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
3
issuable pursuant to all outstanding options,
warrants and other rights to acquire 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
4
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 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.
(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
5
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 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
6
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 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
7
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 shall be entitled to receive
in exchange therefor a certificate representing the number of whole
8
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.
(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.
9
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 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
10
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 is or may become convertible into or exchangeable for
12
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)
14
materially detract from the value of the assets subject thereto or 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 which they are being put, are in good and safe
condition and repair (ordinary wear and tear excepted) and are adequate for the
15
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 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
16
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
institution were used, directly or indirectly, to develop or
create, in whole or in part, any Company IP.
17
(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.
(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
18
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 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,
19
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 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
20
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 (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
21
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.
(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,
22
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.
(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
23
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 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
24
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
(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.]
25
(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 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
26
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 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
27
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 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
28
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 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.
29
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 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
30
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 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;
31
(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 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.
32
(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 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.
33
(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) 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
34
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 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
35
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.
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
36
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 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
37
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
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.
38
(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 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
39
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.
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
40
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 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.
41
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;
(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,
42
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 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
43
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
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
44
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, 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
45
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.
(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;
46
(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;
(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;
47
(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
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
48
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
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
49
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.
(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
50
to furnish information to, or enter into discussions with, such Person,
and Parent 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 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.
51
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 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
52
address of record on the 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
53
shall have breached or taken any action inconsistent with any of the
provisions 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
54
Parent's board of directors has 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
55
holder of a Company Option pursuant to 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
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
56
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.
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
Xxxxxx 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
57
Xxxxxx 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 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
58
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 enacted, entered, enforced, or deemed applicable to the
Combination which makes the consummation of the Combination illegal.
59
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.
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.
60
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 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,
61
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
(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
62
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 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
63
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.
(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.
64
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.
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.
65
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.
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):
66
(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
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.
67
(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]
68
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:______________________________________________
Name:____________________________________________
Title:___________________________________________
MAMMOTH ACQUISITION SUB, INC.
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
MAMMOTH ACQUISITION SUB, LLC
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
THE MED-DESIGN CORPORATION
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
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 collection, storage,
A-2
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.
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
A-4
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.
Knowledge. An individual shall be deemed to have "knowledge" of a
particular fact or other matter if:
A-5
(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 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
A-6
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) 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
A-7
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.
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
A-8
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.
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.
A-9
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
