiemployer plan"
within the meaning of Section (3)(37) of ERISA. None of the Company Entities nor
any Company Affiliate has ever maintained, established, sponsored, participated
in or contributed to, any Company Pension Plan in which stock of any of the
Company Entities or any Company Affiliate is or was held as a plan asset. The
Company Entities have no, and have never had, any Foreign Plan.
(M) Except as disclosed in Part 2.17(m) of the Company Disclosure
Schedule, no Company Employee Plan provides (except at no cost to the Company
Entities or any Company Affiliate), or reflects or represents any liability of
any of the Company Entities or any Company Affiliate to provide, retiree life
insurance, retiree health benefits or other retiree employee welfare benefits to
any Person for any reason, except as may be required by COBRA or other
applicable Legal Requirements. Other than commitments made that involve no
future costs to any of the Company Entities or any Company Affiliate, none of
the Company Entities nor any Company Affiliate has ever represented, promised or
contracted (whether in oral or written form) to any Company Employee (either
individually or to Company Employees as a group) or any other Person that such
Company Employee(s) or other person would be provided
28
with retiree life insurance, retiree health benefit or other retiree employee
welfare benefits, except to the extent required by applicable Legal
Requirements.
(N) Except as set forth in Part 2.17(n) of the Company Disclosure
Schedule, and except as expressly required or provided by this Agreement,
neither the execution of this Agreement nor the consummation of the transactions
contemplated hereby will (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any Company Employee Plan,
Company Employee Agreement, trust or loan that will or may result (either alone
or in connection with any other circumstance or event) in any payment (whether
of severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits with
respect to any Company Employee.
(O) Except as set forth in Part 2.17(o) of the Company Disclosure
Schedule, each of the Company Entities and Company Affiliates: (i) are, and at
all times have been, in substantial compliance with all applicable Legal
Requirements respecting employment, employment practices, terms and conditions
of employment and wages and hours, in each case, with respect to Company
Employees, including the health care continuation requirements of COBRA, the
requirements of FMLA, the requirements of HIPAA and any similar provisions of
state law; (ii) have withheld and reported all amounts required by applicable
Legal Requirements or by Contract to be withheld and reported with respect to
wages, salaries and other payments to Company Employees; (iii) are not liable
for any arrears of wages or any taxes or any penalty for failure to comply with
the Legal Requirements applicable of the foregoing; and (iv) are not liable for
any payment to any trust or other fund governed by or maintained by or on behalf
of any Governmental Body with respect to unemployment compensation benefits,
social security or other benefits or obligations for Company Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice). There are no pending or, to the knowledge of the Company,
threatened or reasonably anticipated claims or Proceedings against any of the
Company Entities or any Company Affiliate under any worker's compensation policy
or long-term disability policy.
(P) To the knowledge of the Company, no stockholder nor any Company
Employee is obligated under any Contract or subject to any judgment, decree, or
order of any court or other Governmental Body that would interfere with such
Person's efforts to promote the interests of the Company Entities or that would
interfere with the businesses of the Company Entities or any Company Affiliate.
Neither the execution nor the delivery of this Agreement, nor the carrying on of
the business of the Company Entities or any Company Affiliate as presently
conducted nor any activity of such stockholder or Company Employees in
connection with the carrying on of the business of the Company Entities or any
Company Affiliate as presently conducted will, to the knowledge of the Company,
conflict with, result in a breach of the terms, conditions or provisions of, or
constitute a default under, any Contract under which any of such stockholders or
Company Employees is now bound.
2.18 ENVIRONMENTAL MATTERS. Each of the Company Entities (i) is in
compliance in all material respects with all applicable Environmental Laws and
(ii) possesses all material permits and other Governmental Authorizations
required under applicable Environmental Laws, and is in compliance in all
material respects with the terms and conditions thereof. None of the
29
Company Entities has received any notice or other communication (in writing or
otherwise), whether from a Governmental Body, citizens group, Employee or
otherwise, that alleges that any of the Company Entities is not in compliance
with any Environmental Law, and, to the knowledge of the Company, there are no
circumstances that may prevent or interfere with the compliance by any of the
Company Entities with any Environmental Law in the future. To the knowledge of
the Company, (a) all property that is leased to, controlled by or used by any of
the Company Entities, and all surface water, groundwater and soil associated
with or adjacent to such property, is free of any material environmental
contamination of any nature, (b) none of the property leased to, controlled by
or used by any of the Company Entities contains any underground storage tanks,
asbestos, equipment using PCBs, underground injection xxxxx, and (c) none of the
property leased to, controlled by or used by any of the Company Entities
contains any septic tanks in which process wastewater or any Materials of
Environmental Concern have been disposed. No Company Entity has ever sent or
transported, or arranged to send or transport, any Materials of Environmental
Concern to a site that, pursuant to any applicable Environmental Law (i) has
been placed on the "National Priorities List" of hazardous waste sites or any
similar state list, (ii) is otherwise designated or identified as a potential
site for remediation, cleanup, closure or other environmental remedial activity,
or (iii) is subject to a Legal Requirement to take "removal" or "remedial'
action as detailed in any applicable Environmental Law or to make payment for
the cost of cleaning up any site.
2.19 INSURANCE. The Company has made available to Parent a copy of all
material insurance policies and all material self insurance programs and
arrangements relating to the business, assets and operations of the Company
Entities. Each of such insurance policies is in full force and effect. None of
the Company Entities has received any notice or other communication regarding
any actual or possible (a) cancellation or invalidation of any insurance policy,
(b) refusal of any coverage or rejection of any material claim under any
insurance policy, or (c) material adjustment in the amount of the premiums
payable with respect to any insurance policy. Except as set forth in Part 2.19
of the Company Disclosure Schedule, there is no pending workers' compensation or
other claim under or based upon any insurance policy of any of the Company
Entities.
2.20 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Company SEC
Documents filed prior to the date of this Agreement, between the date of the
Company's last proxy statement filed with the SEC and the date of this
Agreement, no event has occurred that would be required to be reported by the
Company pursuant to Item 404 of Regulation S-K promulgated by the SEC. Part 2.20
of the Company Disclosure Schedule identifies each Person who is (or who may be
deemed to be) an "affiliate" (as that term is used in Rule 145 under the
Securities Act) of the Company as of the date of this Agreement.
2.21 LEGAL PROCEEDINGS; ORDERS.
(A) Except as set forth in Part 2.21 of the Company Disclosure
Schedule, there is no pending Legal Proceeding, and (to the knowledge of the
Company) no Person has threatened to commence any Legal Proceeding: (i) that
involves any of the Company Entities or any of the assets owned or used by any
of the Company Entities; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the
30
Combination or any of the other transactions contemplated by this Agreement.
Except as set forth in Part 2.21 of the Company Disclosure Schedule, to the
knowledge of the Company, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that would reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
(B) There is no order, writ, injunction, judgment or decree to which
any of the Company Entities, or any of the assets owned or used by any of the
Company Entities, is subject. To the knowledge of the Company, no officer or key
employee of any of the Company Entities is subject to any order, writ,
injunction, judgment or decree that prohibits such officer or other employee
from engaging in or continuing any conduct, activity or practice relating to the
business of any of the Company Entities.
2.22 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the absolute
and unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement. The board of directors of the Company (at a
meeting duly called and held) has (a) unanimously approved this Agreement and
declared that it is advisable and in the best interests of the Company's
stockholders, (b) unanimously authorized and approved the execution, delivery
and performance of this Agreement by the Company, (c) unanimously recommended
the adoption of this Agreement by the holders of Company Common Stock and
directed that this Agreement and the Merger be submitted for adoption by the
Company's stockholders at the Company Stockholders' Meeting (as defined in
Section 5.2), and (d) to the extent necessary, adopted a resolution having the
effect of causing the Company not to be subject to any state takeover law or
similar Legal Requirement that might otherwise apply to the Combination or any
of the other transactions contemplated by this Agreement. This Agreement
constitutes the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies. Prior to the execution of the Company Stockholder Voting
Agreements, the Board of Directors of the Company approved the Company
Stockholder Voting Agreements and the transactions contemplated thereby. No
state takeover statute or similar Legal Requirement applies or purports to apply
to the Combination, this Agreement or any of the transactions contemplated
hereby.
2.23 NO EXISTING DISCUSSIONS. None of the Company Entities, and no
Representative of any of the Company Entities, is engaged, directly or
indirectly, in any discussions or negotiations with any other Person relating to
any Company Acquisition Proposal.
2.24 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Company Common Stock outstanding on the record date for the
Company Stockholders' Meeting (the "REQUIRED COMPANY STOCKHOLDER VOTE") is the
only vote of the holders of any class or series of the Company's capital stock
necessary to adopt this Agreement and approve the Merger and the other
transactions contemplated by this Agreement.
2.25 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.25 of the
Company Disclosure Schedule, neither (1) the execution, delivery or performance
of this Agreement or any
31
of the other agreements referred to in this Agreement by the Company, nor (2)
the consummation by the Company of the Combination or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(A) contravene, conflict with or result in a violation of (i) any of
the provisions of the certificate of incorporation, bylaws or other charter or
organizational documents of any of the Company Entities, or (ii) any resolution
adopted by the stockholders, the board of directors or any committee of the
board of directors of any of the Company Entities;
(B) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Combination or any
of the other transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which any of the Company Entities, or any of
the assets owned or used by any of the Company Entities, is subject;
(C) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by any of the Company Entities or that otherwise relates to the
business of any of the Company Entities or to any of the assets owned or used by
any of the Company Entities;
(D) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Company Entity Contract that
constitutes a Company Material Contract, or give any Person the right to (i)
declare a default or exercise any remedy under any such Company Entity Contract,
(ii) a rebate, chargeback, penalty or change in delivery schedule under any such
Company Entity Contract, (iii) accelerate the maturity or performance of any
such Company Entity Contract, or (iv) cancel, terminate or modify any term of
such Company Entity Contract; or
(E) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by any of the Company Entities (except
for minor liens that will not, in any case or in the aggregate, materially
detract from the value of the assets subject thereto or materially impair the
operations of any of the Company Entities).
(F) Except as may be required by the Exchange Act, the DGCL and the
NASD Bylaws (as they relate to the Form S-4 Registration Statement and the Joint
Proxy Statement/Prospectus), none of the Company Entities was, is or will be
required to make any filing with or give any notice to, or to obtain any Consent
from, any Person in connection with (x) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement
by the Company, or (y) the consummation by the Company of the Combination or any
of the other transactions contemplated by this Agreement.
2.26 FAIRNESS OPINION. The Company's board of directors has received the
written opinion of The Spartan Group, LLC, financial advisor to the Company,
dated the date of this Agreement, to the effect that the Exchange Ratio is fair
to the stockholders of the Company from
32
a financial point of view. The Company has furnished an accurate and complete
copy of said written opinion to Parent.
2.27 FINANCIAL ADVISOR. Except for The Spartan Group, LLC, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Combination or any of the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of any of the Company Entities. The total of all fees, commissions and
other amounts that may become payable to The Spartan Group, LLC by the Company
if the Combination is consummated will not exceed $500,000. The Company has
furnished to Parent accurate and complete copies of all agreements under which
any such fees, commissions or other amounts have been paid or may become payable
and all indemnification and other agreements related to the engagement of The
Spartan Group, LLC.
2.28 FULL DISCLOSURE.
(A) This Agreement (including the Company Disclosure Schedule) does
not, and the certificate referred to in Section 7.4(d) will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) omit to state any material fact necessary in order
to make the representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.
(B) None of the information supplied or to be supplied by or on behalf
of the Company for inclusion or incorporation by reference in the Form S-4
Registration Statement will, at the time the Form S-4 Registration Statement is
filed with the SEC or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by or on behalf
of the Company for inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus will, at the time the Joint Proxy Statement/Prospectus is
mailed to the stockholders of the Company or the stockholders of Parent or at
the time of the Company Stockholders' Meeting or the Parent Stockholders'
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement/Prospectus (other than information
provided by Parent, as to which no representation or warranty is made) will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations promulgated by the SEC thereunder.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT, MERGER SUB AND LLC
Parent, Merger Sub and LLC represent and warrant to the Company as follows:
3.1 SUBSIDIARIES; DUE ORGANIZATION; CERTIFICATE OF INCORPORATION AND
BYLAWS. Each of Parent and Merger Sub is a corporation duly organized, validly
existing and in good
33
standing under the laws of the State of Delaware, and LLC is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware, and each of Parent, Merger Sub and LLC has all necessary
corporate power and authority: (a) to conduct its business in the manner in
which its business is currently being conducted; (b) to own and use its assets
in the manner in which its assets are currently owned and used; and (c) to
perform its obligations under all Contracts by which it is bound. Each of the
Parent Entities is duly qualified to do business as a foreign corporation, and
is in good standing, under the laws of all jurisdictions where the nature of its
business requires such qualification, except for those jurisdictions where such
failure to so qualify would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Parent has made available to the
Company accurate and complete copies of the certificate of incorporation, bylaws
and other charter and organizational documents of Parent, including all
amendments thereto.
3.2 CAPITALIZATION, ETC.
(A) The authorized capital stock of Parent consists of: (i) 70,000,000
shares of Parent Common Stock, of which 44,629,445 shares have been issued and
are outstanding as of the date of this Agreement; and 30,000,000 shares of
Preferred Stock, none of which is issued and outstanding as of the date of this
Agreement. All of the outstanding shares of Parent Common Stock have been duly
authorized and validly issued, and are fully paid and nonassessable. Parent is
under no obligation pursuant to which it may become obligated, to repurchase,
redeem or otherwise acquire any outstanding shares of Parent Common Stock.
(B) As of the date of this Agreement: (i) no shares of Parent Common
Stock are reserved for future issuance pursuant to stock options granted and
outstanding under Parent's 2004 Equity Incentive Plan; (ii) 111,250 shares of
Parent Common Stock are reserved for future issuance pursuant to stock options
granted and outstanding under Parent's 2000 Stock Option Plan; and (iii) 13,000
shares of Parent Common Stock are reserved for future issuance pursuant to stock
options granted and outstanding under Parent's 2001 Stock Option Plan. (Options
to purchase shares of Parent Common Stock (whether granted by Parent pursuant to
Parent's stock option plans, assumed by Parent in connection with any merger,
acquisition or similar transaction or otherwise issued or granted) are referred
to in this Agreement as "PARENT OPTIONS.") Part 3.2(b) of the Parent Disclosure
Schedule sets forth the following information with respect to each Parent Option
outstanding as of the date of this Agreement: (i) the particular plan (if any)
pursuant to which such Parent Option was granted; (ii) the name of the optionee;
(iii) the number of shares of Parent Common Stock subject to such Parent Option;
(iv) the exercise price of such Parent Option; (v) the date on which such Parent
Option was granted; (vi) the applicable vesting schedule, and the extent to
which such Parent Option is vested and exercisable as of the date of this
Agreement; and (vii) the date on which such Parent Option expires. Parent has
made available to the Company accurate and complete copies of all stock option
plans pursuant to which any of the outstanding Parent Options were issued, and
the forms of all stock option agreements evidencing such options.
(C) Except as set forth in Part 3.2(c) of the Parent Disclosure
Schedule there is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of Parent; (ii)
34
outstanding security, instrument or obligation that is or may become convertible
into or exchangeable for any shares of the capital stock or other securities of
Parent; (iii) stockholder rights plan (or similar plan commonly referred to as a
"poison pill") or Contract under which Parent is or may become obligated to sell
or otherwise issue any shares of its capital stock or any other securities; or
(iv) condition or circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any shares of capital stock or other securities of Parent.
(D) All outstanding capital stock, options and other securities of the
Parent Entities have been issued and granted in compliance with (i) all
applicable securities laws and other applicable Legal Requirements, and (ii) all
requirements set forth in applicable Contracts.
(E) All of the outstanding shares of capital stock of the Subsidiaries
of Parent have been duly authorized and are validly issued, are fully paid and
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof, and are owned beneficially and of record by
Parent, free and clear of any Encumbrances.
3.3 SEC FILINGS; FINANCIAL STATEMENTS.
(A) Parent has made available to the Company accurate and complete
copies (excluding copies of exhibits) of each report, registration statement and
definitive proxy statement filed by Parent with the SEC since January 1, 2002
(the "PARENT SEC DOCUMENTS"). All statements, reports, schedules, forms and
other documents required to have been filed by Parent with the SEC have been so
filed on a timely basis. As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing): (i) each of the Parent SEC Documents complied in all
material respects with the applicable requirements of the Securities Act or the
Exchange Act (as the case may be); and (ii) none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(B) The consolidated financial statements contained in the Parent SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered (except as may be indicated in the notes to
such financial statements and, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to normal and recurring year-end audit
adjustments which will not, individually or in the aggregate, be material in
amount); and (iii) fairly present in all material respects the consolidated
financial position of Parent and its subsidiaries as of the respective dates
thereof and the consolidated results of operations of Parent and its
subsidiaries for the periods covered thereby.
(C) Parent has timely filed all certifications and statements required
by (x) Rule 13a-14 under the Exchange Act or (y) 18 U.S.C. Section 1350 (Section
906 of the
35
Xxxxxxxx-Xxxxx Act of 2002) with respect to any Parent SEC Documents. Parent
maintains disclosure controls and procedures required by Rule 13a-15 or Rule
15d-15 under the Exchange Act.
(D) Parent has in place internal controls over financial reporting
that are designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP and include policies and procedures that: (i)
pertain to the maintenance of records that in reasonable detail accurately
reflect the transactions and dispositions of the assets of Parent; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures of Parent are being made only in accordance with authorization
of management and the advisors of Parent; and (iii) provide reasonable assurance
regarding prevention or timely detection of the unauthorized acquisition, use or
disposition of the assets of Parent that could have a material effect on the
financial statements.
