EXHIBIT 10.33
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
by and among
CHRONIMED INC.
as "Purchaser"
RED CIRCLE VENTURES, INC.
as "Newco"
and
CLINICAL PARTNERS, INC.
as "Company"
June 15, 1998
AGREEMENT AND PLAN OF MERGER
INDEX
Page
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SECTION 1. PLAN OF MERGER......................................................................1
1.1 Actions to be Taken..........................................................1
1.2 Common Stock of Surviving Corporation........................................2
1.3 Definitions..................................................................2
1.4 Cancellation or Conversion of Company Stock..................................5
1.5 Cancellation or Conversion of Company Preferred Stock........................7
1.6 Options......................................................................8
1.7 Certain Adjustments..........................................................8
1.8 Other Payments..............................................................10
1.9 Further Assurances..........................................................10
1.10 Agent.......................................................................11
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................11
2.1 Organization and Qualifications of the Company..............................11
2.2 Capital Stock of the Company: Beneficial Ownership.........................11
2.3 Subsidiaries; OCC...........................................................14
2.4 Authority of the Company....................................................15
2.5 Financial Statements and Liabilities........................................16
2.6 Real Estate.................................................................17
2.7 Leased Tangible Personal Property...........................................17
2.8 Assets......................................................................18
2.9 Taxes.......................................................................18
2.10 Collectibility of Accounts Receivable.......................................19
2.11 Absence of Certain Changes..................................................20
2.12 Ordinary Course.............................................................22
2.13 Banking Relations...........................................................22
2.14 Intellectual Property.......................................................22
2.15 Software and Database.......................................................24
2.16 Contracts...................................................................24
2.17 Litigation..................................................................26
2.18 Compliance with Applicable Laws; Environmental Matters......................26
2.19 Insurance...................................................................27
2.20 Powers of Attorney..........................................................27
2.21 Finder's Fee................................................................28
2.22 Burdensome Agreements.......................................................28
2.23 Corporate Records; Copies of Documents......................................28
2.24 Transactions with Interested Persons........................................28
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2.25 ERISA and Employment Matters................................................28
2.26 List of Directors and Officers..............................................30
2.27 Employees; Labor Matters....................................................31
2.28 Transfer of Shares..........................................................31
2.29 Stock Repurchase............................................................31
2.30 Industrial Revenue Bonds....................................................31
2.31 Services and Warranties.....................................................31
2.32 Authority Relative to Agreements; Enforceability; Company
Shareholder Agreement.......................................................32
2.33 Disclosure..................................................................32
SECTION 3. COVENANTS OF THE COMPANY..........................................................32
3.1 Making of Covenants and Agreements..........................................32
3.2 Conduct of Business.........................................................32
3.3 Authorization from Others...................................................34
3.4 Notice of Default...........................................................34
3.5 Consummation of Agreement...................................................34
3.6 Cooperation of the Company..................................................35
3.7 No Negotiations; Notification of Takeover Proposal and Other Matters........35
3.8 Confidentiality; No Trading.................................................35
3.9 Escrow Agreement............................................................36
3.10 Access to Records and Properties............................................36
3.11 Note........................................................................36
3.12 Shareholder Meeting; Alternative; Notices...................................36
3.13 Notification Regarding Dissenters' Shares...................................37
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND NEWCO.........................................................................37
4.1 Organization of Purchaser...................................................37
4.2 Authority of Purchaser......................................................37
4.3 Litigation..................................................................38
4.4 Finder's Fee................................................................38
4.5 Company Representations.....................................................38
SECTION 5. COVENANTS OF PURCHASER............................................................38
5.1 Making of Covenants and Agreement...........................................38
5.2 Cooperation of Purchaser....................................................38
5.3 Confidentiality.............................................................38
5.4 Escrow Agreement............................................................39
5.5 Employment Agreements.......................................................39
5.6 Authorization from Others...................................................39
5.7 Notice of Default...........................................................39
5.8 Consummation of Agreement...................................................39
SECTION 6. CONDITIONS........................................................................39
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6.1 Conditions to the Obligations of Purchaser..................................39
6.2 Conditions to Obligations of the Stockholders...............................42
SECTION 7. CLOSING; CLOSING DATE.............................................................42
SECTION 8. TERMINATION.......................................................................43
8.1 Termination and Abandonment.................................................43
8.2 Termination Procedures......................................................43
8.3 Liability Upon Termination..................................................44
8.4 Effect of Termination.......................................................44
8.5 Right to Proceed............................................................44
8.6 Waiver......................................................................44
SECTION 9. INDEMNIFICATION...................................................................45
9.1 Survival of Warranties......................................................45
9.2 Indemnification by the Company and Through Escrow...........................45
9.3 Procedure for Claims........................................................46
9.4 Limitation on Indemnification...............................................46
9.5 Indemnification by Purchaser................................................46
9.6 Procedure for Claims........................................................47
9.7 Limitation on Indemnification...............................................47
9.8 Notice; Defense of Claims...................................................47
9.9 Exclusive Remedy............................................................49
9.10 Determination of Amount of Claim............................................49
SECTION 10. MISCELLANEOUS....................................................................49
10.1 Fees and Expenses...........................................................49
10.2 Governing Law...............................................................49
10.3 Notices.....................................................................49
10.4 Entire Agreement............................................................50
10.5 Assignability; Binding Effect...............................................50
10.6 Captions and Gender.........................................................51
10.7 Execution in Counterparts...................................................51
10.8 Amendments..................................................................51
10.9 Publicity and Disclosures...................................................51
10.10 No Third Party Rights.......................................................51
10.11 Consent to Jurisdiction.....................................................52
10.12 Schedules and Exhibits......................................................52
10.13 Arbitration.................................................................52
10.14 Section 338 Election........................................................53
10.15 No Amendment to Limit Indemnification.......................................53
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EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AGREEMENT, (hereinafter, together with the Exhibits annexed hereto the
"Agreement") made and entered into as of the 15th day of June, 1998, by and
among CHRONIMED INC., a Minnesota corporation ("Purchaser"), Red Circle
Ventures, Inc., a Delaware corporation and a wholly-owned subsidiary of
Purchaser ("Newco"), and CLINICAL PARTNERS, INC., a Delaware corporation, (the
"Company").
RECITALS
The Boards of Directors of Purchaser and Newco and the Board of
Directors of the Company, deeming it advisable for the mutual benefit of
Purchaser, Newco and the Company and their respective stockholders that
Purchaser acquire the Company by the merger of the Company and Newco under the
terms and conditions hereinafter set forth (the "Merger"), have approved this
Agreement and Plan of Merger (the "Agreement").