(E) Since January 1, 2002, there have been no formal internal
investigations regarding financial reporting or accounting policies and
practices discussed with, reviewed by or initiated at the direction of the chief
executive officer, chief financial officer or general counsel of Parent, the
board of directors of Parent or any committee thereof, other than ordinary
course audits or review of accounting polices and practices or internal controls
required by the Xxxxxxxx-Xxxxx Act of 2002.
3.4 ABSENCE OF CERTAIN CHANGES. Since December 31, 2004 through the date of
this Agreement, the Parent Entities have conducted their business only in the
ordinary course and in a manner consistent with past practice and, since such
date, there has not been (i) any Material Adverse Effect on the Parent Entities,
(ii) any damage, destruction, or loss (whether or not covered by insurance) with
respect to any property of the Parent Entities having a Material Adverse Effect
on the Parent Entities, (iii) any material change by the Parent Entities in
their accounting methods, principles, or practices, or (iv) except as disclosed
in Schedule 3.4 of the Parent Disclosure Schedule, any other action or event
that would have required the consent of the Company pursuant to Section 4.2(b)
of this Agreement had such action or event occurred after the date of this
Agreement.
3.5 TITLE TO ASSETS. The Parent Entities own, and have good and valid title
to, all assets purported to be owned by them, including: (i) all assets
reflected on the Parent Unaudited Interim Balance Sheet (except for inventory
sold or otherwise disposed of in the ordinary course of business since the date
of the Parent Unaudited Interim Balance Sheet); and (ii) all other assets
reflected in the books and records of the Parent Entities as being owned by the
Parent Entities. All of said assets are owned by the Parent Entities free and
clear of any Encumbrances, except for (1) any lien for current taxes not yet due
and payable, (2) minor liens that have arisen in the ordinary course of business
and that do not (in any case or in the aggregate) materially detract from the
value of the assets subject thereto or materially impair the operations of the
Parent Entities, and (3) liens described in Part 3.5 of the Parent Disclosure
Schedule.
36
3.6 CONTRACTS. Part 3.6 of the Parent Disclosure Schedule lists (i) all
material contracts of the Parent Entities (within the meaning of Item 601(10) of
Regulation S-K) that have not been filed as exhibits to the Parent SEC
Documents; and (ii) all amendments to the Parent Material Contracts (as defined
below), whether or not such contracts were filed as exhibits to the Parent SEC
Documents, unless such amendments were also filed as exhibits to the Parent SEC
Documents. The contracts listed on Part 3.6 of the Parent Disclosure Schedule
together with the contracts filed as exhibits to the Parent SEC Documents are
referred to collectively as the "PARENT MATERIAL CONTRACTS". All Parent Material
Contracts, as amended pursuant to amendments filed as exhibits to the Parent SEC
Documents or listed on Part 3.9 of the Parent Disclosure Schedule, have either
expired or remain in full force and effect, in each case in accordance with
their terms as stated in such documents. The Parent Entities have not breached,
or received in writing any claim or threat that they have breached, any of the
terms and conditions of any Parent Material Contract in such a manner as would
permit any other party to cancel or terminate the same or would permit any other
party to seek material damages from the Parent Entities under any Parent
Material Contract, and Parent is not aware of the existence of a material breach
of a Parent Material Contract by any other party thereto. The Parent Entities
are not engaged, and have not agreed to engage, in any discussions related to
the material amendment of any Parent Material Contract.
3.7 FDA AND REGULATORY MATTERS.
(A) Except as set forth in Part 3.7 of the Parent Disclosure Schedule,
(i) with respect to the Parent Products and, to the extent applicable, any
currently under development (A) the Parent Entities have obtained all necessary
and applicable approvals, clearances, authorizations, licenses and registrations
required by the United States or foreign governments or government agencies, to
permit the design, development, manufacture, labeling, sale, distribution and
promotion of Parent Products in jurisdictions where they currently conduct such
activities (the "PARENT ACTIVITIES TO DATE") with respect to each Parent Product
(collectively, the "PARENT LICENSES"), except where the failure to hold such
Parent Licenses has not been material to the Parent Entities and would not
reasonably be expected to be material to the Parent Entities; (B) the Parent
Entities are in material compliance with all terms and conditions of each Parent
License and with all applicable laws pertaining to the Parent Activities to Date
with respect to each Parent Product which is not required to be the subject of a
Parent License; (C) the Parent Entities are in compliance in all material
respects with all Legal Requirements regarding registration, license,
certification for each site at which a Parent Product is manufactured, labeled,
sold, or distributed; and (D) to the extent any Parent Product has been exported
from the United States, Parent or, as applicable, a subsidiary of Parent
exporting such Parent Product, has exported such Parent Product in compliance in
all material respects with all Legal Requirements, and (ii) the Parent Entities
are in compliance in all material respects with all applicable reporting
requirements for all Parent Licenses or plant registrations described in clause
(i) above.
(B) The Parent Entities are in material compliance with all FDA and
non-United States equivalent agencies and similar state and local laws
applicable to the maintenance, compilation and filing of reports, including
medical device reports, with regard to the Products. Part 3.7(b) of the Parent
Disclosure Schedule sets forth a list of all applicable adverse event
37
reports related to the Parent Products, including any Medical Device Reports (as
defined in 21 CFR 803).
(C) Since January 1, 2000, the Parent Entities have not received any
written notice or other written communication from the FDA or any other
Governmental Body (i) contesting the pre-market clearance or approval of, the
uses of or the labeling and promotion of any of the Parent Products or (ii)
otherwise alleging any violation of any laws by Parent with respect to any
Parent Products.
(D) There have been no recalls, field notifications or seizures
ordered or adverse regulatory actions taken (or, to the knowledge of Parent,
threatened) by the FDA or any other Governmental Body with respect to any of
Parent Products, including any facilities where any such Parent Products are
produced, processed, packaged or stored and has within the last three (3) years,
either voluntarily or at the request of any Governmental Body, initiated or
participated in a recall of any Parent Product or provided post-sale warnings
regarding any Parent Product.
(E) All filings with and submissions to the FDA and any corollary
entity in any other jurisdiction made by the Parent Entities with regard to
Parent Products, whether oral, written or electronically delivered, were true,
accurate and complete in all material respects as of the date made, and, to the
extent required to be updated, as so updated remain true, accurate and complete
in all material respects as of the date hereof, and do not materially misstate
any of the statements or information included therein, or omit to state a
material fact necessary to make the statements therein not misleading.
3.8 LIABILITIES. None of the Parent Entities has any accrued, contingent or
other Liabilities of any nature, either matured or unmatured, except for: (a)
Liabilities identified as such in the Parent Unaudited Interim Balance Sheet or
the notes thereto; (b) Liabilities that have been incurred by the Parent
Entities since the date of the Parent Unaudited Interim Balance Sheet in the
ordinary course of business, consistent with past practices; (c) Liabilities
incurred under this Agreement and the other agreements contemplated hereby; (d)
Liabilities described in Part 3.8 of the Parent Disclosure Schedule; and (e)
other immaterial Liabilities that in the aggregate are not material.
3.9 COMPLIANCE WITH LEGAL REQUIREMENTS. Since January 1, 2000, the Parent
Entities are in compliance in all material respects with all applicable Legal
Requirements. Since January 1, 2000, the Parent Entities have not received any
notice or other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply in all material respects with, any
Legal Requirement.
3.10 CERTAIN BUSINESS PRACTICES. Neither the Parent Entities nor, to the
knowledge of Parent, any director, officer, agent or employee of the Parent
Entities has (i) used any funds for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns or violated any provision of
38
the Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
3.11 GOVERNMENTAL AUTHORIZATIONS. The Parent Entities hold all material
Governmental Authorizations necessary to enable the Parent Entities to conduct
their business in the manner in which such business is currently being
conducted. All such Governmental Authorizations are valid and in full force and
effect. The Parent Entities are in substantial compliance with the terms and
requirements of such Governmental Authorizations. The Parent Entities have not
received any notice or other communication from any Governmental Body regarding
(a) any actual or possible violation of or failure to comply with any term or
requirement of any material Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any material Governmental Authorization. No Governmental Body
has at any time since January 1, 2000, challenged in writing the right of the
Parent Entities to design, manufacture, offer or sell any of their products or
services.
3.12 TAX MATTERS.
(A) Each of the Parent Entities has filed all Tax Returns that it was
required to file under applicable Legal Requirements. All such Tax Returns were
correct and complete in all material respects and have been prepared in
substantial compliance with all applicable Legal Requirements. All Taxes due and
owing by each of the Parent Entities (whether or not shown on any Tax Return)
have been paid. None of the Parent Entities is currently the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever been
made by an authority in a jurisdiction where the Parent Entities do not file Tax
Returns that any of them is or may be subject to taxation by that jurisdiction.
There are no liens for Taxes (other than Taxes not yet due and payable) upon any
of the assets of any of the Parent Entities.
(B) Each of the Parent Entities has withheld and paid all Taxes
required to have been withheld and paid in connection with any amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
(C) No director or officer (or employee responsible for Tax matters)
of any of the Parent Entities expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. No Proceedings
relating to Taxes are pending or being conducted with respect to any of the
Parent Entities. None of the Parent Entities has received from any Governmental
Body any (i) notice indicating an intent to open an audit or other review, (ii)
request for information related to Tax matters, or (iii) notice of deficiency or
proposed adjustment of or any amount of Tax proposed, asserted, or assessed by
any Governmental Body against any of the Parent Entities.
(D) Part 3.12(d) of the Parent Disclosure Schedule lists all income
and other material Tax Returns filed with respect to each of the Parent Entities
for taxable periods ended on or after January 1, 2000, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently
are subject to audit. Parent has made available to the Company
39
correct and complete copies of all Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any of the Parent
Entities.
(E) None of the Parent Entities has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(F) None of the Parent Entities is a party to any Contract that has
resulted or would reasonable be expected to result, separately or in the
aggregate, in the payment of (i) any "excess parachute payment" within the
meaning of section 280G of the Code (or any corresponding provisions of state,
local or foreign Tax law) and (ii) any amount that will not be fully deductible
as a result of section 162(m) of the Code (or any corresponding provisions of
state, local or foreign Tax law). Parent has not been a United States real
property holding corporation within the meaning of section 897(c)(2) of the Code
during the applicable period specified in section 897(c)(1)(A)(ii) of the Code.
None of the Parent Entities is a party to or bound by any Tax allocation or
sharing agreement. Each of the Parent Entities has (A) not been a member of an
"Affiliated Group" filing a consolidated federal income Tax Return (other than a
group the common parent of which was Parent) or (B) no Liability for the Taxes
of any Person (other than such Parent Entities) under regulation 1.1502-6 of the
Code (or any similar provision of state, local, or foreign law), as a transferee
or successor, by contract, or otherwise.
(G) The unpaid Taxes of the Parent Entities (A) did not, as of the
date of the Parent Unaudited Interim Balance Sheet, exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the Parent
Unaudited Interim Balance Sheet, and (B) do not exceed that reserve as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of the Parent Entities in filing their Tax Returns. Since
the date of the Parent Unaudited Interim Balance Sheet, none of the Parent
Entities has incurred any liability for Taxes arising from extraordinary gains
or losses, determined in accordance with GAAP, outside the ordinary course of
business.
(H) None of the Parent Entities will be required to include any item
of income in, or exclude any item of deduction from, taxable income for any
taxable period (or portion there) ending after the Closing Date as a result of
any: (A) change in method of accounting for taxable period ending on or prior to
the Closing Date; (B) "closing agreement" as described in section 7121 of the
Code (or any corresponding or similar provision of state, local or foreign
income Tax law) executed on or prior to the Closing Date; (C) intercompany
transactions or any excess loss account described in Treasury Regulations under
section 1502 of the Code (or any corresponding or similar provisions of state,
local or foreign income Tax law); (D) installment sale or open transaction
disposition made on or prior to the Closing Date; or (E) prepaid amount received
on or prior to the Closing Date.
(I) None of the Parent Entities has distributed stock of another
Person, or has had its stock distributed by another Person, in a transaction
that was purported or intended to be governed in whole or in part by section 355
or section 361 of the Code.
40
3.13 ENVIRONMENTAL MATTERS. The Parent Entities (i) are in compliance in
all material respects with all applicable Environmental Laws, and (ii) possess
all material permits and other Governmental Authorizations required under
applicable Environmental Laws, and are in compliance in all material respects
with the terms and conditions thereof. The Parent Entities have not received any
notice or other communication (in writing or otherwise), whether from a
Governmental Body, citizens group, employee or otherwise, that alleges that the
Parent Entities are not in compliance with any Environmental Law, and, to the
knowledge of Parent, there are no circumstances that may prevent or interfere
with the compliance by the Parent Entities with any Environmental Law in the
future. To the knowledge of Parent, (a) all property that is leased to,
controlled by or used by the Parent Entities, and all surface water, groundwater
and soil associated with or adjacent to such property, is free of any material
environmental contamination of any nature, (b) none of the property leased to,
controlled by or used by the Parent Entities contains any underground storage
tanks, asbestos, equipment using PCBs, underground injection xxxxx, and (c) none
of the property leased to, controlled by or used by the Parent Entities contains
any septic tanks in which process wastewater or any Materials of Environmental
Concern have been disposed. The Parent Entities have never sent or transported,
or arranged to send or transport, any Materials of Environmental Concern to a
site that, pursuant to any applicable Environmental Law (i) has been placed on
the "National Priorities List" of hazardous waste sites or any similar state
list, (ii) is otherwise designated or identified as a potential site for
remediation, cleanup, closure or other environmental remedial activity, or (iii)
is subject to a Legal Requirement to take "removal" or "remedial' action as
detailed in any applicable Environmental Law or to make payment for the cost of
cleaning up the site.
3.14 INSURANCE. Parent has made available to the Company a copy of all
material insurance policies and all material self insurance programs and
arrangements relating to the business, assets and operations of the Parent
Entities. Each of such insurance policies is in full force and effect. The
Parent Entities have not received any notice or other communication regarding
any actual or possible (a) cancellation or invalidation of any insurance policy,
(b) refusal of any coverage or rejection of any material claim under any
insurance policy, or (c) material adjustment in the amount of the premiums
payable with respect to any insurance policy. Except as set forth in Part 3.17
of the Parent Disclosure Schedule, there is no pending workers' compensation or
other claim under or based upon any insurance policy of the Parent Entities.
3.15 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Parent SEC
Documents filed prior to the date of this Agreement, between the date of
Parent's last proxy statement filed with the SEC and the date of this Agreement,
no event has occurred that would be required to be reported by Parent pursuant
to Item 404 of Regulation S-K promulgated by the SEC.
3.16 LEGAL PROCEEDINGS; ORDERS.
(A) Except as set forth on the Parent Disclosure Schedule, as of the
date of this Agreement, there is no pending Legal Proceeding, and (to the
knowledge of Parent) no Person has threatened to commence any Legal Proceeding:
(i) that involves the Parent Entities or any of the assets owned or used by the
Parent Entities; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the
Combination or any of the other transactions contemplated by this Agreement. To
the knowledge of Parent, as of the
41
date of this Agreement, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that would reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
(B) There is no material order, writ, injunction, judgment or decree
to which the Parent Entities, or any of the assets owned or used by the Parent
Entities, is subject. To the knowledge of Parent, no officer or key employee of
the Parent Entities is subject to any order, writ, injunction, judgment or
decree that prohibits such officer or other employee from engaging in or
continuing any conduct, activity or practice relating to the business of the
Parent Entities.
3.17 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent has the absolute and
unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement. The board of directors of Parent (at a meeting
duly called and held) has (a) unanimously determined that the Combination is
advisable and fair and in the best interests of Parent and its stockholders, (b)
unanimously authorized and approved the execution, delivery and performance of
this Agreement by Parent and unanimously approved the Combination, and (c)
unanimously recommended the adoption of this Agreement by the holders of Parent
Common Stock and directed that this Agreement and the Merger be submitted for
consideration by Parent's stockholders at the Parent Stockholders' Meeting (as
defined in Section 5.3). This Agreement constitutes the legal, valid and binding
obligations of Parent, enforceable against Parent in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
3.18 NO EXISTING DISCUSSIONS. No Parent Entities, and no Representative of
the Parent Entities, are engaged, directly or indirectly, in any discussions or
negotiations with any other Person relating to any Parent Acquisition Proposal.
3.19 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Parent Common Stock outstanding on the record date for the Parent
Stockholders' Meeting entitled to vote and present either in person or proxy at
the Parent Stockholders' Meeting (the "REQUIRED PARENT STOCKHOLDER VOTE") is the
only vote of the holders of any class or series of the Company's capital stock
necessary to approve the issuance of Parent Common Stock in the Merger.
3.20 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement by Parent, nor (2) the consummation by Parent of the Combination or
any of the other transactions contemplated by this Agreement, will directly or
indirectly (with or without notice or lapse of time):
(A) contravene, conflict with or result in a violation of (i) any of
the provisions of the certificate of incorporation, bylaws or other charter or
organizational documents of Parent, or (ii) any resolution adopted by the
stockholders, the board of directors or any committee of the board of directors
of Parent;
42
(B) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Combination or any
of the other transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which the Parent Entities, or any of the
assets owned or used by the Parent Entities, is subject;
(C) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Parent Entities or that otherwise relates to the business of
any of the Parent Entities or to any of the assets owned or used by the Parent
Entities;
(D) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Parent Contract that
constitutes a Parent Material Contract, or give any Person the right to (i)
declare a default or exercise any remedy under any such Parent Contract, (ii) a
rebate, chargeback, penalty or change in delivery schedule under any such Parent
Contract, (iii) accelerate the maturity or performance of any such Parent
Contract, or (iv) cancel, terminate or modify any term of such Parent Contract;
or
(E) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by the Parent Entities (except for minor
liens that will not, in any case or in the aggregate, materially detract from
the value of the assets subject thereto or materially impair the operations of
any of the Parent Entities).
(F) Except as may be required by the Exchange Act, the DGCL, or
regulation and the NASD Bylaws (as they relate to the Form S-4 Registration
Statement and the Joint Proxy Statement/Prospectus), the Parent Entities were
not, are or will be required to make any filing with or give any notice to, or
to obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement by the Parent Entities, or (y) the consummation by
Parent of the Combination or any of the other transactions contemplated by this
Agreement.
3.21 FULL DISCLOSURE.
(A) This Agreement (including the Parent Disclosure Schedule) does
not, and the certificate referred to in Section 8.3(b) will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) omit to state any material fact necessary in order
to make the representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.
(B) None of the information supplied or to be supplied by or on behalf
of Parent for inclusion or incorporation by reference in the Form S-4
Registration Statement will, at the time the Form S-4 Registration Statement is
filed with the SEC or becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material
43
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by or on behalf
of Parent for inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus will, at the time the Joint Proxy Statement/Prospectus is
mailed to the stockholders of the Company or the stockholders of Parent or at
the time of the Company Stockholders' Meeting or the Parent Stockholders'
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement/Prospectus will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder, except that no representation or
warranty is made by Parent with respect to statements made or incorporated by
reference therein based on information supplied by the Company for inclusion or
incorporation by reference in the Joint Proxy Statement/Prospectus.
3.22 FAIRNESS OPINION. Parent's board of directors has received the written
opinion of Asante Partners LLC, financial advisor to Parent, dated the date of
this Agreement, to the effect that the Exchange Ratio is fair to Parent from a
financial point of view. Parent has furnished an accurate and complete copy of
said written opinion to the Company.
3.23 VALID ISSUANCE. The Parent Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable.
3.24 RECEIVABLES; CUSTOMERS; INVENTORIES.
(A) All existing accounts receivable of the Parent Entities (including
those accounts receivable reflected on the Parent Unaudited Interim Balance
Sheet that have not yet been collected and those accounts receivable that have
arisen since the date of the Parent Unaudited Interim Balance Sheet, and have
not yet been collected) (i) represent valid obligations of customers of the
Parent Entities arising from bona fide transactions entered into in the ordinary
course of business, (ii) are current and, to the best of Parent's knowledge,
will be collected in full when due, without any counterclaim or set off.
(B) Part 3.24(b) of the Parent Disclosure Schedule contains an
accurate and complete list as of the date indicated thereon (which in no event
shall be more than two calendar days prior to the date of this Agreement) of all
outstanding loans and advances made by any of the Parent Entities to any
employee, director, consultant or independent contractor, other than routine
travel advances made to employees in the ordinary course of business.
(C) Part 3.24(c) of the Parent Disclosure Schedule accurately
identifies, and provides an accurate and complete breakdown of the revenues
received from, each customer or other Person that accounted for (i) more than
10% of the consolidated gross revenues of the Parent Entities in fiscal year
2004, or (ii) more than 10% of the consolidated gross revenues of the Parent
Entities in the fiscal quarter ended September 30, 2005. Parent has not received
any notice or other communication (in writing or otherwise), and has not
received any other
44
information, indicating that any customer or other Person identified in Part
3.24(c) of the Parent Disclosure Schedule may cease dealing with any of the
Parent Entities or may otherwise reduce the volume of business transacted by
such Person with any of the Parent Entities below historical levels.
(D) The inventory of the Parent Entities reflected on the balance
sheet forming a part of the Parent SEC Documents was, and the current inventory
(the "PARENT INVENTORY") of the Parent Entities is, in usable and saleable
condition in the ordinary course of business and in the case of inventory
reflected on such balance sheet at an amount not less than the amounts carried
therein. The Parent Inventory is not excessive and is adequate in relation to
the current trading requirements of the business of each of the Parent Entities,
and none of the Parent Inventory is obsolete, slow moving, unmarketable or
inappropriate or of limited value in relation to the current business of each of
the Parent Entities. The finished goods, work in progress, raw materials and
other materials and supplies included in such Parent Inventory are of a standard
which is not lower than the generally accepted standard prevailing in the
industries of which the business of each Parent Entity forms a part.
3.25 REAL PROPERTY; EQUIPMENT; LEASEHOLD. All material items of equipment
and other tangible assets owned by or leased to the Parent Entities are adequate
for the uses to which they are being put, are in good and safe condition and
repair (ordinary wear and tear excepted) and are adequate for the conduct of the
business of the Parent Entities in the manner in which such business is
currently being conducted. Except as set forth in Part 3.25 of the Parent
Disclosure Schedule, none of the Parent Entities own any real property or any
interest in real property. Part 3.25 of the Parent Disclosure Schedule contains
an accurate and complete list of all the Parent Entities' real property leases.
3.26 INTELLECTUAL PROPERTY. To the knowledge of Parent, except as set forth
on Part 3.26 of the Parent Disclosure Schedule, (a) all Parent IP is valid,
subsisting, and enforceable, (b) no Person has infringed, misappropriated, or
otherwise violated, and no Person is currently infringing, misappropriating, or
otherwise violating, any Parent IP, and (c) none of the Parent Entities has ever
infringed (directly, contributorily, by inducement, or otherwise),
misappropriated, or otherwise violated or made unlawful use of any Intellectual
Property Right of any other Person. No infringement, misappropriation, or
similar claim or Proceeding is pending or, to the knowledge of Parent,
threatened against any of the Parent Entities or against any other Person who is
or may be entitled to be indemnified, defended, held harmless, or reimbursed by
any of the Parent Entities with respect to such claim or Proceeding. None of the
Parent Entities has ever received any notice or other communication (in writing
or otherwise) relating to any actual, alleged, or suspected infringement,
misappropriation, or violation by any of the Parent Entities, any of their
employees or agents, or any Parent Product of any Intellectual Property Rights
of another Person, including any letter or other communication suggesting or
offering that the Parent obtain a license to any Intellectual Property Right of
another Person.
3.27 FINANCIAL ADVISOR. Except for Asante Partners LLC, no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Combination or any of the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
any of the Parent Entities. The total of all fees,
45
commissions and other amounts that may become payable to Asante Partners LLC by
the Parent if the Combination is consummated will not exceed $500,000.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY AND PARENT
4.1 ACCESS AND INVESTIGATION.
(A) During the period from the date of this Agreement through the
Effective Time (the "PRE-CLOSING PERIOD"), the Company shall, and shall cause
the respective Representatives of the Company Entities to: (i) provide Parent
and Parent's Representatives with reasonable access to the Company Entities'
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to the Company
Entities; and (ii) provide Parent and Parent's Representatives with such copies
of the existing books, records, Tax Returns, work papers and other documents and
information relating to the Company Entities, and with such additional
financial, operating and other data and information regarding the Company
Entities, as Parent may reasonably request. Without limiting the generality of
the foregoing, during the Pre-Closing Period, the Company shall promptly provide
Parent with copies of: (A) all material operating and financial reports prepared
by the Company Entities for the Company's senior management, including (1)
copies of the unaudited monthly consolidated balance sheets of the Company
Entities and the related unaudited monthly consolidated statements of
operations, statements of stockholders' equity and statements of cash flows and
(2) copies of any sales forecasts, marketing plans, development plans, discount
reports, write-off reports, hiring reports and capital expenditure reports
prepared for the Company's senior management; (B) any written materials or
communications sent by or on behalf of the Company to its stockholders; (C) any
material notice, document or other communication sent by or on behalf of any of
the Company Entities to any party to any Company Entity Contract or sent to any
of the Company Entities by any party to any Company Entity Contract (other than
any communication that relates solely to routine commercial transactions between
a Company Entity and the other party to any such Company Entity Contract and
that is of the type sent in the ordinary course of business and consistent with
past practices); (D) any notice, report or other document filed with or sent to
any Governmental Body on behalf of any of the Company Entities in connection
with the Combination or any of the other transactions contemplated by this
Agreement; and (E) any material notice, report or other document received by any
of the Company Entities from any Governmental Body.
(B) During the Pre-Closing Period, Parent shall, and shall cause the
respective Representatives of Parent to: (i) provide the Company and the
Company's Representatives with reasonable access to Parent's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to Parent; and (ii) provide
the Company and the Company's Representatives with such copies of the existing
books, records, Tax Returns, work papers and other documents and information
relating to Parent, and with such additional financial, operating and other data
and information regarding Parent, as Company may reasonably request.
4.2 OPERATION OF THE BUSINESSES.
46
(A) During the Pre-Closing Period, except as may be consented to in
writing by the other party hereto: (i) each of Parent and the Company shall
ensure that it and its Subsidiaries conducts their respective business and
operations (A) in the ordinary course and in accordance with past practices and
(B) in compliance with all applicable Legal Requirements and the requirements of
all Contracts; (ii) each of Parent and the Company shall use all reasonable
efforts to ensure that it and its Subsidiaries preserve intact their respective
current business organization, and maintain their respective relations and
goodwill with all suppliers, customers, landlords, creditors, licensors,
licensees, employees and other Persons having business relationships with the
respective Company Entities; (iii) each of Parent and the Company shall keep in
full force all insurance policies; (iv) each of Parent and the Company shall
cause to be provided all notices, assurances and support required by any
Contract to which it or its Subsidiaries is a party relating to any Intellectual
Property or Intellectual Property Right in order to preserve its rights in such
Intellectual Property, and (v) each of Parent and the Company shall promptly
notify the other party of (A) any notice or other communication from any Person
alleging that the Consent of such Person is or may be required in connection
with any of the transactions contemplated by this Agreement, and (B) any Legal
Proceeding commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting either Parent or the Company or any of their
respective Subsidiaries that relates to the consummation of the transactions
contemplated by this Agreement.
(B) During the Pre-Closing Period, each of Parent and the Company
shall not (without the prior written consent of the other party) take any of the
following actions or permit any of their respective Subsidiaries to do so:
(I) declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other securities;
(II) sell, issue, grant or authorize the issuance or grant of (A)
any capital stock or other security, (B) any option, call, warrant or right to
acquire any capital stock or other security, or (C) any instrument convertible
into or exchangeable for any capital stock or other security, except that (1)
the Company and Parent may issue Company Common Stock or Parent Common Stock (as
applicable) upon the valid exercise of options outstanding as of the date of
this Agreement, (2) Parent may, in the ordinary course of business and
consistent with past practices (x) grant options or make other stock awards
under its equity plans to employees hired by Parent after the date of this
Agreement, and (y) in addition to options granted to employees hired by Parent
after the date of this Agreement, grant options or make other stock awards under
its stock option plans to purchase shares of Parent Common Stock to employees,
directors or consultants of Parent, and (3) the Company may issue Company Common
Stock so as to satisfy the covenant contained in Section 5.5 of this Agreement;
(III) in the case of the Company Entities, amend or waive any
rights under, or accelerate the vesting under, any provision of any stock option
plans, any provision of any agreement evidencing any outstanding stock option or
any restricted stock purchase agreement, or otherwise modify any of the terms of
any outstanding option, warrant or other security or any related Contract;
47
(IV) amend or permit the adoption of any amendment to its
certificate of incorporation or bylaws or other charter or organizational
documents, or effect or become a party to any merger, consolidation, share
exchange, business combination, amalgamation, recapitalization, reclassification
of shares, stock split, reverse stock split, division or subdivision of shares,
consolidation of shares or similar transaction other than, in the case of the
Company, the Company Reverse Stock Split and, in the case of the Parent, the
Parent Reverse Stock Split;
(V) form any Subsidiary or acquire any equity interest or other
interest in any other Entity;
(VI) in the case of the Company, make or permit any Subsidiary of
the Company to make, any capital expenditure that, when added to all other
capital expenditures made by the Company Entities during the Pre-Closing Period,
exceeds $25,000 in the aggregate;
(VII) in the case of the Company, commit to or accrue, or permit
any Subsidiary of the Company to commit to or accrue, any single expense that
exceeds $25,000 (other than those expenses taken into account in determining the
Actual Company Cash Amount);
(VIII) in the case of the Company Entities, enter into or become
bound by, or permit any of the assets owned or used by them to become bound by,
any Company Material Contract, or amend or terminate, or waive or exercise any
material right or remedy under, any Company Material Contract;
(IX) in the case of the Company Entities, acquire, lease or
license any right or other asset from any other Person or sell or otherwise
dispose of, or lease or license, any right or other asset to any other Person
(except in each case for immaterial assets acquired, leased, licensed or
disposed of by the Company Entities in the ordinary course of business and
consistent with past practices and the disposition of surplus assets not
required for the operation of the businesses of the Company Entities, which
surplus assets under no circumstances shall include the assets set forth on Part
4.2(b)(ix) of the Parent Disclosure Schedule), or waive or relinquish any
material right;
(X) lend money to any Person, or incur or guarantee any
indebtedness (except that Parent may incur indebtedness pursuant to a credit
facility with Silicon Valley Bank, and may enter into a Contract with Silicon
Valley Bank related thereto);
(XI) in the case of the Company Entities, establish, adopt or
amend any employee benefit plan, pay any bonus or make any profit-sharing or
similar payment to, or increase the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of their
directors, officers or employees;
(XII) in the case of the Company Entities, hire any new employee,
promote any employee, or engage any consultant or independent contractor;
(XIII) in the case of the Company Entities, pay any severance
benefits or other such obligations without first obtaining a general release of
claims using a form of release
48
approved by Parent in its reasonable discretion (the "RELEASE") or pay any
severance benefits until Company Entities' receive a binding and irrevocable
Release from the Person receiving the severance benefits;
(XIV) in the case of the Company Entities, change any of their
pricing policies, product return policies, product maintenance polices, service
policies, product modification or upgrade policies, personnel policies or other
business policies, or any of their methods of accounting or accounting practices
in any respect;
(XV) make any Tax election;
(XVI) commence or settle any Legal Proceeding;
(XVII) in the case of the Company Entities, enter into any
material transaction or take any other material action outside the ordinary
course of business or inconsistent with past practices, except that
(1) the Company may negotiate the surrender or sublease of
its leased real estate on terms approved by the board of directors of the
Company if, and only if, the terms are finalized in a written agreement which,
in the case of a surrender, provides that the Company and its successors and
assigns shall have no liability whatsoever related to the lease and releases the
Company Entities having liability under the lease and their successors and
assigns from all claims related thereto except those, if any, that are stated in
the lease and survive its termination, and in the case of a sublease, is
approved by the written consent of Parent, which consent shall not to be
unreasonably withheld; and
(2) the Company may negotiate the settlement of the
litigation referenced on Part 2.21(a) of the Company Disclosure Schedule so long
as such settlement is finalized in a written agreement which is approved by the
written consent of Parent, which consent shall not to be unreasonably withheld,
as further described on Part 2.21(a) of the Company Disclosure Schedule.
(XVIII) agree or commit to take any of the actions described in
clauses "(i)" through "(xvii)" of this Section 4.2(b) to the extent such party
is subject to the applicable clause.
(C) During the Pre-Closing Period, each of Parent and the Company
Entities shall promptly notify the other party in writing of: (i) the discovery
of any event, condition, fact or circumstance that occurred or existed on or
prior to the date of this Agreement and that caused or constitutes a material
inaccuracy in any representation or warranty made by such party in this
Agreement; (ii) any event, condition, fact or circumstance that occurs, arises
or exists after the date of this Agreement and that would cause or constitute a
material inaccuracy in any representation or warranty made by such party in this
Agreement if (A) such representation or warranty had been made as of the time of
the occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of this Agreement; (iii) any material
breach of any covenant or obligation of such party; and (iv) any event,
condition, fact or circumstance that
49
would make the timely satisfaction of any of the conditions set forth in
Sections 6, 7, or 8 impossible or unlikely or that has had or would reasonably
be expected to have a Material Adverse Effect on such party. Without limiting
the generality of the foregoing, each party shall promptly advise the other
party in writing of any Legal Proceeding or material claim threatened, commenced
or asserted against or with respect to any Parent Entities or any of the Company
Entities. No notification shall limit or otherwise affect any of the
representations, warranties, covenants or obligations contained in this
Agreement.
4.3 NO SOLICITATION BY THE COMPANY.
(A) The Company shall not directly or indirectly, and shall not
authorize or permit any of the other Company Entities or any Representative of
any of the Company Entities directly or indirectly to, (i) solicit, initiate,
knowingly encourage or knowingly induce, or facilitate the making, submission or
announcement of any Company Acquisition Proposal or take any action that would
reasonably be expected to lead to a Company Acquisition Proposal, (ii) furnish
any information regarding any of the Company Entities to any Person in
connection with or in response to a Company Acquisition Proposal or an inquiry
or indication of interest that could lead to a Company Acquisition Proposal,
(iii) engage in discussions or negotiations with any Person with respect to any
Company Acquisition Proposal, (iv) approve, endorse or recommend any Company
Acquisition Proposal or (v) enter into any letter of intent or similar document
or any Contract contemplating or otherwise relating to any Company Acquisition
Transaction; provided, however, that prior to the adoption of this Agreement by
the Required Company Stockholder Vote, this Section 4.3(a) shall not prohibit
the Company from furnishing nonpublic information regarding the Company Entities
to, or entering into discussions with, any Person in response to a Company
Superior Offer that is submitted to the Company by such Person (and not
withdrawn) if (1) neither the Company nor any Representative of any of the
Company Entities shall have breached or taken any action inconsistent with any
of the provisions set forth in this Section 4.3, (2) the board of directors of
the Company concludes in good faith, after having taken into account the advice
of its outside legal counsel, that such action is required in order for the
board of directors of the Company to comply with its fiduciary obligations to
the Company's stockholders under applicable law, (3) at least three business
days prior to furnishing any such information to, or entering into discussions
with, such Person, the Company gives Parent written notice of the identity of
such Person and of the Company's intention to furnish information to, or enter
into discussions with, such Person, and the Company receives from such Person an
executed confidentiality agreement containing customary limitations on the use
and disclosure of all nonpublic written and oral information furnished to such
Person by or on behalf of the Company and containing customary "standstill"
provisions, and (4) at least three business days prior to furnishing any such
information to such Person, the Company furnishes such nonpublic information to
Parent (to the extent such nonpublic information has not been previously
furnished by the Company to Parent). Without limiting the generality of the
foregoing, the Company acknowledges and agrees that any action inconsistent with
any of the provisions set forth in the preceding sentence by any Representative
of any of the Company Entities, whether or not such Representative is purporting
to act on behalf of any of the Company Entities, shall be deemed to constitute a
breach of this Section 4.3 by the Company.