NOW, THEREFORE, in consideration of mutual covenants, agreements,
representations and warranties herein contained, the parties hereby agree that
the Company and Newco shall be merged and that the terms and conditions of the
Merger and the mode of carrying the same into effect shall be as follows:
SECTION 1. PLAN OF MERGER.
1.1 Actions to be Taken. Upon performance of all of the covenants and
obligations of the parties contained herein and upon fulfillment (or waiver) of
all of the conditions to the obligations of the parties contained herein, at the
Effective Time of the Merger (as hereinafter defined) and pursuant to the
General Corporation Law of the State of Delaware (the "GCL"), the following
shall occur:
(a) Newco shall be merged with and into the Company, which
shall be the surviving corporation (the "Surviving Corporation"). The separate
existence and corporate organization of Newco shall cease at the Effective Time
of the Merger, and thereupon the Company and Newco shall be a single
corporation, the name of which shall be Clinical Partners, Inc. The Company, as
the Surviving Corporation, shall succeed, insofar as permitted by law, to all of
the rights, assets, liabilities and obligations of Newco in accordance with the
GCL.
(b) The Certificate of Incorporation of the Company shall be
and remain the certificate of incorporation of the Surviving Corporation until
amended as provided by law.
(c) The By-Laws of the Company shall be and remain the by-laws
of the Surviving Corporation until amended as provided by law.
(d) Until changed in accordance with the articles of
incorporation and by-laws of the Surviving Corporation, Xxxxxxx X. Xxxxxx, XX,
Xxxxx X. Xxxxxxxxxxx, and Xxxxxx X. Xxxxx shall be the directors of the
Surviving Corporation.
(e) Until changed in accordance with the articles of
incorporation and by-laws of the Surviving Corporation, the following persons
shall be the officers of the Surviving Corporation:
Name Office
---- ------
Xxxxxxx X. Xxxxxx, XX Chairman
Xxxxx X. Xxxxxxxxxxx President
Xxxxxxx Xxxx Vice President
Vice President, Chief Financial Officer
Xxxxxx X. Xxxxx and Secretary
Xxxxxxx X. Xxxxxxxxx Assistant Secretary
(f) As soon as practicable after the terms and conditions of
this Agreement have been satisfied, and upon consummation of the closing
referred to in Article VII hereof (the "Closing"), articles of merger consistent
with this Agreement in the form prescribed by, and properly executed in
accordance with the GCL, in form and substance satisfactory to the parties
hereto and providing for immediate effectiveness of the Merger (the "Articles of
Merger"), shall be filed with the Secretary of State of the State of Delaware.
The Merger shall become effective on the date and at the time on which the
Articles of Merger are properly filed with such Secretary of State pursuant to
the GCL. As used in this Agreement, the "Effective Time of the Merger" shall
mean such date and time.
1.2 Common Stock of Surviving Corporation. Following the Effective Time
of the Merger, each of the issued and outstanding shares of common stock of
Newco shall, by virtue of the Merger and without any action on the part of
Purchaser be converted into outstanding shares of common stock of the Surviving
Corporation. Each share shall be fully paid and non-assessable.
1.3 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) The term "Company Common Stock" shall mean the Company's
common stock of $.01 par value per share.
(b) The term "Company Preferred Stock" shall mean all of the
Company's Preferred Stock of $.01 par value per share, which has been issued in
five series, designated A through E.
(c) The term "Common Stockholder" shall mean a holder of the
Company Common Stock.
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(d) The term "Preferred Stockholder" shall mean a holder of
the Company Preferred Stock.
(e) The term "Stockholder" shall mean either a Common
Stockholder a Preferred Stockholder and the term Stockholders shall refer to all
of the holders of stock of the Company.
(f) The term "Number of Outstanding Common Shares" shall be
the number of issued and outstanding shares of the Company Common Stock at the
Effective Time of the Merger, (determined after giving effect to actions
specified in the Shareholder Agreement between the Company and certain of its
shareholders dated of even date herewith and entered into in connection with
this Agreement (the "Company Shareholder Agreement")).
(g) The term "Number of Outstanding Preferred Shares" shall be
the number of issued and outstanding shares of the Company Preferred Stock at
the Effective Time of the Merger, (determined after giving effect to actions
specified in the Company Shareholder Agreement).
(h) The term "Preference Share" shall, for each outstanding
share of Company Preferred Stock, be the number, expressed as a decimal,
obtained by dividing the Preference Per Share for such share of Company
Preferred Stock by the Preference Amount.
(i) The term "Residual Share" shall, for each outstanding
share of Company Common Stock, be the number, expressed as a decimal, obtained
by dividing one (1) by the Number of Outstanding Common-Equivalent Shares, and
for each outstanding share of Company Preferred Stock, be the number, expressed
as a decimal, obtained by dividing the number of shares of Company Common Stock
into which such share of Company Preferred Stock is convertible at the Effective
Time of the Merger under the terms of the Company's Restated Certificate of
Incorporation by the Number of Outstanding Common-Equivalent Shares.
(j) The term "Payment Per Common Share" shall, for each
outstanding share of Company Common Stock, be equal to the Residual Share for
such share of Company Common Stock multiplied by the Residual Amount.
(k) The term "Payment Per Preferred Share" shall, for each
outstanding share of Company Preferred Stock, be equal to the sum of (i) the
Preference Share for such share of Company Preferred Stock multiplied by the
Preference Amount, plus (ii) the Residual Share for such share of Company
Preferred Stock multiplied by the Residual Amount.
(l) The term "Escrow Share" shall, for each outstanding
share of Company Common Stock, be the number, expressed as a decimal, obtained
by dividing the Payment Per Common Share for such share of Company Common Stock
by the amount of the Total Payment, and for each outstanding share of Company
Preferred Stock, be the number, expressed as a decimal, obtained by dividing the
Payment Per Preferred Share for such share of Company Preferred Stock by the
amount of the Total Payment.
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(m) The term "Escrow Amount Per Common Share" shall, for each
outstanding share of Company Common Stock, be equal to the amount of the Escrow
Payment multiplied by a fraction, the numerator of which is the Payment Per
Common Share for such share of Company Common Stock, and the denominator of
which is the amount of the Total Payment.
(n) The term "Escrow Amount Per Preferred Share" shall, for
each outstanding share of Company Preferred Stock, be equal to the amount of the
Escrow Payment multiplied by a fraction, the numerator of which is the Payment
Per Preferred Share for such share of Company Preferred Stock, and the
denominator of which is the amount of the Total Payment.
(o) The term "Total Payment" means the sum of the Closing
Payment plus the Escrow Payment.
(p) The term "Closing Payment" shall mean $5,300,000, as such
amount is reduced pursuant to Section 1.7, which amount (as thus reduced) will
be paid by Purchaser at Closing for distribution to the holders of outstanding
shares of Company Common Stock and Company Preferred Stock.