50
(B) The Company shall promptly (and in no event later than 24 hours
after receipt of any Company Acquisition Proposal, any inquiry or indication of
interest that could lead to an Company Acquisition Proposal or any request for
nonpublic information) advise Parent orally and in writing of any Company
Acquisition Proposal, any inquiry or indication of interest that could lead to a
Company Acquisition Proposal or any request for nonpublic information relating
to any of the Company Entities (including the identity of the Person making or
submitting such Company Acquisition Proposal, inquiry, indication of interest or
request, and the terms thereof) that is made or submitted by any Person during
the Pre-Closing Period. The Company shall keep Parent fully informed with
respect to the status of any such Company Acquisition Proposal, inquiry,
indication of interest or request and any modification or proposed modification
thereto.
(C) The Company shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Company Acquisition
Proposal.
(D) The Company agrees not to release or permit the release of any
Person from, or to waive or permit the waiver of any provision of, any
confidentiality, "standstill" or similar agreement to which any of the Company
Entities is a party or under which any of the Company Entities has any rights,
and will use its best efforts to enforce or cause to be enforced each such
agreement at the request of Parent.
4.4 NO SOLICITATION BY PARENT.
(A) Parent shall not directly or indirectly, and shall not authorize
or permit any of the other Parent Entities or Representative of the Parent
Entities, directly or indirectly to, (i) solicit, initiate, knowingly encourage
or knowingly induce, or facilitate the making, submission or announcement of any
Parent Acquisition Proposal or take any action that would reasonably be expected
to lead to a Parent Acquisition Proposal, (ii) furnish any information regarding
any Parent Entities to any Person in connection with or in response to a Parent
Acquisition Proposal or an inquiry or indication of interest that would lead to
a Parent Acquisition Proposal, (iii) engage in discussions or negotiations with
any Person with respect to any Parent Acquisition Proposal, (iv) approve,
endorse or recommend any Parent Acquisition Proposal or (v) enter into any
letter of intent or similar document or any Contract contemplating or otherwise
relating to any Parent Acquisition Transaction; provided, however, that prior to
the adoption of this Agreement by the Required Parent Stockholder Vote, this
Section 4.4(a) shall not prohibit Parent from furnishing nonpublic information
regarding the Parent Entities to, or entering into discussions with, any Person
in response to a Parent Superior Offer that is submitted to Parent by such
Person (and not withdrawn) if (1) neither Parent nor any Representative of the
Parent Entities shall have breached or taken any action inconsistent with any of
the provisions set forth in this Section 4.4, (2) the board of directors of
Parent concludes in good faith, after having taken into account the advice of
its outside legal counsel, that such action is required in order for the board
of directors of Parent to comply with its fiduciary obligations to Parent's
stockholders under applicable law, (3) at least three business days prior to
furnishing any such information to, or entering into discussions with, such
Person, Parent gives the Company written notice of the identity of such Person
and of Parent's intention to furnish information to, or enter into discussions
with, such Person, and Parent receives from such Person an executed
confidentiality
51
agreement containing customary limitations on the use and disclosure of all
nonpublic written and oral information furnished to such Person by or on behalf
of Parent and containing customary "standstill" provisions, and (4) at least
three business days prior to furnishing any such information to such Person,
Parent furnishes such nonpublic information to the Company (to the extent such
nonpublic information has not been previously furnished by Parent to the
Company). Without limiting the generality of the foregoing, Parent acknowledges
and agrees that any action inconsistent with of any of the provisions set forth
in the preceding sentence by any Representative of the Parent Entities, whether
or not such Representative is purporting to act on behalf of any of the Parent
Entities, shall be deemed to constitute a breach of this Section 4.4 by Parent.
(B) Parent shall promptly (and in no event later than 24 hours after
receipt of any Parent Acquisition Proposal, any inquiry or indication of
interest that could lead to a Parent Acquisition Proposal or any request for
nonpublic information) advise the Company orally and in writing of any Parent
Acquisition Proposal, any inquiry or indication of interest that could lead to a
Parent Acquisition Proposal or any request for nonpublic information relating to
any of the Parent Entities (including the identity of the Person making or
submitting such Parent Acquisition Proposal, inquiry, indication of interest or
request, and the terms thereof) that is made or submitted by any Person during
the Pre-Closing Period. Parent shall keep the Company fully informed with
respect to the status of any such Parent Acquisition Proposal, inquiry,
indication of interest or request and any modification or proposed modification
thereto.
(C) Parent shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Parent Acquisition
Proposal.
(D) Parent agrees not to release or permit the release of any Person
from, or to waive or permit the waiver of any provision of, any confidentiality,
"standstill" or similar agreement to which any of the Parent Entities is a party
or under which any of the Parent Entities has any rights, and will use its best
efforts to enforce or cause to be enforced each such agreement at the request of
the Company.
4.5 FIRPTA MATTERS. At the Closing, the Company shall deliver to Parent a
statement (in such form as may be reasonably requested by counsel to Parent)
conforming to the requirements of Xxxxxxx 0.000 - 0(x)(0)(x) xx xxx Xxxxxx
Xxxxxx Treasury Regulations.
4.6 ADJUSTMENTS. The Company Entities shall take no action primarily
designed to manipulate the definition of Actual Company Cash Amount in a manner
that is favorable to the Company Entities or disfavorable to Parent.
4.7 SALE OF BONDS HELD BY THE COMPANY ENTITIES. The Company agrees, prior
to Closing, to liquidate all bonds, notes and other non-equity instruments or
investments that have a maturity date after July 1, 2007 held by the Company
Entities in an orderly manner so as to maximize the net cash proceeds from each
such sale.
4.8 CASH CONSERVATION. The Company agrees that its monthly burn rate
beginning December 1, 2005 shall not exceed a rolling average of $175,000 per
month, and its cumulative
52
burn rate from December 1, 2005 until the Closing Date shall not exceed $350,000
in the aggregate; provided, however, that if the Closing Date is after January
31, 2006, but on or prior to February 28, 2006, then such cumulative burn rate
shall not exceed $450,000, and if the Closing Date is after February 28, 2006,
then such cumulative burn rate shall not exceed $550,000. For purposes of this
section, burn rate shall be defined as the difference between (a) the sum of (i)
all revenue, determined in accordance with GAAP as applied in the preparation of
the Company's financial statements (for purposes of this calculation, royalty
revenue from Becton Xxxxxxxxx products will be the actual reported royalty
revenue for December 2005, or $140,000 if the actual reported royalty revenue
for December 2005 is not available at the time of determination, and $112,000
per month for January and February 2006), and (ii) net interest income minus (b)
the sum of (i) product costs (excluding depreciation and amortization), (ii) all
other expenses (excluding depreciation and amortization and other noncash
expenses, such as stock-based compensation expense) and (iii) capital
expenditures, all determined in accordance with GAAP, as aforesaid, other than
expenses taken into account in the determination of the Actual Company Cash
Amount at November 30, 2005 in accordance with Section 1.5(b)(iii).
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 REGISTRATION STATEMENT; JOINT PROXY STATEMENT.
(A) As promptly as practicable after the date of this Agreement,
Parent and the Company shall prepare and cause to be filed with the SEC the
Joint Proxy Statement/Prospectus, and Parent shall prepare and cause to be filed
with the SEC the Form S-4 Registration Statement, in which the Joint Proxy
Statement/Prospectus will be included as a prospectus. Each of Parent and the
Company shall use all reasonable efforts to cause the Form S-4 Registration
Statement and the Joint Proxy Statement/Prospectus to comply with the rules and
regulations promulgated by the SEC, to respond promptly to any comments of the
SEC or its staff and to have the Form S-4 Registration Statement declared
effective under the Securities Act as promptly as practicable after it is filed
with the SEC. Parent will use all reasonable efforts to cause the Joint Proxy
Statement/Prospectus to be mailed to Parent's stockholders, and the Company will
use all reasonable efforts to cause the Joint Proxy Statement/Prospectus to be
mailed to the Company's stockholders, as promptly as practicable after the Form
S-4 Registration Statement is declared effective under the Securities Act. The
Company shall promptly furnish to Parent all information concerning the Company
Entities and the Company's stockholders that may be required or reasonably
requested in connection with any action contemplated by this Section 5.1. If any
event relating to any of the Company Entities occurs, or if the Company becomes
aware of any information, that should be disclosed in an amendment or supplement
to the Form S-4 Registration Statement or the Joint Proxy Statement/Prospectus,
then the Company shall promptly inform Parent thereof and shall cooperate with
Parent in filing such amendment or supplement with the SEC and, if appropriate,
in mailing such amendment or supplement to the stockholders of the Company.
(B) Prior to the Effective Time, Parent shall use reasonable efforts
to obtain all regulatory approvals needed to ensure that the Parent Common Stock
to be issued in the Merger will be registered or qualified under the securities
law of every jurisdiction of the United States in which any registered holder of
Company Common Stock has an address of record on the
53
record date for determining the stockholders entitled to notice of and to vote
at the Company Stockholders' Meeting; provided, however, that Parent shall not
be required (i) to qualify to do business as a foreign corporation in any
jurisdiction in which it is not now qualified or (ii) to file a general consent
to service of process in any jurisdiction.
5.2 COMPANY STOCKHOLDERS' MEETING.
(A) The Company shall take all action necessary under all applicable
Legal Requirements to call, give notice of and hold a meeting of the holders of
Company Common Stock to vote on a proposal to adopt this Agreement (the "COMPANY
STOCKHOLDERS' MEETING"). The Company Stockholders' Meeting shall be held (on a
date selected by the Company in consultation with Parent) as promptly as
practicable after the Form S-4 Registration Statement is declared effective
under the Securities Act. The Company shall ensure that all proxies solicited in
connection with the Company Stockholders' Meeting are solicited in compliance
with all applicable Legal Requirements.
(B) Subject to Section 5.2(c): (i) the Proxy Statement shall include a
statement to the effect that the board of directors of the Company recommends
that the Company's stockholders vote to adopt this Agreement at the Company
Stockholders' Meeting (the recommendation of the Company's board of directors
that the Company's stockholders vote to adopt this Agreement being referred to
as the "COMPANY BOARD RECOMMENDATION"); and (ii) the Company Board
Recommendation shall not be withdrawn or modified in a manner adverse to Parent,
and no resolution by the board of directors of the Company or any committee
thereof to withdraw or modify the Company Board Recommendation in a manner
adverse to Parent shall be adopted or proposed.
(C) Notwithstanding anything to the contrary contained in Section
5.2(b), at any time prior to the adoption of this Agreement by the Required
Company Stockholder Vote, the Company Board Recommendation may be withdrawn or
modified in a manner adverse to Parent if: (i) an unsolicited, bona fide written
Company Acquisition Proposal is made to the Company and is not withdrawn; (ii)
the Company provides Parent with at least five business days prior notice of any
meeting of the Company's board of directors at which such board of directors
will consider and determine whether such Company Acquisition Proposal is a
Company Superior Offer; (iii) the Company's board of directors determines in
good faith (based upon a written opinion of an independent financial advisor of
nationally recognized reputation) that such Company Acquisition Proposal
constitutes a Company Superior Offer; (iv) the Company's board of directors
determines in good faith, after having taken into account the advice of the
Company's outside legal counsel, that, in light of such Company Superior Offer,
the withdrawal or modification of the Company Board Recommendation is required
in order for the Company's board of directors to comply with its fiduciary
obligations to the Company's stockholders under applicable law; (v) the Company
Board Recommendation is not withdrawn or modified in a manner adverse to Parent
at any time within five business days after Parent receives written notice from
the Company confirming that the Company's board of directors has determined that
such offer is a Company Superior Offer; and (vi) neither the Company nor any of
its Representatives shall have breached or taken any action inconsistent with
any of the provisions
54
set forth in Section 4.3. For purposes of this Agreement, The Spartan Group, LLC
is a financial advisor of nationally recognized reputation.
(D) The Company's obligation to call, give notice of and hold the
Company Stockholders' Meeting in accordance with Section 5.2(a) shall not be
limited or otherwise affected by the commencement, disclosure, announcement or
submission of any Company Superior Offer or other Company Acquisition Proposal,
or by any withdrawal or modification of the Company Board Recommendation.
5.3 PARENT STOCKHOLDERS' MEETING.
(A) Parent shall take all action necessary under all applicable Legal
Requirements to call, give notice of and hold a meeting of the holders of Parent
Common Stock to vote on a proposal to authorize the Parent Reverse Stock Split
and issue the shares of Parent Common Stock pursuant to this Agreement (the
"PARENT STOCKHOLDERS' MEETING"). The Parent Stockholders' Meeting shall be held
(on a date selected by Parent in consultation with the Company) as promptly as
practicable after the Form S-4 Registration Statement is declared effective
under the Securities Act. Parent shall ensure that all proxies solicited in
connection with the Parent Stockholders' Meeting are solicited in compliance
with all applicable Legal Requirements.
(B) Subject to Section 5.3(c): (i) the Proxy Statement shall include a
statement to the effect that the board of directors of Parent recommends that
Parent's stockholders vote to authorize the Parent Reverse Stock Split and issue
the shares of Parent Common Stock pursuant to this Agreement at the Parent
Stockholders' Meeting (the "PARENT BOARD RECOMMENDATION"); and (ii) the Parent
Board Recommendation shall not be withdrawn or modified in a manner adverse to
the Company, and no resolution by the board of directors of Parent or any
committee thereof to withdraw or modify the Parent Board Recommendation in a
manner adverse to the Company shall be adopted or proposed.
(C) Notwithstanding anything to the contrary contained in Section
5.3(b), at any time prior to the adoption of this Agreement by the Required
Parent Stockholder Vote, the Parent Board Recommendation may be withdrawn or
modified in a manner adverse to the Company if: (i) an unsolicited, bona fide
written Parent Acquisition Proposal is made to Parent and is not withdrawn; (ii)
Parent provides the Company with at least five business days prior notice of any
meeting of Parent's board of directors at which such board of directors will
consider and determine whether such offer is a Parent Superior Offer; (iii)
Parent's board of directors determines in good faith (based upon a written
opinion of an independent financial advisor of nationally recognized reputation)
that such Parent Acquisition Proposal constitutes a Parent Superior Offer; (iv)
Parent's board of directors determines in good faith, after having taken into
account the advice of Parent's outside legal counsel, that, in light of such
Parent Superior Offer, the withdrawal or modification of the Parent Board
Recommendation is required in order for Parent's board of directors to comply
with its fiduciary obligations to Parent's stockholders under applicable law;
(v) the Parent Board Recommendation is not withdrawn or modified in a manner
adverse to the Company at any time within five business days after the Company
receives written notice from Parent confirming that Parent's board of directors
has
55
determined that such offer is a Parent Superior Offer; and (vi) neither Parent
nor any of its Representatives shall have breached or taken any action
inconsistent with any of the provisions set forth in Section 4.4. For purposes
of this Agreement, Asante Partners LLC is a financial advisor of nationally
recognized reputation.
(D) Parent's obligation to call, give notice of and hold the Parent
Stockholders' Meeting in accordance with Section 5.3(a) shall not be limited or
otherwise affected by the commencement, disclosure, announcement or submission
of any Parent Superior Offer or other Parent Acquisition Proposal, or by any
withdrawal or modification of the Parent Board Recommendation.
5.4 REGULATORY APPROVALS. Each party shall use all reasonable efforts to
file, as soon as practicable after the date of this Agreement, all notices,
reports and other documents required to be filed by such party with any
Governmental Body with respect to the Combination and the other transactions
contemplated by this Agreement, and to submit promptly any additional
information requested by any such Governmental Body. The Company and Parent
shall respond as promptly as practicable to (i) any inquiries or requests
received from the Federal Trade Commission or the Department of Justice for
additional information or documentation and (ii) any inquiries or requests
received from any state attorney general, foreign antitrust authority or other
Governmental Body in connection with antitrust or related matters. Each of the
Company and Parent shall (1) give the other party prompt notice of the
commencement or threat of commencement of any Legal Proceeding by or before any
Governmental Body with respect to the Combination or any of the other
transactions contemplated by this Agreement, (2) keep the other party informed
as to the status of any such Legal Proceeding or threat, and (3) promptly inform
the other party of any communication to or from any Governmental Body regarding
the Combination. Except as may be prohibited by any Governmental Body or by any
Legal Requirement, (a) the Company and Parent will consult and cooperate with
one another, and will consider in good faith the views of one another, in
connection with any analysis, appearance, presentation, memorandum, brief,
argument, opinion or proposal made or submitted in connection with any Legal
Proceeding under or relating to any foreign, federal or state antitrust or fair
trade law, and (b) in connection with any such Legal Proceeding, each of the
Company and Parent will permit authorized Representatives of the other party to
be present at each meeting or conference relating to any such Legal Proceeding
and to have access to and be consulted in connection with any document, opinion
or proposal made or submitted to any Governmental Body in connection with any
such Legal Proceeding.
5.5 OPTION PLANS AND COMPANY OPTIONS. Prior to the Effective Time, the
Company shall (i) terminate all Company Plans, with such termination to be
effective no later than immediately prior to the Effective Time; (ii) take all
actions under the Company's 2001 Equity Incentive Plan such that no Company
Options are outstanding as of the Effective Time; and (iii) use reasonable
efforts to obtain the surrender of outstanding options under the Company's
Non-Qualified Stock Option Plan. In connection with the foregoing, the Company
may issue shares of Company Common Stock in an amount up to the total number of
shares of Company Common Stock set forth on Part 2.3(b) of the Company
Disclosure Schedule in exchange for such Company Options. Under no circumstances
shall the Company exchange Company Options for Company Common Stock with a
holder of a Company Option pursuant to
56
the Company's 2001 Equity Incentive Plan if such holder does not, pursuant to
such exchange, surrender all outstanding Company Options held by such holder
pursuant to the Non-Qualified Stock Option Plan.
5.6 EMPLOYEES.
(A) The Company shall layoff all of the Company Entities' employees to
be effective as of the Effective Time in compliance with applicable laws and
shall use reasonable best efforts to obtain a binding Release that conditions
payment of any severance benefits on the Release becoming irrevocable. Part 5.6
of the Company Disclosure Schedule sets forth all severance obligations of the
Company. All severance payments shall be made in a manner consistent with
Section 409A of the Code and the proposed Treasury Regulations thereunder issued
by the IRS on September 29, 2005, including without limitation the requirement
that any such payments to a "key employee" commence no earlier than six months
after the separation of service, to the extent required to comply with Section
409A and its proposed regulations.
(B) The Company agrees to take (or cause to be taken) all actions
necessary or appropriate to terminate, effective immediately prior to the
Effective Time, any employee benefit plan sponsored by any of the Company
Entities (or in which any of the Company Entities participate) that contains a
cash or deferred arrangement intended to qualify under Section 401(k) of the
Code.
5.7 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(A) Prior to the Effective Time, the Company shall purchase, so as to
remain in effect at least until the fourth anniversary of the Effective Time, a
tail policy of directors' and officers' liability insurance substantially
identical to the policy currently maintained by the Company as of the date of
this Agreement in the form disclosed by the Company to Parent prior to the date
of this Agreement and having at least the same coverage limits. Parent shall
direct all discussions and negotiations with policy providers, and may elect to
direct the Company to purchase a policy to remain in effect until at least the
sixth anniversary of the Effective Time so long as the overall cost thereunder
does not exceed $1,000,000. The Company shall pay all costs and expenses
associated with such tail policy.
(B) From and after the Effective Time and unless otherwise required by
law, Parent and the Continuing LLC shall jointly and severally, to the extent
contemplated by Article VII of the bylaws of the Company as attached hereto as
EXHIBIT D, honor the indemnification obligations of the Company to each present
and former director and officer of the Company and its Subsidiaries
(collectively, the "INDEMNIFIED PARTIES"). The rights of each Indemnified Party
under this Section 5.7(b) shall be enforceable by, and are intended to benefit,
each Indemnified Party.
5.8 ADDITIONAL AGREEMENTS.
(A) Subject to Section 5.8(b), Parent and the Company shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the Combination and make effective the other transactions
contemplated by this Agreement. Without limiting the
57
generality of the foregoing, but subject to Section 5.8(b), each party to this
Agreement (i) shall make all filings (if any) and give all notices (if any)
required to be made and given by such party in connection with the Combination
and the other transactions contemplated by this Agreement, (ii) shall use all
reasonable efforts to obtain each Consent (if any) required to be obtained
(pursuant to any applicable Legal Requirement or Contract, or otherwise) by such
party in connection with the Combination or any of the other transactions
contemplated by this Agreement, and (iii) shall use all reasonable efforts to
lift any restraint, injunction or other legal bar to the Combination. The
parties shall promptly deliver to each other a copy of each such filing made,
each such notice given and each such Consent obtained during the Pre-Closing
Period.
(B) Notwithstanding anything to the contrary contained in this
Agreement, Parent shall not have any obligation under this Agreement: (i) to
dispose or transfer or cause any of its Subsidiaries to dispose of or transfer
any assets, or to commit to cause any of the Company Entities to dispose of any
assets; (ii) to discontinue or cause any of its Subsidiaries to discontinue
offering any product or service, or to commit to cause any of the Company
Entities to discontinue offering any product or service; (iii) to license or
otherwise make available, or cause any of its Subsidiaries to license or
otherwise make available, to any Person, any technology, software or other
Intellectual Property or Intellectual Property Right, or to commit to cause any
of the Company Entities to license or otherwise make available to any Person any
technology, software or other Intellectual Property or Intellectual Property
Right; (iv) to hold separate or cause any of its Subsidiaries to hold separate
any assets or operations (either before or after the Closing Date), or to commit
to cause any of the Company Entities to hold separate any assets or operations;
(v) to make or cause any of its Subsidiaries to make any commitment (to any
Governmental Body or otherwise) regarding its future operations or the future
operations of any of the Company Entities, or (vi) to contest any Legal
Proceeding relating to the Combination if Parent determines in good faith that
contesting such Legal Proceeding is not advisable.
5.9 DISCLOSURE. Parent and the Company shall consult with each other before
issuing any press release or otherwise making any public statement with respect
to the Combination or any of the other transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, the parties shall
not, and shall not permit any of their Subsidiaries or any Representative to,
make any disclosure regarding the Combination or any of the other transactions
contemplated by this Agreement unless the other party shall have approved such
disclosure in writing such.
5.10 AFFILIATE AGREEMENTS. The Company shall use all reasonable efforts to
cause each Person identified in Part 2.20 of the Company Disclosure Schedule and
each other Person who is or becomes (or may be deemed to be) an "affiliate" (as
that term is used in Rule 145 under the Securities Act) of the Company to
execute and deliver to Parent, prior to the date of the mailing of the Joint
Proxy Statement/Prospectus to the Company's stockholders, an Affiliate Agreement
in the form of EXHIBIT C. Neither Parent nor the Company shall register, or
allow its transfer agent to register, on its books any transfer of any shares of
Parent Common Stock or Company Common Stock of any "affiliate" of the Company
who has not provided a signed Affiliate Agreement in accordance with this
Section 5.10.
58
5.11 TAX MATTERS. At or prior to the filing of the Form S-4 Registration
Statement, the Company and Parent shall execute and deliver to Cooley Godward
LLP and to Xxxxxx, Xxxxx & Bockius LLP tax representation letters in customary
form. Parent, Merger Sub, LLC and the Company shall each confirm to Cooley
Godward LLP and to Xxxxxx, Xxxxx & Bockius LLP the accuracy and completeness as
of the Effective Time of the tax representation letters delivered pursuant to
the immediately preceding sentence. Parent and the Company shall use all
reasonable efforts prior to the Effective Time to cause the Merger to qualify as
a tax-free reorganization under Section 368(a)(1) of the Code. Following
delivery of the tax representation letters pursuant to the first sentence of
this Section 5.11, each of Parent and the Company shall use its reasonable
efforts to cause Xxxxxx Godward LLP and Xxxxxx, Xxxxx & Bockius LLP,
respectively, to deliver to their respective client a tax opinion satisfying the
requirements of Item 601 of Regulation S-K promulgated under the Securities Act.
In rendering such opinions, each of such counsel shall be entitled to rely on
the tax representation letters referred to in this Section 5.11.
5.12 RESIGNATION OF OFFICERS AND DIRECTORS. The Company shall use all
reasonable efforts to obtain and deliver to Parent on or prior to the Closing
the resignation of each officer and director of each of the Company Entities.
5.13 BOARD OF DIRECTORS. Prior to the Effective Time, Parent shall use all
reasonable efforts to cause the board of directors of Parent to consist, as of
the Effective Time, of eight directors, (a) one of whom shall be the Chief
Executive Officer of Parent; (b) five of whom shall be Persons designated by
Parent; and (c) two of whom shall be Persons designated by the Company who were
directors of the Company prior to the Effective Time. Parent shall use all
reasonable efforts to cause one director designated by the Company to serve with
a term expiring in 2007 and the other director designated by the Company to
serve with a term expiring in 2008. The Company agrees that both of the Persons
it designates will qualify as independent directors of Parent under the
corporate governance rules of the Nasdaq. If any such Persons are not able to
serve as directors of Parent as of the Effective Time, the party on whose board
such Person presently sits shall select a replacement.
5.14 LISTING. Parent shall prepare and submit to Nasdaq a new listing
application for qualification for trading of Parent Common Stock on either the
Nasdaq National Market or the Nasdaq Small Cap Market following the Effective
Time. Failure to satisfy any of the listing requirements or otherwise to qualify
for trading on the Nasdaq shall not constitute a breach of this Agreement or the
failure to satisfy a covenant in any material respect and will not be a ground
for terminating this Agreement or delaying Closing.
5.15 SECTION 16 MATTERS. Prior to the Effective Time, the Company shall
take such reasonable steps as are required to cause the disposition of Company
Common Stock, Company Options and other derivative securities with respect to
Company Common Stock in connection with the Combination by each individual who
is subject to the reporting requirements of Section 16(a) of the Exchange Act
with respect to the Company to be exempt from Section 16(b) of the Exchange Act
pursuant to Rule 16b-3 under the Exchange Act. If the Company delivers the
Section 16 Information (as defined below) to Parent at least 30 calendar days
prior to the Effective Time, then, prior to the Effective Time, Parent shall
take such reasonable steps as are
59
required to cause the acquisition of Parent Common Stock, options to purchase
shares of Parent Common Stock and other derivative securities with respect to
Parent Common Stock in connection with the Combination by each individual who,
immediately after the Effective Time, will become subject to the reporting
requirements of Section 16(a) of the Exchange Act with respect to Parent to be
exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 under the
Exchange Act. For purposes of this Section 5.17, "Section 16 Information" shall
mean the following information for each individual who, immediately after the
Effective Time, will become subject to the reporting requirements of Section
16(a) of the Exchange Act with respect to Parent: (a) the number of shares of
Company Common Stock held by such individual and expected to be exchanged for
shares of Parent Common Stock in the Merger; (b) the number of Company Options
held by such individual and expected to be converted into options to purchase
shares of Parent Common Stock in connection with the Merger; and (c) the number
of other derivative securities (if any) with respect to Company Common Stock
held by such individual and expected to be converted into shares of Parent
Common Stock or derivative securities with respect to Parent Common Stock in
connection with the Merger.
SECTION 6. CONDITIONS PRECEDENT TO EACH PARTIES' OBLIGATIONS TO EFFECT THE
MERGER
The obligations of each party to effect the Merger and otherwise consummate
the transactions contemplated by this Agreement are subject to the satisfaction,
at or prior to the Closing, of each of the following conditions:
6.1 STOCKHOLDER APPROVAL.
(A) This Agreement shall have been duly adopted by the Required
Company Stockholder Vote.
(B) The issuance of Parent Common Stock in the Merger shall have been
duly approved by the Required Parent Stockholder Vote.
(C) The Parent Reverse Stock Split shall have been approved by the
affirmative vote of the holders of a majority of the shares of Parent Common
Stock outstanding on the record date for the Parent Stockholders' Meeting.
6.2 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued, and no proceeding for
that purpose shall have been initiated or be threatened in writing, by the SEC
with respect to the Form S-4 Registration Statement.
6.3 NO RESTRAINTS. No temporary restraining order, preliminary or permanent
injunction, or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or prohibition preventing the consummation
of the Combination shall have been issued, nor shall any proceeding brought by a
domestic administrative agency or commission or other domestic Governmental Body
seeking any of the foregoing be pending or threatened in writing; nor shall
there be any action taken, or any statute, rule, regulation, or order
60
enacted, entered, enforced, or deemed applicable to the Combination which makes
the consummation of the Combination illegal.
SECTION 7. CONDITIONS PRECEDENT TO PARENT'S, MERGER SUB'S, AND LLC'S OBLIGATIONS
TO EFFECT THE MERGER
The obligations of Parent, Merger Sub and LLC to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of the
Company contained in this Agreement shall be accurate in all respects as of the
Closing Date as if made on and as of the Closing Date, except that any
inaccuracies in such representations and warranties will be disregarded if the
circumstances giving rise to all such inaccuracies (considered collectively) do
not constitute, and would not reasonably be expected to have, a Material Adverse
Effect on the Company Entities; provided, however that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other materiality qualifications,
and any similar qualifications, contained in such representations and warranties
shall be disregarded and (ii) any update of or modification to the Company
Disclosure Schedule made or purported to have been made after the date of this
Agreement shall be disregarded.
7.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that the Company
is required to comply with or to perform at or prior to the Closing shall have
been complied with and performed in all material respects.
7.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall not have occurred any Material Adverse Effect on the Company Entities, and
no event shall have occurred or circumstance shall exist that, in combination
with any other events or circumstances, would reasonably be expected to have a
Material Adverse Effect on the Company Entities.
7.4 AGREEMENTS AND DOCUMENTS. Parent shall have received the following
agreements and documents, each of which shall be in full force and effect:
(A) a legal opinion of Xxxxxx Godward LLP, dated as of the Closing
Date and addressed to Parent, to the effect that the Combination will constitute
a reorganization within the meaning of Section 368 of the Code (it being
understood that in rendering such opinion, Xxxxxx Godward LLP may rely upon the
tax representation letters referred to in Section 5.11; and
(B) a certificate executed on behalf of the Company by its Chief
Executive Officer and Chief Financial Officer confirming that the conditions set
forth in Sections 6.1(a), 7.1 7.2, 7.3, and 7.5, have been duly satisfied.
7.5 CONSENTS. All material Consents required to be obtained in connection
with the Combination and the other transactions contemplated by this Agreement
(including the Consents identified in Part 7.5 of the Company Disclosure
Schedule) shall have been obtained and shall be in full force and effect.
61
7.6 APPRAISAL SHARES. The time during which a holder of Company Common
Stock is permitted to demand appraisal rights shall have expired, and no more
than 10% of the shares of Company Common Stock outstanding shall be Appraisal
Shares.
SECTION 8. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS TO EFFECT THE
MERGER
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
8.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of
Parent contained in this Agreement shall be accurate in all respects as of the
Closing Date as if made on and as of the Closing Date, except that any
inaccuracies in such representations and warranties will be disregarded if the
circumstances giving rise to all such inaccuracies (considered collectively) do
not constitute, and would not reasonably be expected have, a Material Adverse
Effect on Parent; provided, however, that, for purposes of determining the
accuracy of such representations and warranties as of the Closing Date, (i) all
"Material Adverse Effect" qualifications and other materiality qualifications,
and any similar qualifications, contained in such representations and warranties
shall be disregarded and (ii) any update of or modification to the Parent
Disclosure Schedule made or purported to have been made after the date of this
Agreement shall be disregarded.
8.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent, Merger Sub and LLC are required to comply with or to perform at or prior
to the Closing shall have been complied with and performed in all material
respects.
8.3 DOCUMENTS. The Company shall have received the following documents:
(A) a legal opinion of Xxxxxx, Xxxxx & Xxxxxxx LLP, dated as of the
Closing Date, to the effect that the Combination will constitute a
reorganization within the meaning of Section 368 of the Code (it being
understood that in rendering such opinion, Xxxxxx, Xxxxx & Bockius LLP may rely
upon the tax representation letters referred to in Section 5.11; and
(B) a certificate executed on behalf of Parent by the Chief Executive
Officer and Chief Financial Officer of Parent, confirming that conditions set
forth in Sections 6.1(b), 8.1, 8.2 and 8.4 have been duly satisfied.
8.4 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall not have been any Material Adverse Effect on Parent, and no event shall
have occurred or circumstance shall exist that, in combination with any other
events or circumstances, would reasonably be expected to have a Material Adverse
Effect on Parent.
SECTION 9. TERMINATION
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, by written notice by the terminating party to the other party,
whether before or
62
after approval of the matters presented in connection with the Combination by
the stockholders of Parent or the Company:
(A) by mutual written consent of Parent and the Company; or
(B) by either Parent or the Company if the Merger shall not have been
consummated by the later of (i) February 28, 2006 or (ii) in the event that the
Form S-4 Registration Statement filed with the SEC as contemplated by Section
5.1 of this Agreement has not become effective under the Securities Act by
January 13, 2006, then March 31, 2006 (with the later of items (i) and (ii)
hereinafter referred to as, the "END DATE"), (provided that the right to
terminate this Agreement under this Section 9.1(b) shall not be available to a
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date); or
(C) by either Parent or the Company if a court of competent
jurisdiction or other Governmental Body shall have issued a nonappealable final
order, decree, or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Combination, except, if the party relying on such order, decree, or ruling or
other action has not complied with its obligations under Section 5.4 of this
Agreement; or
(D) by either Parent or the Company if (i) the Company Stockholders'
Meeting (including any adjournments or postponements thereof) shall have been
held and completed and the Company's stockholders shall have taken a final vote
on a proposal to adopt this Agreement, and this Agreement shall not have been
adopted at such meeting by the Required Company Stockholder Vote (and shall not
have been adopted at any adjournment or postponement thereof); provided,
however, that a party shall not be permitted to terminate this Agreement
pursuant to this Section 9.1(d) if the failure to obtain the Required Company
Stockholder Vote is attributable to a failure on the part of such party to
perform any material obligation required to be performed by such party at or
prior to the Effective Time; or
(E) by either Parent or the Company if (i) the Parent Stockholders'
Meeting (including any adjournments or postponements thereof) shall have been
held and completed and Parent's stockholders shall have taken a final vote on
the amendment to Parent's certificate of incorporation to effect the Parent
Reverse Stock Split and the issuance of shares of Parent Common Stock pursuant
to this Agreement, and (ii) such matters shall not have been approved at such
meeting (and shall not have been approved at any adjournment or postponement
thereof) by the Required Parent Stockholder Vote; provided, however, that a
party shall not be permitted to terminate this Agreement pursuant to this
Section 9.1(e) if the failure to obtain the Required Parent Stockholder Vote is
attributable to a failure on the part of such party to perform any material
obligation required to be performed by such party at or prior to the Effective
Time; or
(F) by Parent (at any time prior to the adoption of this Agreement by
the Required Company Stockholder Vote) if a Company Triggering Event shall have
occurred; or
63
(G) by the Company (at any time prior to the approval of the Merger by
the Required Parent Stockholder Vote) if a Parent Triggering Event shall have
occurred; or
(H) by Parent if (i) any of the Company's representations and
warranties contained in this Agreement shall be inaccurate as of the date of
this Agreement, or shall have become inaccurate as of a date subsequent to the
date of this Agreement (as if made on such subsequent date), such that the
condition set forth in Section 7.1(a) would not be satisfied (it being
understood that, for purposes of determining the accuracy of such
representations and warranties as of the date of this Agreement or at any
subsequent date, (A) all "Material Adverse Effect" qualifications and other
materiality qualifications, and any similar qualifications, contained in such
representations and warranties shall be disregarded and (B) any update of or
modification to the Company Disclosure Schedule made or purported to have been
made after the date of this Agreement shall be disregarded), or (ii) any of the
Company's covenants contained in this Agreement shall have been breached such
that the condition set forth in Section 7.1(b) would not be satisfied; provided,
however, that, in the case of (i) or (ii) above, if an inaccuracy in the
Company's representations and warranties or a breach of a covenant by the
Company is reasonably capable of being cured by the Company prior to the End
Date and the Company is continuing to exercise its reasonable efforts to cure
such inaccuracy or breach, then Parent may not terminate this Agreement under
this Section 9.1(h) on account of such inaccuracy or breach until the 30th
calendar day from the date on which the Company received a written notice of
such breach from Parent; or
(I) by the Company if (i) any of Parent's representations and
warranties contained in this Agreement shall be inaccurate as of the date of
this Agreement, or shall have become inaccurate as of a date subsequent to the
date of this Agreement (as if made on such subsequent date), such that the
condition set forth in Section 8.1(a) would not be satisfied (it being
understood that, for purposes of determining the accuracy of such
representations and warranties as of the date of this Agreement or at any
subsequent date, (A) all "Material Adverse Effect" qualifications and other
materiality qualifications, and any similar qualifications, contained in such
representations and warranties shall be disregarded and (B) any update of or
modification to the Parent Disclosure Schedule made or purported to have been
made after the date of this Agreement shall be disregarded), or (ii) any of
Parent's covenants contained in this Agreement shall have been breached such
that the condition set forth in Section 8.2 would not be satisfied; provided,
however, that, in the case of (i) or (ii) above, if an inaccuracy in Parent's
representations and warranties or a breach of a covenant by Parent is reasonably
capable of being cured by Parent prior to the End Date and Parent is continuing
to exercise its reasonable efforts to cure such inaccuracy or breach, then the
Company may not terminate this Agreement under this Section 9.1(i) on account of
such inaccuracy or breach until the 30th calendar day form the date on which
Parent received a written notice of such breach from the Company.