(q) The term "Preference Amount" shall mean the sum of (i) the
number of issued and outstanding shares of Series A Preferred Stock at the
Effective Time of the Merger (determined after giving effect to the actions
specified in the Company Shareholder Agreement) multiplied by $.82, plus (ii)
the number of issued and outstanding shares of Series B Preferred Stock at the
Effective Time of Merger (determined after giving effect to the actions
specified in the Company Shareholder Agreement) multiplied by $1.54, plus (iii)
the number of issued and outstanding shares of Series C Preferred Stock at the
Effective Time of the Merger (determined after giving effect to the actions
specified in the Company Shareholder Agreement) multiplied by $2.03, plus (iv)
the number of issued and outstanding shares of Series D Preferred Stock at the
Effective Time of the Merger (determined after giving effect to the actions
specified in the Company Shareholder Agreement) multiplied by $1.65, plus (v)
the number of issued and outstanding shares of Series E Preferred Stock at the
Effective Time of the Merger (determined after giving effect to the actions
specified in the Company Shareholder Agreement) multiplied by $3.33; provided
that the Preference Amount shall not exceed the Total Payment.
(r) The term "Residual Amount" shall mean the amount by which
the Total Payment exceeds the Preference Amount.
(s) The term "Number of Outstanding Common-Equivalent Shares"
shall be the sum of (i) the Number of Outstanding Common Shares, plus (ii) the
aggregate number of shares of Company Common Stock into which the Company
Preferred Stock issued and outstanding at the Effective Time of the Merger
(determined after giving effect to the actions specified in the Company
Shareholder Agreement) is convertible at the Effective Time of the Merger under
the terms of the Company's Restated Certificate of Incorporation.
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(t) The term "Escrow Payment" shall mean $700,000, which is
the amount which will be paid by Purchaser at Closing to Xxxxxx Trust and
Savings Bank of Chicago (the "Escrow Agent") to be held in an escrow account
(the "Escrow Fund") in accordance with the terms of the Escrow Agreement (the
"Escrow Agreement") to be entered into between Purchaser, the Agent and the
Escrow Agent in substantially the form attached hereto as Schedule 1.3(t) with
such changes therein as may be requested by Escrow Agent and agreed to by
Purchaser and the Company.
(u) The term "Escrow Distributions" shall mean payments, if
and to the extent made, which are made out of the Escrow Fund for distribution
to the former Stockholders of the Company; provided, however, that if any
Dissenting Common Shares or any Dissenting Preferred Shares receive payments
pursuant to the Appraisal Laws, as defined below, Purchaser shall be entitled to
receive that portion of the distributions from the Escrow Fund which such Shares
would have received had they not become Dissenting Common Shares or Dissenting
Preferred Shares.
(v) The term "Preference Per Share" shall mean $.82 in the
case of shares of the Company's Series A Preferred Stock, $1.54 in the case of
shares of the Company's Series B Preferred Stock, $2.03 in the case of shares of
the Company's Series C Preferred Stock, $1.65 in the case of shares of the
Company's Series D Preferred Stock, and $3.33 in the case of shares of the
Company's Series E Preferred Stock.
(w) The term "Agent" shall mean Sierra Ventures Management
Company, Inc., the entity which the Shareholders have appointed to act as their
Agent in connection with this Agreement and the Escrow Agreement pursuant to
Section 1.10 hereof.
1.4 Cancellation or Conversion of Company Common Stock. As of the
Effective Time of the Merger, by virtue of the Merger and without any action on
the part of any shareholder of the Company:
(a) Treasury Shares. Any share of the Company Common Stock
held in the treasury of the Company, shall be canceled and retired. No cash,
securities or other consideration shall be paid or delivered in exchange for
such Company Common Stock under this Agreement.
(b) Conversion. Except as provided herein with respect to
Dissenting Shares (as hereinafter defined) and shares canceled pursuant to
Section 1.4(a) hereof, at the Effective Time of the Merger, each share of
Company Common Stock which is issued and outstanding shall be converted into the
right to receive cash payments as follows:
(i) An amount equal to the remainder of (x) the
Payment Per Common Share for such share of Company Common Stock, minus
(y) the Escrow Amount Per Common Share for such share of Company Common
Stock. This amount will be paid upon surrender of stock certificates,
as provided in Section 1.4(c) below. In the case of stock certificates
surrendered at the Closing, payment shall be made at the Effective Time
of the Merger, and in the case of stock
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certificates surrendered after the Closing, payment shall be made
within three (3) business days after receipt of the stock certificates.
(ii) From each Escrow Distribution, if any, which is
made, an amount equal to the Escrow Share for such share of Company
Common Stock multiplied by the Escrow Distribution, with payment to be
subject to the requirements of Section 1.4(c).
(Hereinafter the foregoing cash payments are sometimes collectively
referred to as the "Common Cash Conversion Amounts".)
(c) Surrender of Certificates. After the Effective Time of the
Merger, each holder of an outstanding certificate or certificates theretofore
representing shares of Company Common Stock converted pursuant to Section 1.4(b)
hereof ("Company Common Stock Certificates"), upon surrender thereof to
Purchaser as provided herein, shall be entitled to receive in exchange therefor
the amounts provided in Section 1.4(b), without interest.
Until so surrendered, each outstanding Company Common Stock
Certificate shall be deemed for all purposes to represent the Cash Conversion
Amounts for the shares represented by the Certificate.
To surrender a certificate, a holder must deliver the
certificate (or an Affidavit and Indemnity with respect to Lost, Stolen or
Destroyed Stock Certificates in the form attached as Schedule 1.4(c)-1) to the
Escrow Agent, who will receive certain of the payments made by Purchaser at
Closing and then distribute such payments to the Stockholders as otherwise
specified herein (in such capacity, the Escrow Agent is referred to as the
"Paying Agent" herein), and with any certificate must deliver a transfer letter
in the form attached as Schedule 1.4(c)-2 under which such holder will warrant
good and marketable title thereto, free and clear of all claims, liens, security
interests, restrictions and encumbrances. Upon such surrender and exchange of
such Company Common Stock Certificates there shall be paid to the record holders
thereof the Common Cash Conversion Amount for the shares of Company Common
Stock, except that the amounts of any Escrow Distribution shall be paid when and
if to the extent that Escrow Distributions are made.
Whether or not a Company Common Stock Certificate is
surrendered, from and after the Effective Time of the Merger, such Certificate
shall under no circumstances evidence, represent or otherwise constitute any
stock or other interest whatsoever in the Company, the Surviving Corporation or
any other person, firm or corporation.