9.2 EFFECT OF TERMINATION. In the event of termination of this Agreement as
provided in Section 9.1, this Agreement shall immediately become void and there
shall be no liability or obligation on the part of Parent, the Company, Merger
Sub, LLC or their respective officers, directors, stockholders or affiliates (as
that term is used in Rule 145 under the Securities Act), except as set forth in
Section 9.3; provided that (i) the provisions of Section 9.3 of this Agreement
shall remain in full force and effect and survive any termination of this
Agreement
64
and (ii) the termination of this Agreement shall not relieve any party from any
liability or damages for any willful breach of any provision contained in this
Agreement.
9.3 FEES AND EXPENSES.
(A) Except as set forth in this Section 9.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated; provided, however, that Parent and the Company shall
share equally all fees and expenses, other than attorneys' and accountants' fees
and expenses, incurred in relation to the printing and filing of the Joint Proxy
Statement/Prospectus (including any related preliminary materials) and the Form
S-4 Registration Statement (including financial statements and exhibits) and any
amendments or supplements.
(B) If (A) (1) this Agreement is terminated by Parent or the Company
pursuant to Section 9.1(d), (2) at or prior to the time of such termination a
Company Acquisition Proposal shall have been publicly disclosed, announced or
commenced, (3) such Company Acquisition Proposal shall not have been
unconditionally and publicly withdrawn by the Person making such Company
Acquisition Proposal at least five (5) business days prior to the date of the
Company Stockholders' Meeting, and (4) within twelve months after such
termination the Company consummates a Company Acquisition Transaction, or (B)
this Agreement is terminated by Parent pursuant to Section 9.1(f) by reason of
the occurrence of an event described in clause (i), (ii), (iii), or (iv) of the
definition of Company Triggering Event, then, in any such case, the Company
shall pay to Parent, in cash at the time specified in the next sentence, a
nonrefundable fee in the amount of $500,000. In the case of termination of this
Agreement (i) by the Company or Parent pursuant to Section 9.1(d) (and the
conditions set forth in clauses (A)(1) through (A)(4) of the preceding sentence
are satisfied), then the fee referred to in the preceding sentence shall be paid
by the Company within two business days after the consummation of such Company
Acquisition Transaction, or (ii) by Parent pursuant to Section 9.1(f), then the
fee referred to in the preceding sentence shall be paid by the Company within
two business days after such termination.
(C) If (A) (1) this Agreement is terminated by Parent or the Company
pursuant to Section 9.1(e), (2) at or prior to the time of such termination a
Parent Acquisition Proposal shall have been publicly disclosed, announced or
commenced, (3) such Parent Acquisition Proposal shall not have been
unconditionally and publicly withdrawn by the Person making such Parent
Acquisition Proposal at least five (5) business days prior to the date of the
Parent Stockholders' Meeting, and (4) within twelve months after such
termination Parent consummates a Parent Acquisition Transaction, or (B) this
Agreement is terminated by the Company pursuant to Section 9.1(g), then, in any
such case, Parent shall pay to the Company, in cash at the time specified in the
next sentence, a nonrefundable fee in the amount of $500,000. In the case of
termination of this Agreement (i) by the Company or Parent pursuant to Section
9.1(e) (and the conditions set forth in clauses (A)(1) through (A)(4) of the
preceding sentence are satisfied), then the fee referred to in the preceding
sentence shall be paid by Parent within two business days after the consummation
of such Parent Acquisition Transaction or (ii) by the Company pursuant to
Section 9.1(g), then the fee referred to in the preceding sentence shall be paid
by Parent within two business days after such termination.
65
(D) The parties acknowledge that the agreements contained in this
Section 9.3 are an integral part of the transaction contemplated by this
Agreement, and that, without these agreements, each party would not enter into
this Agreement; accordingly, if either party fails to pay in a timely manner the
amounts due pursuant to this Section 9.3 and, in order to obtain such payment,
the other party makes a claim that results in a judgment against the other party
for the amounts set forth in this Section 9.3, the party who has failed to pay
shall pay to the other party interest on the amounts set forth in this Section
9.3 at the prime rate of Citibank, N.A. in effect on the date such payment was
required to be made.
(E) Payment of the fees and interest described in this Section 9.3
shall not be in lieu of damages incurred in the event of willful breach of this
Agreement.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 AMENDMENT. This Agreement may be amended with the approval of the
respective boards of directors of the Company and Parent at any time (whether
before or after adoption of this Agreement by the Company's stockholders and
whether before or after approval of the amendment of Parent's certificate of
incorporation to authorize the Parent Reverse Stock Split and the issuance of
Parent Common Stock in the Merger by Parent's stockholders); provided, however,
that (i) after any such adoption of this Agreement by the Company's
stockholders, no amendment shall be made which by law requires further approval
of the stockholders of the Company without the further approval of such
stockholders, and (ii) after any such approval of the amendment of Parent's
certificate of incorporation to authorize the Parent Reverse Stock Split and the
issuance of Parent Common Stock in the Merger by Parent's stockholders, no
amendment shall be made which by law or NASD regulation requires further
approval of Parent's stockholders without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
10.2 WAIVER.
(A) No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any party
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(B) No party shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
party; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
66
10.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any certificate
delivered pursuant to this Agreement shall survive the Merger.
10.4 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement and the other
agreements referred to herein constitute the entire agreement and supersede all
other prior agreements and understandings, both written and oral, among or
between any of the parties with respect to the subject matter hereof and
thereof; provided, however, that the letter agreement dated March 10, 2004
between the Company and Parent (relating to the protection of confidential
information) shall not be superseded and shall remain in full force and effect.
This Agreement may be executed in several counterparts, each of which shall be
deemed an original and all of which shall constitute one and the same
instrument. Facsimile copies shall be deemed to be binding originals.
10.5 APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
10.6 DISCLOSURE SCHEDULE. The Company Disclosure Schedule shall be arranged
in separate parts corresponding to the numbered and lettered sections contained
in Section 2, and the information disclosed in any numbered or lettered part
shall be deemed to relate to and to qualify only the particular representation
or warranty set forth in the corresponding numbered or lettered section in
Section 2, and shall not be deemed to relate to or to qualify any other
representation or warranty. The Parent Disclosure Schedule shall be arranged in
separate parts corresponding to the numbered and lettered sections contained in
Section 3, and the information disclosed in any numbered or lettered part shall
be deemed to relate to and to qualify only the particular representation or
warranty set forth in the corresponding numbered or lettered section in Section
3, and shall not be deemed to relate to or to qualify any other representation
or warranty. Notwithstanding the foregoing, the information and disclosures
contained in each section of the Company Disclosure Schedule and Parent
Disclosure Schedule (as applicable) shall be deemed to be disclosed and
incorporated by reference in each of the other sections of such disclosure
schedule as though fully set forth in such other sections and shall be deemed to
qualify and limit such representations, warranties and covenants provided that
such incorporation by reference is reasonably apparent. All capitalized terms
used in the Company Disclosure Schedule and Parent Disclosure Schedule shall
have the respective meanings assigned to them in the Agreement. No disclosure in
the Company Disclosure Schedule or Parent Disclosure Schedule (as applicable)
relating to any possible breach or violation of any agreement, law or regulation
shall be construed as an admission or indication that any such breach or
violation exists or has actually occurred and inclusion of any item therein
shall not be construed as an admission or indication that any such item is
material.
10.7 ATTORNEYS' FEES. In any action at law or suit in equity to enforce
this Agreement or the rights of any of the parties hereunder, the prevailing
party in such action or suit shall be entitled to receive a reasonable sum for
its attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
67
10.8 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors and assigns; provided, however, that neither this
Agreement nor any of a party's rights hereunder may be assigned by such party
without the prior written consent of the other parties, and any attempted
assignment of this Agreement or any of such rights by a party without such
consent shall be void and of no effect. Except as expressly set forth herein,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any Person (other than the parties hereto) any right, benefit or remedy of
any nature whatsoever.
10.9 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed), or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(A) if to Parent, Merger Sub or LLC, to:
Specialized Health Products International, Inc.
000 Xxxx 000 Xxxxx
Xxxxxxxxx, Xxxx 00000
Attention: Chief Executive Officer
with a required copy to (which alone shall not constitute notice):
Xxxxxx Godward LLP
0000 Xxxxxxxx Xxxx
Xxx Xxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxx, Esq.
(B) if to the Company, to:
The Med-Design Corporation
0000 Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Chairman of the Board of Directors
with a required copy to (which alone shall not constitute notice):
Xxxxxx, Xxxxx & Xxxxxxx LLP
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
10.10 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
68
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties hereto agree that the court making such determination
shall have the power to limit the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified. In the event such court does
not exercise the power granted to it in the prior sentence, the parties hereto
agree to replace such invalid or unenforceable term or provision with a valid
and enforceable term or provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid or unenforceable term.
10.11 CONSTRUCTION.
(A) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include masculine
and feminine genders.
(B) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(C) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(D) Except as otherwise indicated, all references in this Agreement to
"Sections," "Exhibits" and "Schedules" are intended to refer to Sections of this
Agreement and Exhibits or Schedules to this Agreement.
(E) The bold-faced headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
[REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
69
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
SPECIALIZED HEALTH PRODUCTS
INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxxx
----------------------------------
Title: President & CEO
---------------------------------
MAMMOTH ACQUISITION SUB, INC.
By: /s/ Xxxx Xxxxx
------------------------------------
Name: Xxxx Xxxxx
----------------------------------
Title: President
---------------------------------
MAMMOTH ACQUISITION SUB, LLC
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxxx
----------------------------------
Title: President & CEO
---------------------------------
THE MED-DESIGN CORPORATION
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxxx
----------------------------------
Title: Acting CEO
---------------------------------
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached, as it may be amended from
time to time.
COBRA. "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.
COMPANY ACQUISITION PROPOSAL. "Company Acquisition Proposal" shall mean any
offer, proposal, inquiry or indication of interest (other than an offer,
proposal, inquiry or indication of interest made or submitted by Parent)
contemplating or otherwise relating to any Company Acquisition Transaction.
COMPANY ACQUISITION TRANSACTION. "Company Acquisition Transaction" shall
mean any transaction or series of transactions involving:
(a) any merger, consolidation, amalgamation, share exchange, business
combination, issuance of securities, acquisition of securities, tender offer,
exchange offer or other similar transaction (i) in which any of the Company
Entities is a constituent corporation, (ii) in which a Person or "group" (as
defined in the Exchange Act and the rules promulgated thereunder) of Persons
directly or indirectly acquires beneficial or record ownership of securities
representing more than 20% of the outstanding securities of any class of voting
securities of any of the Company Entities, or (iii) in which any of the Company
Entities issues securities representing more than 20% of the outstanding
securities of any class of voting securities of any of the Company Entities;
(b) any sale, lease, exchange, transfer, license, acquisition or
disposition of any business or businesses or assets that constitute or account
for 20% or more of the consolidated net revenues, net income or assets of any of
the Company Entities; or
(c) any liquidation or dissolution of any of the Company Entities.
COMPANY AFFILIATE. "Company Affiliate" shall mean any Person under common
control with any of the Company Entities within the meaning of Sections 414(b),
(c), (m) and (o) of the Code, and the regulations issued thereunder.
COMPANY COMMON STOCK. "Company Common Stock" shall mean the Common Stock,
$0.01 par value per share, of the Company.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean the
disclosure schedule that has been prepared by the Company in accordance with the
requirements of Section 10.6 of the Agreement and that has been delivered by the
Company to Parent on the date of this Agreement.
A-1
COMPANY EMPLOYEE. "Company Employee" shall mean any current or former
employee, independent contractor or director of any of the Company Entities or
any Company Affiliate.
COMPANY EMPLOYEE AGREEMENT. "Company Employee Agreement" shall mean each
management, employment, severance, consulting, relocation, repatriation or
expatriation agreement or other Contract between any of the Company Entities or
any Company Affiliate and any Company Employee, other than any such management,
employment, severance, consulting, relocation, repatriation or expatriation
agreement or other Contract with a Company Employee which is terminable "at
will" without any obligation on the part of the applicable Company Entities or
any Company Affiliate to make any payments or provide any benefits in connection
with such termination.
COMPANY EMPLOYEE PLAN. "Company Employee Plan" shall mean any plan,
program, policy, practice, Contract or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including each "employee benefit plan," within the meaning
of Section 3(3) of ERISA (whether or not ERISA is applicable to such plan), that
is or has been maintained, contributed to, or required to be contributed to, by
any of the Company Entities or any Company Affiliate for the benefit of any
Company Employee, or with respect to which any of the Company Entities or any
Company Affiliate has or may have any liability or obligation, except such
definition shall not include any Company Employee Agreement.
COMPANY ENTITY CONTRACT. "Company Entity Contract" shall mean any Contract:
(a) to which any of the Company Entities is a party; (b) by which any of the
Company Entities or any asset of any of the Company Entities is or may become
bound or under which any of the Company Entities has, or may become subject to,
any obligation; or (c) under which any of the Company Entities has or may
acquire any right or interest.
COMPANY IP. "Company IP" shall mean (a) all Intellectual Property Rights in
or pertaining to the Company Products or methods or processes used to
manufacture the Company Products, and (b) all other Intellectual Property Rights
owned by or exclusively licensed to any of the Company Entities.
COMPANY IP CONTRACT. "Company IP Contract" shall mean any Contract to which
any of the Company Entities is a party or by which any of the Company Entities
is bound, that contains any assignment or license of, or covenant not to assert
or enforce, any Intellectual Property Right or that otherwise relates to any
Company IP or any Intellectual Property developed by, with, or for any of the
Company Entities.
COMPANY PENSION PLAN. "Company Pension Plan" shall mean each Company
Employee Plan that is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
COMPANY PRIVACY POLICY. "Company Privacy Policy" shall mean each external
or internal, past or present privacy policy of any of the Company Entities,
including any policy relating to (i) the privacy of users of the Company
Products or of any Company Website, (ii) the
A-2
collection, storage, disclosure, and transfer of any User Data or Personal Data,
and (iii) any employee information.
COMPANY PRODUCT. "Company Product" shall mean any product or service
designed, developed, manufactured, marketed, distributed, provided, licensed, or
sold at any time by any of the Company Entities. For avoidance of doubt,
however, the term shall not include products manufactured and sold by or on
behalf of Persons other than a Company Entity to which the Company has granted a
license to the Company's Intellectual Property for such purpose.
COMPANY REVERSE STOCK SPLIT. "Company Reverse Stock Split" shall mean the 1
for 3 combination that the Company's Stockholders authorized at the Company's
Annual meeting of Stockholders held on September 16, 2005.
COMPANY SUPERIOR OFFER. "Company Superior Offer" shall mean an unsolicited,
bona fide written offer made by a third party to purchase, directly or
indirectly, all of the outstanding shares of Company Common Stock or all or
substantially all of the assets of the Company Entities on terms that the board
of directors of the Company determines, in its reasonable judgment, based upon a
written opinion of an independent financial advisor of nationally recognized
reputation, to be more favorable to the Company's stockholders than the terms of
the Combination; provided, however, that any such offer shall not be deemed to
be a "Company Superior Offer" if any financing required to consummate the
transaction contemplated by such offer is not committed and is not reasonably
capable of being obtained by such third party.