(d) Dissenters. The shares of Company Common Stock held by
those shareholders of the Company who have timely and properly exercised their
dissenters' rights in accordance with the provisions of the GCL applicable to
dissenters' rights (the "Appraisal Laws") within the applicable time period are
referred to herein as "Dissenting Common Shares". Each Dissenting Common Share
shall not be converted into or represent a right to receive the Cash Conversion
Amounts in the Merger, but the holder thereof shall be entitled only to such
rights as are granted by the Appraisal Laws. Each holder of Dissenting Common
Shares who
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becomes entitled to payment for his Company Common Stock pursuant to the
provisions of the Appraisal Laws shall receive payment therefor from the
Surviving Corporation from funds provided by Purchaser (but only after the
amount thereof shall have been agreed upon or finally determined pursuant to
such provisions). If any holder of Dissenting Common Shares shall effectively
withdraw or lose his dissenters' rights under the Appraisal Laws, such
Dissenting Common Shares shall be converted into the right to receive the Common
Cash Conversion Amounts in accordance with the provisions hereof.
1.5 Cancellation or Conversion of Company Preferred Stock. As of the
Effective Time of the Merger, by virtue of the Merger and without any action on
the part of any shareholder:
(a) Treasury Shares. Any shares of the Company Preferred Stock
held in the treasury of the Company, shall be canceled and retired. No cash,
securities, or other consideration shall be paid or delivered in exchange for
such Company Preferred Stock under this Agreement.
(b) Conversion. Except as provided herein with respect to
Dissenting Preferred Shares (as hereinafter defined) and shares canceled
pursuant to Section 1.5(a) hereof, at the Effective Time of the Merger, each
share of Company Preferred Stock which is issued and outstanding shall be
converted into the right to receive cash payments as follows:
(i) An amount equal to the remainder of (x) the
Payment Per Preferred Share for such share of Company Preferred Stock,
minus (y) the Escrow Amount Per Preferred Share for such share of
Company Preferred Stock. This amount will be paid upon surrender of
stock certificates as provided in Section 1.5(c) below. In the case of
stock certificates surrendered at the Closing, payment shall be made at
the Effective Time of the Merger, and in the case of stock certificates
surrendered after the Closing, payment shall be made within three (3)
business days after receipt of the stock certificates.
(ii) From each Escrow Distribution, if any, which is
made, an amount equal to the Escrow Share for such share of Company
Preferred Stock multiplied by the Escrow Distribution, with payment to
be subject to the requirements of Section 1.5(c).
(Hereinafter the foregoing cash payments are sometimes collectively
referred to as the "Preferred Cash Conversion Amounts".)
(c) Surrender of Shares. After the Effective Time of the
Merger, each holder of an outstanding certificate or certificates theretofore
representing shares of Company Preferred Stock ("Preferred Stock Certificates"),
upon surrender thereof to Purchaser, shall be entitled to receive in exchange
therefor the Preferred Cash Conversion Amounts.
Until so surrendered, each outstanding Preferred Stock
Certificate shall be deemed for all purposes to represent the Preferred Cash
Conversion Amounts for the shares represented by the certificate.
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To surrender a certificate, holder must deliver the
certificate (or an Affidavit and Indemnity with respect to Lost, Stolen or
Destroyed Stock Certificates in the form attached as Schedule 1.4(c)-1) to
Paying Agent, and with any certificate must deliver a transfer letter in the
form attached as Schedule 1.4(c)-2 under which such holder will warrant good and
marketable title thereto, free and clear of all claims, liens, security
interests, restrictions and encumbrances, with such signature guarantees and
such other documents as may be reasonably required by Purchaser. Upon such
surrender and exchange of such Company Preferred Stock Certificates, there shall
be paid to the recordholders thereof the Preferred Cash Conversion Amounts for
the Shares of Company Preferred Stock, except that the amounts of any Escrow
Distribution shall be paid when, if and to the extent that the Escrow
Distributions are made.
Whether or not a Preferred Stock Certificate is surrendered,
from and after the Effective Time of the Merger such Certificate shall under no
circumstances evidence, represent or otherwise constitute any stock or other
interest whatsoever in the Company, the Surviving Corporation or any other
person, firm or corporation.
(d) Dissenters. The shares of Company Preferred Stock held by
those shareholders of the Company who have timely and properly exercised their
dissenters' rights in accordance with the Appraisal Laws within the applicable
time period are referred to herein as "Dissenting Preferred Shares". Each
Dissenting Preferred Share shall not be converted into or represent a right to
receive the Preferred Cash Conversion Amounts in the Merger, but the holder
thereof shall be entitled only to such rights as are granted by the Appraisal
Laws. Each holder of Dissenting Preferred Shares who becomes entitled to payment
for his Company Preferred Stock pursuant to the provisions of the Appraisal Laws
shall receive payment therefor from the Surviving Corporation from funds
provided by Purchaser (but only after the amount thereof shall have been agreed
upon or finally determined pursuant to such provisions). If any holder of
Dissenting Preferred Shares shall effectively withdraw or lose his dissenters'
rights under the Appraisal Laws, such Dissenting Preferred Shares shall be
converted into the right to receive the Preferred Cash Conversion Amount in
accordance with the provisions hereof.
1.6 Options. Prior to the Effective Time of the Merger, all options,
warrants, or other rights to purchase or acquire shares of Company Common Stock
or shares of Company Preferred Stock (hereinafter collectively "Options") which
are outstanding and unexercised shall be canceled at no cost or expense to the
Company and without issuing any shares therefor, so that at the Effective Time
of the Merger there shall be no outstanding and unexercised outstanding Options
with respect to either Company Common Stock or Company Preferred Stock.
1.7 Certain Adjustments. The $5,300,000 referred to in Section 1.3(p)
is subject to reduction in accordance with the following provisions, to arrive
at the amount of the Closing Payment:
(a) Payoff of Investor Loans. The Company is presently
indebted to Sierra Ventures III, Schroders Incorporated, Xxxxxxxx Ventures
Limited Partnership, Xxxxxxxx Ventures US Trust, Innovent Capital Limited
Partnership, Rovent Limited Partnership, and Advent
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International Investors Limited Partnership in the aggregate principal amount of
$848,155.27 plus accrued interest in the amount of $123,457.73 (the "Investor
Loans").
The holders of the Investor Loans have agreed that said Loans
can be repaid in full by the payment of $971,613 by Purchaser at the Effective
Time of Merger. At the Effective Time of Merger, Purchaser shall pay said amount
in full satisfaction of the Investor Loans. The amount of such payment shall
reduce, dollar-for-dollar, the $5,300,000.
(b) Adjustments for Debt. The $5,300,000 shall be reduced at
the Closing if the Company or any of the Three Subsidiaries have any outstanding
indebtedness, including accrued interest and any prepayment penalties, (but
excluding any intercompany indebtedness among the Company and the Three
Subsidiaries and excluding the Investor Loans) for borrowed money on the Closing
Date (the "Closing Debt"); provided, however, that indebtedness, if any, to
Silicon Valley Bank in an amount up to $300,000, including accrued interest,
shall not be counted for these purposes. If any Closing Debt exists as of the
Closing Date, such amount shall reduce, dollar-for-dollar, the $5,300,000.
(i) Immediately after the close of business on the
business day immediately preceding the Closing Date, Purchaser and the
Company shall prepare a statement setting forth the Company's estimated
Closing Debt, determined in accordance with generally accepted
accounting principles consistently applied.
(ii) No later than 30 days following the Closing,
Purchaser shall prepare and deliver to the Agent a statement setting
forth the Company's actual Closing Debt (the "Final Adjustment
Statement"). Subject to (c) below, within 10 days following the
delivery of such Final Adjustment Statement to the Agent, the Purchaser
shall pay the amount, if any, by which the actual Closing Debt was less
than the estimated Closing Debt, or the Purchaser shall be paid from
the Escrow Fund the amount, if any, by which the actual Closing Debt
was greater than the estimated Closing Debt. Where an additional
payment is due from the Purchaser, the payment shall be made to the
Common Stockholders and Preferred Stockholders (other than dissenting
Stockholder) on a proportionate basis.
(iii) In the event the Agent objects to the final
determination of Closing Debt, it shall notify Purchaser in writing of
such objection within the 10 day period following the delivery thereof,
stating in such written objection the reasons therefor and setting
forth the Agent's calculation of the Company's actual Closing Debt.
Upon receipt by Purchaser of such written objection, the parties shall
attempt to resolve the disagreement through negotiation. If Purchaser
and the Agent cannot resolve such disagreement within 30 days following
the end of the foregoing 10 day period, the parties shall submit the
matter for resolution to a nationally recognized firm of independent
certified public accountants not affiliated with either party, with the
costs thereof to be shared equally by the parties. Such accounting firm
shall deliver a statement setting forth its own calculation of the
Closing Debt, to the parties within 30 days of the submission of the
matter to such firm. Any payment shown to be due by a party on the
statement of
9
such accounting firm shall be paid to the other party promptly but in
no event later than five days following the delivery of such statement
to the parties, with any payment due to Purchaser to be paid from the
Escrow Fund.
(c) Adjustment for Expenses. At the Effective Time of Merger,
all accounting, legal, investment banking and other professional fees and
expenses of the Company arising in connection with the negotiation and
consummation of this Agreement and the transactions contemplated hereby (the
"Company Expenses") which have not previously been paid by the Company shall be
paid by Purchaser so that all such Expenses shall be satisfied in full. The
amount shall include, but not be limited to all amounts due to agents or
representatives of the Company, including but not limited to its attorneys and
accountants and to Xxxxx, Xxxxxx.
The amount of such Company Expenses paid at Closing, plus the
amount of any such Expenses which have been paid by the Company prior to
Closing, shall reduce dollar-for-dollar, the $5,300,000. The Company represents
and warrants that prior to Closing it will provide (i) a statement setting forth
the total of Company Expenses which have been paid by the Company prior to
Closing, (ii) a statement of all Company Expenses to be paid at Closing,
together with the invoices from the professionals charging such Expenses, and
confirmations from such professionals that payment of said invoices will fully
satisfy all obligations of the Company to them for Expenses. The Company further
represents and warrants that once the Company Expenses shown as due at Closing
on the statement are paid, no other Company Expenses will at any time be due and
payable from the Company.
(d) Adjustment for Dissenters. If any Stockholders exercise
their rights under the Appraisal Laws then there shall be withheld from the
Closing Payment, as appropriate, the amounts which such dissenting Stockholders
would have received therefrom, and Purchaser shall retain said amounts.
Consistent with the foregoing, to the extent there are any
Escrow Distributions, the amounts which would otherwise have been paid to such
dissenting Stockholders had they not exercised their rights under the Appraisal
Laws, shall be paid to Purchaser.
1.8 Other Payments. At the Effective Time of Merger, Purchase shall pay
$700,000 to the Escrow Agent pursuant to the Escrow Agreement, and shall pay the
Closing Payment to the Paying Agent. In addition, at the Effective Time of the
Merger, the Purchaser shall repay the Company's indebtedness to Silicon Valley
Bank in an amount not to exceed $300,000.
1.9 Further Assurances. From time to time, on and after the Effective
Time of the Merger, as and when requested by Purchaser or its successors or
assigns, the proper officers and directors of the Company immediately before the
Effective Time of the Merger, the officers and directors of the Surviving
Corporation at the time of the request, or other proper officers or directors,
shall, at Purchaser's expense, and for and on behalf and in the name of the
Company, or otherwise, execute and deliver all such deeds, bills of sale,
assignments and other instruments and shall take or cause to be taken such
further or other reasonable actions as Purchaser or their respective successors
or assigns may deem necessary or desirable in order to confirm or record or
otherwise transfer to the Surviving Corporation title to and possession of all
the properties,
10
rights, privileges, powers, franchises and immunities of the Company and
otherwise to carry out fully the provisions and purposes of this Agreement.
1.10 Agent. Sierra Ventures Management Company, Inc. is hereby
designated as the Agent ("Agent") of the Stockholders to, from and after the
Effective Time of Merger represent, act for and on behalf of the Stockholders on
all matters arising under or relating to this Agreement or the Escrow Agreement.
In this connection, the Agent is hereby authorized to enter into agreements,
execute waivers, grant consents, enter into settlements and take all other
actions to represent the interests of the Stockholders under and in connection
with this Agreement and the Escrow Agreement. All such actions of the Agent
shall be binding upon and enforceable against the Stockholders and shall be
binding and enforceable under the Escrow Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As used herein, the "Disclosure Letter" shall mean the Disclosure
Letter delivered by the Company to Purchaser. The Disclosure Letter shall
specifically refer to the warranty or warranties to which exceptions or matters
disclosed therein relate. To avoid repetitive listings, where exceptions or
matters are required to be listed by more than one section thereunder, they can
be listed in subsequent sections by cross-reference. In addition, if the
Disclosure Letter sets forth an exception with respect to a particular
representation or warranty, said exception shall be considered to be taken even
if the language of the Agreement itself does not contain the language "except as
set forth in the Disclosure Letter" or similar language.
Except for exceptions set forth in the Disclosure Letter, the Company
hereby makes to Purchaser the representations and warranties contained in this
Section 2 as of the date hereof and, except only as otherwise specifically
provided herein, as of the Closing Date as if made and agreed on said Date.