COMPANY TRIGGERING EVENT. A "Company Triggering Event" shall be deemed to
have occurred if: (i) the board of directors of the Company shall have failed to
recommend that the Company's stockholders vote to adopt this Agreement, or shall
have withdrawn or modified in a manner adverse to Parent the Company Board
Recommendation, or shall have resolved to do so; (ii) the Company shall have
failed to include in the Joint Proxy Statement/Prospectus the Company Board
Recommendation or a statement to the effect that the board of directors of the
Company has determined and believes that the Combination is in the best
interests of the Company's stockholders; (iii) the Company shall have entered
into any letter of intent or similar document or any Contract relating to any
Company Acquisition Proposal; (iv) a tender or exchange offer for 15% or more of
the outstanding capital shares of capital stock of the Company shall have been
commenced and the Company shall not have sent to its securityholders, within ten
business days after the commencement of such tender or exchange offer, a
statement disclosing that the Company recommends rejection of such tender or
exchange offer; (v) if the Actual Company Cash Amount on November 30, 2005, is
less than $6,000,000; (vi) the Company fails to comply with the covenant in
Section 4.8; or (vii) the time during which a holder of Company Common Stock is
permitted to demand appraisal rights shall have expired, and more than 10% of
the shares of Company Common Stock outstanding are Appraisal Shares.
COMPANY UNAUDITED INTERIM BALANCE SHEET. "Company Unaudited Interim Balance
Sheet" shall mean the unaudited consolidated balance sheet of the Company and
its consolidated Subsidiaries as of September 30, 2005 included in the Company
SEC Documents.
COMPANY WEB SITE. "Company Web Site" shall mean any public or private
website owned, maintained, or operated at any time by or on behalf of any of the
Company Entities.
A-3
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature.
DOL. "DOL" shall mean the United States Department of Labor.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any company
limited by shares, limited liability company or joint stock company), firm,
society or other enterprise, association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" shall mean any federal, state, local
or foreign Legal Requirement relating to pollution or protection of human health
or the environment (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
FMLA. "FMLA" shall mean the Family Medical Leave Act of 1993, as amended.
FOREIGN PLAN. "Foreign Plan" shall mean: (i) any plan, program, policy,
practice, Contract or other arrangement mandated by a Governmental Body other
than the United States; (ii) any Company Employee Plan maintained or contributed
to by any of the Company Entities or any Company Affiliate that is not subject
to United States law; and (iii) any Company Employee Plan that covers or has
covered Company Employees whose services are performed primarily outside of the
United States.
A-4
FORM S-4 REGISTRATION STATEMENT. "Form S-4 Registration Statement" shall
mean the registration statement on Form S-4 to be filed with the SEC by Parent
in connection with issuance of Parent Common Stock in the Merger, as said
registration statement may be amended prior to the time it is declared effective
by the SEC.
GAAP. "GAAP" means United States Generally Accepted Accounting Principles,
consistently applied.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, variance, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, ministry, fund, foundation, center, organization,
unit, body or Entity and any court or other tribunal).
HIPAA. "HIPAA" shall mean the Health Insurance Portability and
Accountability Act of 1996, as amended.
INTELLECTUAL PROPERTY. "Intellectual Property" shall mean algorithms,
application programmers' interfaces (APIs), apparatus, circuit designs and
assemblies, gate arrays, IP cores, net lists, photomasks, semiconductor devices,
test vectors, databases, data and results from simulations or tests, design
rules, diagrams, formulae, GDSII files, inventions (whether or not patentable),
know-how, logos, marks (including brand names, product names, logos and
slogans), methods, network configurations and architectures, processes,
proprietary information, protocols, schematics, simulation methods or
techniques, specifications, software, software code (in any form, including
source code and executable or object code), software development tools,
subroutines, techniques, test vectors, user interfaces, uniform resource
locators (URLs), web sites, works of authorship and other forms of technology
(whether or not embodied in any tangible form and including all tangible
embodiments of the foregoing, such as instruction manuals, laboratory notebooks,
prototypes, samples, studies and summaries).
INTELLECTUAL PROPERTY RIGHTS. "Intellectual Property Rights" shall mean all
rights of the following types, which may exist or be created under the laws of
any jurisdiction in the world: (a) rights associated with works of authorship,
including exclusive exploitation rights, copyrights, moral rights and mask
works; (b) trademark and trade name rights and similar rights; (c) trade secret
rights; (d) patent and industrial property rights; (e) other proprietary rights
in Intellectual Property; and (f) rights in or relating to registrations,
renewals, extensions, combinations, divisions and reissues of, and applications
for, any of the rights referred to in clauses "(a)" through "(e)" above.
IRS. "IRS" shall mean the United States Internal Revenue Service.
A-5
KNOWLEDGE. An individual shall be deemed to have "knowledge" of a
particular fact or other matter if:
(A) such individual is actually aware of such fact or other matter; or
(B) such individual would reasonably be expected to know such fact in
the ordinary course of the performance of the individual's employee or
professional responsibility.
The Company Entities or Parent Entities shall be deemed to have "knowledge"
of a particular fact or other matter if any officer or director of such Person
has knowledge of such fact or other matter.
JOINT PROXY STATEMENT/PROSPECTUS. "Joint Proxy Statement/Prospectus" shall
mean the joint proxy statement/prospectus to be sent to the Company's
stockholders in connection with the Company Stockholders' Meeting and to
Parent's stockholders in connection with the Parent Stockholders' Meeting.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body (or under the
authority of the NASD or the Nasdaq National Market).
LIABILITY. "Liability" shall mean any debt, obligation, duty or liability
of any nature (including any unknown, undisclosed, unmatured, unaccrued,
unasserted, contingent, indirect, conditional, implied, vicarious, derivative,
joint, several or secondary liability), regardless of whether such debt,
obligation, duty or liability would be required to be disclosed on a balance
sheet prepared in accordance with generally accepted accounting principles and
regardless of whether such debt, obligation, duty or liability is immediately
due and payable.
MATERIAL ADVERSE EFFECT. An event, violation, inaccuracy, circumstance or
other matter will be deemed to have a "Material Adverse Effect" on the Company
Entities if such event, violation, inaccuracy, circumstance or other matter
(considered together with all other matters that constitute exceptions to the
representations and warranties of the Company set forth in the Agreement,
disregarding any "Material Adverse Effect" or other materiality qualifications,
or any similar qualifications, in such representations and warranties) had or
would reasonably be expected to have a material adverse effect on (i) the
business, condition, capitalization, assets, liabilities, operations, or
financial performance of the Company Entities taken as a whole, (ii) the ability
of the Company to consummate the Combination or any of the other transactions
contemplated by the Agreement or to perform any of its obligations under the
Agreement, or (iii) Parent's ability to vote, receive dividends with respect to
or otherwise exercise ownership rights
A-6
with respect to the stock of the Surviving Corporation or the interests of the
Continuing LLC; provided, however, that a Material Adverse Effect shall not
include (i) a decline in the Company's stock price, in and of itself; (ii) any
change in general business or economic conditions in the United States that do
not disproportionately impact the Company Entities; (iii) any change or effect
resulting from the announcement of this Agreement or the Combination; or (iv)
any adverse effect resulting from any change in accounting requirements or
principles as is required by law. Notwithstanding the foregoing, if any of the
following events or circumstances occurs, they shall automatically constitute a
Material Adverse Effect on the Company and shall be deemed to have occurred
since the date of this Agreement: the giving of notice of termination of the
License Agreement by Becton, Xxxxxxxxx and Company ("BD") under the License
Agreement dated December 11, 1998 between the Company and BD (the "1998 LICENSE
AGREEMENT") or the License Agreement dated March 12, 2000 (the "2000 LICENSE
AGREEMENT") and/or the assertion of any claims by BD in any Legal Proceeding
against the Company, that if decided adversely, could reasonably result in the
termination of BD's obligation to pay royalties on licensed products under the
1998 License Agreement or the 2000 License Agreement with respect to which BD is
presently paying royalties or any of the licensed patent rights with respect to
which BD is presently paying royalties under either license being declared
invalid. An event, violation, inaccuracy, circumstance or other matter will be
deemed to have a "Material Adverse Effect" on the Parent Entities if such event,
violation, inaccuracy, circumstance or other matter (considered together with
all other matters that would constitute exceptions to the representations and
warranties of Parent set forth in the Agreement, disregarding any "Material
Adverse Effect" or other materiality qualifications, or any similar
qualifications, in such representations and warranties) had or would reasonably
be expected to have a material adverse effect on (i) the business, condition,
capitalization, assets, liabilities, operations or financial performance of
Parent and its Subsidiaries taken as a whole, or (ii) the ability of Parent to
consummate the Combination or any of the other transactions contemplated by the
Agreement or to perform any of its obligations under the Agreement; provided,
however, that a Material Adverse Effect shall not include (i) a decline in
Parent's stock price, in and of itself; (ii) any change in general business or
economic conditions in the United States that do not disproportionately impact
the Parent Entities; (iii) any change or effect resulting from the announcement
of this Agreement or the Combination; or (iv) any adverse effect resulting from
any change in accounting requirements or principles as is required by law.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
shall mean chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is now or
hereafter regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.
PBGC. "PBGC" shall mean the United States Pension Benefit Guaranty
Corporation.
PARENT ACQUISITION PROPOSAL. "Parent Acquisition Proposal" shall mean any
offer, proposal, inquiry or indication of interest (other than an offer,
proposal, inquiry or indication of interest made or submitted by the Company)
contemplating or otherwise relating to any Parent Acquisition Transaction.
PARENT ACQUISITION TRANSACTION. "Parent Acquisition Transaction" shall mean
any transaction or series of transactions involving:
A-7
(a) any merger, consolidation, amalgamation, share exchange, business
combination, issuance of securities, acquisition of securities, tender offer,
exchange offer or other similar transaction (i) in which any of the Parent
Entities is a constituent corporation, (ii) in which a Person or "group" (as
defined in the Exchange Act and the rules promulgated thereunder) of Persons
directly or indirectly acquires beneficial or record ownership of securities
representing more than 20% of the outstanding securities of any class of voting
securities of any of the Parent Entities, or (iii) in which any of the Parent
Entities issues securities representing more than 20% of the outstanding
securities of any class of voting securities of any of the Parent Entities;
(b) any sale, lease, exchange, transfer, license, acquisition or
disposition of any business or businesses or assets that constitute or account
for 20% or more of the consolidated net revenues, net income or assets of any of
the Parent Entities; or
(c) any liquidation or dissolution of any of the Parent Entities.
PARENT COMMON STOCK. "Parent Common Stock" shall mean the Common Stock,
$0.01 par value per share, of Parent.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall mean the
disclosure schedule that has been prepared by Parent in accordance with the
requirements of Section 10.6 of the Agreement and that has been delivered by
Parent to the Company on the date of this Agreement.
PARENT ENTITIES. "Parent Entities" shall mean Parent and each of its
Subsidiaries.
PARENT IP. "Parent IP" shall mean (a) all Intellectual Property Rights in
or pertaining to the Parent Products or methods or processes used to manufacture
the Parent Products, and (b) all other Intellectual Property Rights owned by or
exclusively licensed to Parent.
PARENT IP CONTRACT. "Parent IP Contract" shall mean any Contract to which
Parent is a party or by which Parent is bound, that contains any assignment or
license of, or covenant not to assert or enforce, any Intellectual Property
Right or that otherwise relates to any Parent IP or any Intellectual Property
developed by, with, or for Parent.
PARENT PRODUCT. "Parent Product" shall mean any product or service
designed, developed, manufactured, marketed, distributed, provided, licensed, or
sold at any time by Parent. For avoidance of doubt, however, the term shall not
include products manufactured and sold by or on behalf of Persons other than a
Parent Entity to which a Parent Entity has granted a license to Parent's
Intellectual Property for such purpose.
PARENT REVERSE STOCK SPLIT. "Parent Reverse Stock Split" shall mean a
reverse stock split of Parent Common Stock not to exceed a combination of 10 for
1 that the Parent Board of Directors determines in its sole discretion is
necessary or advisable in order for the Parent Common Stock to satisfy one of
the requirements for qualifying the stock for quotation on the Nasdaq National
Market or Nasdaq Small Cap Market.
A-8
PARENT SUPERIOR OFFER. "Parent Superior Offer" shall mean an unsolicited,
bona fide written offer made by a third party to purchase, directly or
indirectly, all of the outstanding shares of Parent Common Stock or all or
substantially all of the assets of the Parent Entities on terms that the board
of directors of Parent determines, in its reasonable judgment, based upon a
written opinion of an independent financial advisor of nationally recognized
reputation, to be more favorable to Parent's stockholders than the terms of the
Combination; provided, however, that any such offer shall not be deemed to be a
"Parent Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed and is not reasonably capable of
being obtained by such third party.
PARENT TRIGGERING EVENT. A "Parent Triggering Event" shall be deemed to
have occurred if: (i) the board of directors of Parent shall have failed to
recommend that Parent's stockholders vote to adopt this Agreement, or shall have
withdrawn or modified in a manner adverse to Parent the Parent Board
Recommendation, or shall have resolved to do so; (ii) Parent shall have failed
to include in the Proxy Statement/Prospectus the Parent Board Recommendation or
a statement to the effect that the board of directors of Parent has determined
and believes that the Combination is in the best interests of Parent's
stockholders; (iii) Parent shall have entered into any letter of intent or
similar document or any Contract relating to any Parent Acquisition Proposal; or
(vi) a tender or exchange offer for 15% or more of the outstanding capital
shares of capital stock of Parent shall have been commenced and Parent shall not
have sent to its securityholders, within ten business days after the
commencement of such tender or exchange offer, a statement disclosing that
Parent recommends rejection of such tender or exchange offer.
PARENT UNAUDITED INTERIM BALANCE SHEET. "Parent Unaudited Interim Balance
Sheet" shall mean the unaudited consolidated balance sheet of Parent and its
consolidated Subsidiaries as of September 30, 2005 included in the Parent SEC
Documents.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PERSONAL DATA. "Personal Data" shall mean a natural person's name, street
address, telephone number, e-mail address, photograph, social security number,
driver's license number, passport number, or customer or account number, or any
other piece of information that allows the identification of a natural person.
REGISTERED IP. "Registered IP" shall mean all Intellectual Property Rights
that are registered, filed, or issued under the authority of any Governmental
Body, including all patents, registered copyrights, registered mask works, and
registered trademarks and all applications for any of the foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
A-9
SUBSIDIARY. An entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record,
(a) an amount of voting securities of or other interests in such Entity that is
sufficient to enable such Person to elect at least a majority of the members of
such Entity's board of directors or other governing body, or (b) at least 50% of
the outstanding equity or financial interests of such Entity.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, estimated tax,
unemployment tax, national health insurance tax, excise tax, ad valorem tax,
transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
USER DATA. "User Data" shall mean any Personal Data or other data or
information collected by or on behalf of any of the Company Entities from users
of the Company Products or of any Company Website.