The representations and warranties are as follows:
2.1 Organization and Qualifications of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware with full corporate power and authority to own or lease
its properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted. The copies of the Company's Certificate of
Incorporation as amended to date, certified by the Delaware Secretary of State,
and of the Company's by-laws, as amended to date, certified by the Company's
Secretary, and heretofore delivered to Purchaser's counsel, are complete and
correct, and no amendments thereto are pending. The Company is not in violation
of any term of its Certificate of Incorporation or by-laws. The Company is duly
qualified to do business as a foreign corporation in California and Texas and it
is not required to be licensed or qualified to conduct its business or own its
property in any other jurisdiction.
2.2 Capital Stock of the Company: Beneficial Ownership.
(a) The authorized capital stock of the Company consists of:
11
(i) 10,000,000 shares of Common Stock, par value $.01
per share, of which, as of the date hereof, 826,430 shares are duly and
validly issued, outstanding, fully paid and non-assessable and
9,173,570 shares are authorized but unissued; and
(ii) 4,552,046 shares of Preferred Stock, par value
$.01 per share, of which, as of the date hereof, 4,263,864 shares are
duly and validly issued, outstanding, fully paid and non-assessable and
288,182 shares are authorized but unissued.
Said shares of the Preferred Stock have been designated as
five different series as follows:
(i) 1,048,183 shares have been designated Series A
Preferred Stock, all of which are issued and outstanding; (ii) 555,194
shares have been designated Series B Preferred Stock, all of which are
issued and outstanding;
(iii) 1,039,400 shares have been designated Series C
Preferred Stock, all of which are issued and outstanding;
(iv) 1,729,088 shares have been designated Series D
Preferred Stock, 1,440,906 of which are issued and outstanding and
288,182 of which are authorized and unissued (144,091 of which were
subject to certain warrants which expired prior to the date hereof);
and
(v) 180,181 shares have been designated Series E
Preferred Stock, all of which are issued and outstanding.
The rights, privileges and preferences of the Preferred Stock are as stated in
the Company's Restated Certificate of Incorporation.
(b) After giving effect to the Company Shareholder Agreement,
at the Effective Time of the Merger the authorized capital stock of the Company
will consist of:
(i) 10,000,000 shares of Common Stock, par value $.01
per share, of which, at such time, 2,952,754 shares will be duly and
validly issued, outstanding, fully paid and non-assessable and
7,047,246 shares will be authorized but unissued; and
(ii) 4,552,045 shares of Preferred Stock, par value
$.01 per share, of which, at such time, 2,168,230 shares will be duly
and validly issued, outstanding, fully paid and non-assessable,
2,095,634 shares will have been converted into shares of Common Stock
and 288,182 shares will be authorized but unissued.
Said shares of the Preferred Stock have been designated as
five different series as follows:
12
(i) 1,048,183 shares have been designated Series A
Preferred Stock, 535,056 of which will be issued and outstanding and
513,127 of which will have been converted into shares of Common Stock;
(ii) 555,194 shares have been designated Series B
Preferred Stock, 281,971 of which will be issued and outstanding and
273,223 of which will have been converted into shares of Common Stock;
(iii) 1,039,400 shares have been designated Series C
Preferred Stock, 527,889 of which will be issued and outstanding, and
511,511 of which will be converted into shares of Common Stock;
(iv) 1,729,088 shares have been designated Series D
Preferred Stock, 731,805 of which will be issued and outstanding,
709,101 of which will be converted into shares of Common Stock and
282,182 of which are authorized and unissued (144,091 of which were
subject to certain warrants which expired prior to the date hereof);
and
(v) 180,181 shares have been designated Series E
Preferred Stock, 91,509 of which will be issued and outstanding, and
88,672 of which will be converted into shares of Common Stock.
(c) On the Closing Date there will be no outstanding options,
warrants, rights, commitments, preemptive rights or agreements of any kind for
the issuance or sale of, or outstanding securities convertible into, any
additional shares of capital stock of any class of the Company. There now are no
outstanding options, warrants, rights, commitments, preemptive rights or
agreements of any kind for the issuance or sale of, or outstanding securities
convertible into, any additional shares of capital stock of any class of the
Company, except for the following (the "Outstanding Options"):
(i) the conversion privileges of the Preferred Stock;
(ii) the rights to purchase securities provided in
Section 8.4 of the Stock Purchase Agreement dated January 15, 1991
between the Company and certain investors, as amended as of August 2,
1991, and as further amended by Section 8 of the Purchase Agreement
between the Company and certain investors dated August 3, 1993;
(iii) options to purchase an aggregate of 925,750
shares of the Common Stock granted under the Company's 1989 Stock
Option Plan, as amended; and
(iv) warrants to purchase an aggregate of 86,334
shares of Common Stock held by the holders of shares of Series E
Preferred Stock, and warrants to purchase an aggregate of 37,018 shares
of Common Stock held by Silicon Valley Bank.
(d) None of the Company's capital stock has been issued in
violation of any federal or state law. Except as set forth in the Disclosure
Letter, there are no voting trusts, voting agreements, proxies or other
agreements, instruments or undertakings with respect to the voting
13
of the Company Shares to which the Company or, to the best of the Company's
knowledge, any of the Stockholders is a party.
(e) The Stockholders listed on Schedule 1 attached hereto
together own all of the issued and outstanding shares of preferred stock of the
Company (each, a "Preferred Stockholder", and, collectively, the "Preferred
Stockholders"). The Stockholders listed on Schedule 2 attached hereto together
own all of the issued and outstanding shares of common stock of the Company
(each, a "Common Stockholder", and, collectively, the "Common Stockholders"; the
Preferred Stockholders and the Common Stockholders are sometimes collectively
referred to herein as the "Stockholders" and individually as a "Stockholder").
Because of the number of shares that they and their affiliates own, certain
Stockholders are designated as "Principal Stockholders" under this Agreement,
while those Stockholders who are not Principal Stockholders are sometimes
referred to as "Other Stockholders". Those Stockholders who are Principal
Stockholders are designated on Schedules 1 and 2. Except as set forth in the
Disclosure Letter, each of the Stockholders owns of record the Company Shares
set forth opposite such Stockholder's name on Schedules 1 and 2.
2.3 Subsidiaries; OCC. Except for the three subsidiaries referenced
below (the "Three Subsidiaries"), the Company does not have any subsidiaries.
Except for the shares of stock in the Three Subsidiaries, the Company does not
own any securities issued by any other business organization or governmental
authority, except United States, state, and municipal government securities,
bank certificates of deposit, or money market accounts acquired as investments
in the ordinary course of its business, and the Company does not own or have any
direct or indirect ownership interest in or control over any other corporation,
partnership, joint venture, or entity of any kind.
The Three Subsidiaries are listed below, together with a description of
the authorized and, in the case of ViraTrac, Inc., outstanding stock of each
Subsidiary. For each of the Three Subsidiaries, all of the issued and
outstanding shares of Stock of such Subsidiary are owned by the Company, and
there are no outstanding options, warrants, rights, commitments, preemptive
rights or agreements of any kind for the issuance or sale of, or outstanding
securities convertible into, any additional shares of Stock of any class of any
such Subsidiary. The Three Subsidiaries are:
(a) ViraTrac, Inc., whose authorized capital stock consists of
2,000,000 shares of common stock, par value $.01 per share, of which, as of the
date hereof, 12,000 shares are duly and validly issued, outstanding, fully paid
and non-assessable.
(b) Clinical Services, Inc., whose authorized capital stock
consists of 1,000 shares of common stock, par value $.10 per share.
(c) Claims Services, Inc., whose authorized capital stock
consists of 1,000 shares of common stock, par value $.10 per share.
Each of the Three Subsidiaries is duly organized, validly existing and in good
standing under the laws of the State of Delaware with full corporate power and
authority to own or lease its
14
properties and to conduct its business in the manner and the places where such
properties are owned or leased or such business is currently conducted or
proposed to be conducted. The copies of each Subsidiary's Certificate of
Incorporation as amended to date, certified by the Delaware Secretary of State,
and of ViraTrac, Inc.'s by-laws as amended to date, certified by ViraTrac,
Inc.'s Secretary, and heretofore delivered to Purchaser's counsel, are complete
and correct and no amendments thereto are pending. Each of the Three
Subsidiaries is not in violation of any of the terms of its Certificate of
Incorporation or by-laws. Each of the Three Subsidiaries is duly qualified to do
business as a foreign corporation in the jurisdictions listed for such
Subsidiary in the Disclosure Letter, and is not required to be licensed or
qualified to conduct its business or its property in any other jurisdiction.
(Hereinafter the Company and the Three Subsidiaries are sometimes
collectively referred to as the "Company Group").
ViraTrac, Inc. is party to certain contracts, but except for said
contracts does not own any assets or have any Liabilities. ViraTrac, Inc. has no
employees.
Each of Clinical Services, Inc. and Claim Services, Inc. has not
conducted any business since December 31, 1993, and does not have any assets.
Each of Clinical Services, Inc. and Claim Services, Inc. is not subject to and
does not have any indebtedness, claim, obligation, or liability of any kind or
nature whatsoever, whether absolute or contingent, with liquidated or
unliquidated, known or unknown, due or to become due, accrued or unaccrued, or
otherwise (hereinafter collectively "Liabilities.")
The Disclosure Letter describes in reasonable detail the Company's
arrangements with OCC Comprehensive Care Inc., a Canada corporation("OCC"). As
reflected in the Disclosure Letter, the Company has proposed a settlement
agreement to terminate its relationship with and any Liabilities arising out of
its relationship with OCC. As part of such settlement agreement the Company
would forgive a receivable (the "OCC Receivable") owed to the Company in the
amount of $45,000. The Company is not subject to and will not become subject to
any Liabilities arising out of the OCC relationship as it presently exists;
provided, however, that it is understood that to the extent the Company ever
collects any amount of the OCC Receivable, the amount thus collected shall be a
credit, dollar-for-dollar, against the amount of any claims made under this
representation relating to OCC.
2.4 Authority of the Company. The Company has full right, authority and
power to enter into this Agreement and each agreement, document and instrument
to be executed and delivered by the Company pursuant to this Agreement and to
carry out the transactions contemplated hereby or thereby. The execution,
delivery and performance by the Company of this Agreement and each such other
agreement, document and instrument have been duly authorized by all necessary
action of the Board of Directors of the Company and, subject to the approval of
this Agreement and the transactions contemplated hereby by the Stockholders in
accordance with Delaware Law and the Restated Certificate of Incorporation and
by-laws of the Company ("Stockholder Approval"), no other action on the part of
the Company or the Stockholders is required in connection therewith. This
Agreement and each agreement,
15
document and instrument executed and delivered by the Company pursuant to this
Agreement constitutes, or when executed and delivered will constitute, valid and
binding obligations of the Company enforceable in accordance with their terms.
The execution, delivery and performance by the Company of this Agreement and
each such agreement, document and instrument:
(a) does not and will not violate any provision of the
Certificate of Incorporation or by-laws of the Company;
(b) does not and will not violate any laws of the United
States, or any state or other jurisdiction applicable to the Company or require
the Company to obtain any approval, consent or waiver of, or make any filing
with, any person or entity (governmental or otherwise) that has not been
obtained or made (other than Stockholder Approval); and
(c) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of any indenture or loan or credit agreement or any other material
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which the Company is a party or by which the property of the Company is bound or
affected, or result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the Company's assets
or the Company Shares.
2.5 Financial Statements and Liabilities.
(a) The Company has delivered to Purchaser the balance sheets
of the Company as of December 31, 1996 and December 31, 1997 (respectively, the
"1996 Balance Sheet" and the "1997 Balance Sheet") and the consolidated
statements of income and retained earnings of the Company for the fiscal years
ending on said dates, audited and certified by Xxxxxx Xxxxxxxx LLP, certified
public accountants (the "Annual Statements"), and the consolidated Balance Sheet
of the Company as of April 30, 1998, (the "Interim Balance Sheet") and the
consolidated statements of income and retained earnings of the Company for the
fiscal period ending on said date, compiled by the Company (the "Interim
Statements").
The Annual Statements are in accordance with the books and
records of the Company in all material respects, and have been prepared in
accordance with generally accepted accounting principles consistently applied.
The Annual Statements fairly present, the financial position and assets and
liabilities of the Company as of the dates indicated, and the results of
operations and changes in financial condition of the Company for the periods
then ended.
The Interim Statements are in accordance with the books and
records of the Company in all material respects, and have been prepared in
accordance with generally accepted accounting principles consistently applied,
subject, however, to normal year-end adjustments (none of which will be
material) and to the absence of footnotes. The Interim Statements fairly present
the financial position and assets and liabilities of the Company as of the dates
indicated and the results of operations and changes in financial condition of
the Company for the period then ended.
16
(b) As of the date of this Agreement, each of the Company and
ViraTrac, Inc. is not subject to and does not have, and as of the Closing Date,
each of the Company and ViraTrac, Inc. will not be subject to and will not have
any material Liabilities, except (i) as disclosed in the Interim Balance Sheet,
(ii) for such Liabilities that have arisen in the ordinary course of business of
the Company since the date of said Interim Balance Sheet, none of which newly
arisen Liabilities have a material adverse affect upon the Company, its assets,
business, or financial condition, and (iii) as specifically disclosed in this
Agreement or in the Disclosure Letter.
(c) Correct and complete copies of the promissory notes and
all other agreements relating to the Investor Loans have been provided to
Purchaser.