A-10
================================================================================
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.,
a Delaware corporation;
MAMMOTH ACQUISITION SUB, INC.,
a Delaware corporation;
MAMMOTH ACQUISITION SUB, LLC,
a Delaware limited liability company; and
THE MED-DESIGN CORPORATION,
a Delaware corporation
----------
Dated as of November 21, 2005
----------
================================================================================
SECTION 1. DESCRIPTION OF TRANSACTION...................................... 2
1.1 Merger of Merger Sub into the Company........................... 2
1.2 Effect of the Merger............................................ 2
1.3 Closing; Effective Time......................................... 2
1.4 Certificate of Incorporation and Bylaws; Directors and
Officers........................................................ 2
1.5 Conversion of Shares and Warrants............................... 3
1.6 Closing of the Company's Transfer Books......................... 8
1.7 Exchange of Certificates........................................ 8
1.8 Tax Consequences................................................ 10
1.9 Further Action.................................................. 10
1.10 The LLC Merger.................................................. 10
1.11 Effects of the LLC Merger....................................... 10
1.12 Conversion of Securities in LLC Merger.......................... 11
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 11
2.1 Subsidiaries; Due Organization; Etc............................. 11
2.2 Certificate of Incorporation and Bylaws......................... 11
2.3 Capitalization, Etc............................................. 12
2.4 SEC Filings; Financial Statements............................... 13
2.5 Absence of Changes.............................................. 14
2.6 Title to Assets................................................. 14
2.7 Receivables; Customers; Inventories............................. 15
2.8 Real Property; Equipment; Leasehold............................. 15
2.9 Intellectual Property........................................... 16
2.10 Contracts....................................................... 20
2.11 FDA and Regulatory Matters...................................... 21
2.12 Liabilities..................................................... 22
2.13 Compliance with Legal Requirements.............................. 22
2.14 Certain Business Practices...................................... 22
2.15 Governmental Authorizations..................................... 22
2.16 Tax Matters..................................................... 23
2.17 Employee and Labor Matters; Benefit Plans....................... 25
2.18 Environmental Matters........................................... 29
2.19 Insurance....................................................... 30
2.20 Transactions with Affiliates.................................... 30
2.21 Legal Proceedings; Orders....................................... 30
2.22 Authority; Binding Nature of Agreement.......................... 30
2.23 No Existing Discussions......................................... 31
2.24 Vote Required................................................... 31
2.25 Non-Contravention; Consents..................................... 31
2.26 Fairness Opinion................................................ 32
2.27 Financial Advisor............................................... 32
2.28 Full Disclosure................................................. 32
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT, MERGER SUB AND LLC.... 33
3.1 Subsidiaries; Due Organization; Certificate of Incorporation
and Bylaws...................................................... 33
3.2 Capitalization, Etc............................................. 33
3.3 SEC Filings; Financial Statements............................... 34
3.4 Absence of Certain Changes...................................... 35
3.5 Title to Assets................................................. 36
3.6 Contracts....................................................... 36
3.7 FDA and Regulatory Matters...................................... 36
3.8 Liabilities..................................................... 37
3.9 Compliance with Legal Requirements.............................. 38
3.10 Certain Business Practices...................................... 38
3.11 Governmental Authorizations..................................... 38
3.12 Tax Matters..................................................... 38
3.13 Environmental Matters........................................... 40
3.14 Insurance....................................................... 40
3.15 Transactions with Affiliates.................................... 40
3.16 Legal Proceedings; Orders....................................... 41
3.17 Authority; Binding Nature of Agreement.......................... 41
3.18 No Existing Discussions......................................... 41
3.19 Vote Required................................................... 41
3.20 Non-Contravention; Consents..................................... 42
3.21 Full Disclosure................................................. 42
3.22 Fairness Opinion................................................ 43
3.23 Valid Issuance.................................................. 43
3.24 Receivables; Customers; Inventories............................. 43
3.25 Real Property; Equipment; Leasehold............................. 44
3.26 Intellectual Property........................................... 44
3.27 Financial Advisor............................................... 45
SECTION 4. CERTAIN COVENANTS OF THE COMPANY AND PARENT..................... 45
4.1 Access and Investigation........................................ 45
4.2 Operation of the Businesses..................................... 46
4.3 No Solicitation by the Company.................................. 49
4.4 No Solicitation by Parent....................................... 50
4.5 FIRPTA Matters.................................................. 51
4.6 Adjustments..................................................... 51
4.7 Sale of Bonds Held by the Company Entities...................... 51
4.8 Cash Conservation............................................... 52
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES............................. 52
5.1 Registration Statement; Joint Proxy Statement................... 52
5.2 Company Stockholders' Meeting................................... 53
5.3 Parent Stockholders' Meeting.................................... 54
5.4 Regulatory Approvals............................................ 55
5.5 Option Plans and Company Options................................ 55
5.6 Employees....................................................... 56
5.7 Indemnification of Officers and Directors....................... 56
5.8 Additional Agreements........................................... 56
5.9 Disclosure...................................................... 57
5.10 Affiliate Agreements............................................ 57
5.11 Tax Matters..................................................... 57
5.12 Resignation of Officers and Directors........................... 58
5.13 Board of Directors.............................................. 58
5.14 Listing......................................................... 58
5.15 Section 16 Matters.............................................. 58
SECTION 6. CONDITIONS PRECEDENT TO EACH PARTIES' OBLIGATIONS TO EFFECT
THE MERGER...................................................... 59
6.1 Stockholder Approval............................................ 59
6.2 Effectiveness of Registration Statement......................... 59
6.3 No Restraints................................................... 59
SECTION 7. CONDITIONS PRECEDENT TO PARENT'S, MERGER SUB'S, AND LLC'S
OBLIGATIONS TO EFFECT THE MERGER................................ 59
7.1 Accuracy of Representations..................................... 60
7.2 Performance of Covenants........................................ 60
7.3 No Material Adverse Effect...................................... 60
7.4 Agreements and Documents........................................ 60
7.5 Consents........................................................ 60
7.6 Appraisal Shares................................................ 60
SECTION 8. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS TO EFFECT THE
MERGER.......................................................... 60
8.1 Accuracy of Representations..................................... 61
8.2 Performance of Covenants........................................ 61
8.3 Documents....................................................... 61
8.4 No Material Adverse Effect...................................... 61
SECTION 9. TERMINATION..................................................... 61
9.1 Termination..................................................... 61
9.2 Effect of Termination........................................... 63
9.3 Fees and Expenses............................................... 63
SECTION 10. MISCELLANEOUS PROVISIONS....................................... 65
10.1 Amendment....................................................... 65
10.2 Waiver.......................................................... 65
10.3 No Survival of Representations and Warranties................... 65
10.4 Entire Agreement; Counterparts.................................. 65
10.5 Applicable Law.................................................. 66
10.6 Disclosure Schedule............................................. 66
10.7 Attorneys' Fees................................................. 66
10.8 Assignability................................................... 66
10.9 Notices......................................................... 66
10.10 Severability.................................................... 67
10.11 Construction.................................................... 67
EXHIBITS
Exhibit A Certain Definitions
Exhibit B Form of Certificate of Incorporation of Surviving Corporation
Exhibit C Form of Affiliate Agreement
Exhibit D Company Bylaws, Article VII
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
MAMMOTH ACQUISITION SUB, INC.
The undersigned, a natural person (the "SOLE INCORPORATOR"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is Mammoth Acquisition Sub, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 000 Xxxxx Xxxxxx Xxxxxxx, Xxxx xx Xxxxx, Xxxxxx of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is National Corporate Research, Ltd.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the Delaware General Corporation
Law ("DGCL").
IV.
A. This corporation is authorized to issue only one class of stock, to be
designated Common Stock. The total number of shares of Common Stock presently
authorized is one hundred (100), each having a par value of one-tenth of one
cent ($0.001).
V.
A. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws.
B. The Board of Directors is expressly empowered to adopt, amend or repeal
the Bylaws of the corporation. The stockholders shall also have power to adopt,
amend or repeal the Bylaws of the corporation; provided, however, that, in
addition to any vote of the holders of any class or series of stock of the
corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least a majority of the voting power of
all of the then-outstanding shares of the capital stock of the corporation
entitled to vote generally in the election
1.
of directors, voting together as a single class, shall be required to adopt,
amend or repeal any provision of the Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law. If the DGCL is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this reservation.
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
000 Xxxx 000 Xxxxx, Xxxxxxxxx, Xxxx 00000.
IN WITNESS WHEREOF, this Certificate has been subscribed this 21st day of
November, 2005, by the undersigned who affirms that the statements made herein
are true and correct.
/s/ Xxxx Xxxxx
----------------------------------------
XXXX XXXXX
Sole Incorporator
2.
EXHIBIT C
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT ("AFFILIATE AGREEMENT") is being executed and
delivered as of [_____], 2005 by [___________] ("STOCKHOLDER") in favor of and
for the benefit of SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC., a Delaware
corporation ("PARENT").
RECITALS
A. Stockholder is a stockholder, officer and/or director of THE MED-DESIGN
CORPORATION, a Delaware corporation (the "COMPANY").
B. Parent, the Company, Mammoth Acquisition Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Parent ("MERGER SUB I"), and
Mammoth Merger Subsidiary, LLC, a Delaware limited liability company ("MERGER
SUB II") have entered into an Agreement and Plan of Merger and Reorganization
dated as of [_________], 2005 (the "MERGER AGREEMENT"), providing for the merger
of Merger Sub I into the Company ("MERGER I"), immediately followed by a merger
of the Company into Merger Sub II ("MERGER II," and together with Merger I, the
"COMBINATION"). The Merger Agreement contemplates that, upon consummation of the
Merger I, (i) holders of shares of the common stock of the Company will receive
shares of common stock of Parent ("PARENT COMMON STOCK") in exchange for their
shares of common stock of the Company and (ii) the Company will become a wholly
owned subsidiary of Parent. It is accordingly contemplated that Stockholder will
receive shares of Parent Common Stock in Merger I.
C. Stockholder understands that the Parent Common Stock being issued in
Merger I will be issued pursuant to a registration statement on Form S-4, and
that Stockholder may be deemed an "affiliate" of the Company as such term is
defined for purposes of paragraphs (c) and (d) of Rule 145 under the Securities
Act of 1933, as amended (the "SECURITIES ACT").
AGREEMENT
Stockholder, intending to be legally bound, agrees as follows:
1. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder represents
and warrants to Parent as follows:
(A) Stockholder is the holder and "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of the number
of outstanding shares of common stock of the Company set forth beneath
Stockholder's signature on the signature page hereof (the "COMPANY SHARES"), and
Stockholder has good and valid title to the Company Shares, free and clear of
any liens, pledges, security interests, adverse claims, equities, options,
proxies, charges, encumbrances or restrictions of any nature. Stockholder has
the sole right to vote and to dispose of the Company Shares.
(B) Stockholder is the holder of options to purchase the number of
shares of common stock of the Company set forth beneath Stockholder's signature
on the signature page hereof (the "COMPANY OPTIONS"), and Stockholder has good
and valid title to the Company
1.
Options, free and clear of any liens, pledges, security interests, adverse
claims, equities, options, proxies, charges, encumbrances or restrictions of any
nature.
(C) Stockholder does not own, of record or beneficially, directly or
indirectly, any securities of the Company other than the Company Shares and the
Company Options.
(D) Stockholder has carefully read this Affiliate Agreement and, to
the extent Stockholder felt necessary, has discussed with counsel the
limitations imposed on Stockholder's ability to sell, transfer or otherwise
dispose of the shares of Parent Common Stock that Stockholder is to receive in
the Combination (the "PARENT SHARES"). Stockholder fully understands the
limitations this Affiliate Agreement places upon Stockholder's ability to sell,
transfer or otherwise dispose of securities of Parent.
2. PROHIBITIONS AGAINST TRANSFER. Stockholder agrees that Stockholder shall
not effect any sale, transfer or other disposition of any Parent Shares unless:
(a) such sale, transfer or other disposition is effected pursuant to an
effective registration statement under the Securities Act; (b) such sale,
transfer or other disposition is made in conformity with the requirements of
Rule 145 under the Securities Act, as evidenced by a broker's letter and a
representation letter executed by Stockholder (satisfactory in form and content
to Parent) stating that such requirements have been met; (c) counsel reasonably
satisfactory to Parent shall have advised Parent in a written opinion letter
(satisfactory in form and content to Parent), upon which Parent may rely, that
such sale, transfer or other disposition will be exempt from the registration
requirements of the Securities Act; or (d) an authorized representative of the
Securities and Exchange Commission ("SEC") shall have rendered written advice to
Stockholder to the effect that the SEC would take no action, or that the staff
of the SEC would not recommend that the SEC take action, with respect to such
sale, transfer or other disposition, and a copy of such written advice and all
other related communications with the SEC shall have been delivered to Parent.
3. STOP TRANSFER INSTRUCTIONS; LEGEND.
Stockholder acknowledges and agrees that (a) stop transfer
instructions will be given to Parent's transfer agent with respect to the Parent
Shares, and (b) each certificate representing any of such shares shall bear a
legend identical or similar in effect to the following legend (together with any
other legend or legends required by applicable state securities laws or
otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145(d) OF THE SECURITIES ACT OF 1933 APPLIES
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
SUCH RULE AND IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED AS OF
[________], 2005, BETWEEN THE REGISTERED HOLDER HEREOF AND THE ISSUER,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE ISSUER."
2.
4. INDEPENDENCE OF OBLIGATIONS. The covenants and obligations of
Stockholder set forth in this Affiliate Agreement shall be construed as
independent of any other agreement or arrangement between Stockholder, on the
one hand, and the Company or Parent, on the other. The existence of any claim or
cause of action by Stockholder against the Company or Parent shall not
constitute a defense to the enforcement of any of such covenants or obligations
against Stockholder.
5. SPECIFIC PERFORMANCE. Stockholder agrees that in the event of any breach
or threatened breach by Stockholder of any covenant, obligation or other
provision contained in this Affiliate Agreement, Parent shall be entitled (in
addition to any other remedy that may be available to Parent) to: (a) a decree
or order of specific performance or mandamus to enforce the observance and
performance of such covenant, obligation or other provision; and (b) an
injunction restraining such breach or threatened breach. Stockholder further
agrees that neither Parent nor any other person or entity shall be required to
obtain, furnish or post any bond or similar instrument in connection with or as
a condition to obtaining any remedy referred to in this Section 5, and
Stockholder irrevocably waives any right he may have to require the obtaining,
furnishing or posting of any such bond or similar instrument.
6. OTHER AGREEMENTS. Nothing in this Affiliate Agreement shall limit any of
the rights or remedies of Parent under the Merger Agreement, or any of the
rights or remedies of Parent or any of the obligations of Stockholder under any
agreement between Stockholder and Parent or any certificate or instrument
executed by Stockholder in favor of Parent; and nothing in the Merger Agreement
or in any other agreement, certificate or instrument shall limit any of the
rights or remedies of Parent or any of the obligations of Stockholder under this
Affiliate Agreement.
7. NOTICES. Any notice or other communication required or permitted to be
delivered to Stockholder or Parent under this Affiliate Agreement shall be in
writing and shall be deemed properly delivered, given and received when
delivered to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
party):
IF TO PARENT:
Specialized Health Products International, Inc.
000 Xxxx 000 Xxxxx
Xxxxxxxxx, Xxxx 00000
Attention: Xxxxxxx Xxxxxxx, President and Chief Executive Officer
Facsimile: (000) 000-0000
WITH A COPY TO:
Xxxxxx Godward LLP
000 Xxxxxxxx Xxxx
Xxx Xxxxx, XX 00000
Attention: Xxxxxxx Xxxxxx, Esq.
3.
Facsimile: (000) 000-0000
IF TO STOCKHOLDER:
_______________________________
_______________________________
_______________________________
Attn: _________________________
Fax: (___) ____________________
8. SEVERABILITY. Any term or provision of this Affiliate Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties hereto agree that the court making such determination
shall have the power to limit the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Affiliate Agreement shall be enforceable as so modified. In the event such
court does not exercise the power granted to it in the prior sentence, the
parties hereto agree to replace such invalid or unenforceable term or provision
with a valid and enforceable term or provision that will achieve, to the extent
possible, the economic, business and other purposes of such invalid or
unenforceable term.
9. APPLICABLE LAW; JURISDICTION. THIS AFFILIATE AGREEMENT IS MADE UNDER,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF DELAWARE. In
any action between or among any of the parties, whether arising out of this
Affiliate Agreement or otherwise, (a) each of the parties irrevocably and
unconditionally consents and submits to the exclusive jurisdiction and venue of
the state and federal courts located in the County of San Diego, State of
California; (b) if any such action is commended in a state court, then, subject
to applicable law, no party shall object to the removal of such action to any
federal court located in the Southern District of California; (c) each of the
parties irrevocably waives the right to trial by jury; and (d) each of the
parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepared, to the address at which such
party is to receive notice in accordance with Section 7.
10. WAIVER; TERMINATION. No failure on the part of Parent to exercise any
power, right, privilege or remedy under this Affiliate Agreement, and no delay
on the part of Parent in exercising any power, right, privilege or remedy under
this Affiliate Agreement, shall operate as a waiver of such power, right,
privilege or remedy; and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or of
any other power, right, privilege or remedy. Parent shall not be deemed to have
waived any claim
4.
arising out of this Affiliate Agreement, or any power, right, privilege or
remedy under this Affiliate Agreement, unless the waiver of such claim, power,
right, privilege or remedy is expressly set forth in a written instrument duly
executed and delivered on behalf of Parent; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is
given. If the Merger Agreement is terminated, this Affiliate Agreement shall
thereupon terminate.
11. CAPTIONS. The captions contained in this Affiliate Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Affiliate Agreement and shall not be referred to in connection with the
construction or interpretation of this Affiliate Agreement.
12. FURTHER ASSURANCES. Stockholder shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Affiliate Agreement.
13. ENTIRE AGREEMENT. This Affiliate Agreement, the Merger Agreement and
any Voting Agreement or Release Agreement between Stockholder and Parent
collectively set forth the entire understanding of Parent and Stockholder
relating to the subject matter hereof and thereof and supersede all other prior
agreements and understandings between Parent and Stockholder relating to the
subject matter hereof and thereof.
14. NON-EXCLUSIVITY. The rights and remedies of Parent hereunder are not
exclusive of or limited by any other rights or remedies which Parent may have,
whether at law, in equity, by contract or otherwise, all of which shall be
cumulative (and not alternative).
15. AMENDMENTS. This Affiliate Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Parent and Stockholder.
16. ASSIGNMENT. This Affiliate Agreement and all obligations of Stockholder
hereunder are personal to Stockholder and may not be transferred or delegated by
Stockholder at any time. Parent may freely assign any or all of its rights under
this Affiliate Agreement, in whole or in part, to any other person or entity
without obtaining the consent or approval of Stockholder.
17. BINDING NATURE. Subject to Section 16, this Affiliate Agreement will
inure to the benefit of Parent and its successors and assigns and will be
binding upon Stockholder and Stockholder's representatives, executors,
administrators, estate, heirs, successors and assigns.
18. SURVIVAL. Each of the representations, warranties, covenants and
obligations contained in this Affiliate Agreement shall survive the consummation
of the Combination.
5.
Stockholder has executed this Affiliate Agreement on ______ __, 2005.
----------------------------------------
(Signature)
----------------------------------------
(Print Name)
NUMBER OF OUTSTANDING SHARES OF
COMMON STOCK OF THE COMPANY
HELD BY STOCKHOLDER:
-------------------------------------
NUMBER SHARES OF COMMON STOCK OF THE
COMPANY SUBJECT TO OPTIONS HELD BY
STOCKHOLDER:
-------------------------------------
6.
EXHIBIT D
ARTICLE VII
INDEMNIFICATION AND INSURANCE
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
Section 1. The Corporation shall, to the fullest extent now or hereafter
permitted by law, indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. The Corporation shall, to the fullest extent now or hereafter
permitted by law, indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Corporation. No such indemnification against expenses
shall be made, however, in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Corporation unless and
only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine upon application that despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. Indemnification under Sections 1 and 2 of this Article shall be
made by the Corporation when ordered by a court or upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has
met the applicable standard of conduct set forth in those Sections. Such
determination shall be made (a) by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit, or
proceeding, or (b) if such quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the stockholders.
Section 4. Expenses incurred in defending a civil or criminal action, suit
or proceeding of the kind described in Sections 1 and 2 of this Article shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking, by or on behalf of the person who
may be entitled to indemnification under those Sections, to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation.
Section 5. The indemnification provided in this Article shall continue as
to a person who has ceased to be a director or officer of the Corporation and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 6. Nothing herein contained shall be construed as limiting the
power or obligation of the Corporation to indemnify any person in accordance
with the Delaware General Corporation Law, as amended from time to time, or in
accordance with any similar law adopted in lieu thereof. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
Section 7. The Corporation shall also indemnify any person against
expenses, including attorneys' fees, actually and reasonably incurred by him in
enforcing any right to indemnification under this Article, under the Delaware
General Corporation Law, as amended from time to time, or under any similar law
adopted in lieu thereof.
Section 8. Any person who shall serve as a director, officer, employee of
the Corporation or who shall serve, at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be deemed to do so with knowledge of
and in reliance upon the rights of indemnification provided in this Article, in
the Delaware General Corporation Law, as amended from time to time, and in any
similar law adopted in lieu thereof.
INSURANCE
Section 9. The Corporation shall have power but not the obligation to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability.