2.6 Real Estate. Each of the Company Group does not own or have title
to any real estate, and has never owned or had title to any real estate. Each of
the Three Subsidiaries has never leased any real estate.
The Company does not lease any real estate other than pursuant to four
real estate leases (the "Leases"), one for its offices in San Francisco,
California, one for offices in Los Angeles, California, one for offices in
Dallas, Texas, and one for offices in Houston, Texas, each of which Leases is
listed on the Disclosure Letter. A true and correct copy of each of the Leases
has been delivered to Purchaser. Other than pursuant to the Leases, the Company
has not leased any other real estate during the past three years. The Company
and, to the best knowledge of the Company, the other party thereto, is not in
default under each of the Leases, and there is no fact (to the best knowledge of
the Company in the case of facts relating to the other party thereto) which,
with notice and/or the passage of time, would constitute such a default. The
Company does not know of any significant expenditures that the Company would be
required to make or plans to make within one year from the date hereof with
respect to the offices leased by the Company or the air conditioning, plumbing
and electrical systems of such offices. The Company has not received notice that
the offices or the buildings in which it is located does not comply with
municipal, state and federal statutes, ordinances, rules and regulations
applicable to the construction of the buildings and its actual use. The Company
does not know of any noncompliance by the buildings with said statutes,
ordinances, rules and regulations which could reasonably be expected to result
in a material liability of, or a material expenditure by, the Company. No
consent is required under the Leases in connection with the transactions
contemplated by this Agreement.
2.7 Leased Tangible Personal Property. ViraTrac, Inc. does not lease
any personal property. The Company does not lease any personal property other
than pursuant to (i) leases in the ordinary course of business which expire on
not more than 30 days notice by the Company without payment of any penalty or
termination payment, and (ii) leases ("Personal Property Leases") which are
listed on the Disclosure Letter, true and correct copies of which have been made
available (including providing a copy thereof to be retained by Purchaser) to
Purchaser. Each of the Company and, to the best knowledge of the Company, the
other parties thereto is not in material default under any of the Personal
Property Leases, and there is no fact (to the best knowledge of the Company in
the case of facts relating to the other party thereto) which, with
17
notice and/or passage of time, would constitute such a default. No consent is
required under the Personal Property Leases in connection with the transactions
contemplated by this Agreement.
2.8 Assets. To the best knowledge of the Company, all material items of
the equipment, furniture, computers, and other tangible personal property (other
than inventory) owned, leased or used by the Company is in good condition,
normal wear and tear excepted, and is in good operating order. The Disclosure
Letter attached hereto lists all furniture, equipment, and other tangible
personal property of the Company or ViraTrac, Inc. (other than inventory and
supplies) having an original cost of $5,000 or more. The Disclosure Letter also
lists all equipment, furniture, computers and other tangible personal property
which (i) is used by the Company or which is located on the Company's premises
and (ii) which is not owned by the Company, except for items leased under Leases
elsewhere disclosed herein and except for immaterial personal property of
employees. Except for sales of inventory and other dispositions of assets in the
ordinary course of business, since December 31, 1997, no material tangible
assets have been transferred from the Company, whether by sale, dividend or
otherwise.
2.9 Taxes.
(a) The Company has paid or caused to be paid all federal,
state, local, foreign, and other taxes, including, without limitation, income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes, windfall profit taxes, environmental taxes and property
taxes, whether or not measured in whole or in part by net income, and all
deficiencies, or other additions to tax, interest, fines and penalties owed by
it (collectively, "Taxes"), required to be paid by it or its subsidiaries
through the date hereof whether disputed or not, and will pay all Taxes required
to be paid by it or its subsidiaries through the Closing Date.
(b) The Company has in accordance with applicable law filed
all federal, state, local and foreign tax returns required to be filed by it or
its subsidiaries through the date hereof, except that the Company's income tax
returns for its taxable years ended December 31, 1997 and December 31, 1996,
have been prepared and signed by Xxxxxx Xxxxxxxx LLP as tax preparer and are
ready to be filed by Purchaser promptly after the Closing of this Agreement. All
such returns correctly and accurately set forth the amount of any Taxes or
losses relating to the applicable period. No returns have been audited or
currently are the subject of an audit. For each taxable period of the Company
ended on or after December 31, 1989, the Company has delivered to Purchaser
correct and complete copies of all federal, state, local and foreign income tax
returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company or its subsidiaries.
(c) Neither the Internal Revenue Service (the "IRS") nor any
other governmental authority is now asserting or, to the best knowledge of the
Company, threatening to assert against the Company or its subsidiaries any
deficiency or claim for additional Taxes, or claim to reduce reported losses. No
claim has ever been made by an authority in a jurisdiction where the Company or
any subsidiary does not file reports and returns that the Company or such
18
subsidiary is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Taxes. The Company and each of
its subsidiaries has never entered into a closing agreement pursuant to Section
7121 of the Internal Revenue Code of 1986, as amended (the "Code").
(d) Except as set forth in the Disclosure Letter, there has
not been any audit of any tax return filed by the Company or any of its
subsidiaries, no such audit is in progress, and the Company has not been
notified by any tax authority that any such audit is contemplated or pending.
Except as set forth in Disclosure Letter, no extension of time with respect to
any date on which a tax return was or is to be filed by the Company or any of
its subsidiaries is in force, and no waiver or agreement by the Company or any
of its subsidiaries is in force for the extension of time for the assessment or
payment of any Taxes.
(e) The Company has never been (and has never had any
liability for unpaid Taxes because it once was) a member of an "affiliated
group" (as defined in Section 1504(a) of the Code). Except as set forth in the
Disclosure Letter, the Company has never filed, and has never been required to
file, a consolidated, combined or unitary tax return with any other entity.
Except as set forth in the Disclosure Letter, the Company does not own and has
never owned a direct or indirect interest in any trust, partnership, corporation
or other entity. The Company is not a party to any tax sharing agreement.
(f) As of December 31, 1997, the Company had an aggregate net
operating loss for Federal income tax purposes totaling $5,548,468. The
Disclosure Letter accurately states the years in which said net operating losses
arose and the amounts of net operating losses for each of said years. The
Company has provided its stock book to Purchaser. Said stock book completely and
accurately reflects the current ownership of stock of the Company and all
changes of ownership of stock in the Company which have taken place since the
Company's inception. In the case of both prior and current owners, the
beneficial owners of the stock of the Company are the same as the record owners
as shown in said stock book.
(g) For purposes of this Agreement, all references to Sections
of the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
(h) The Interim Balance Sheet includes adequate provision for
(i) all Tax Liabilities incurred or accrued as of the date of said Balance
Sheet, and (ii) any and all Tax Liabilities which may hereafter be assessed or
imposed on the Company or any of its subsidiaries with respect to time periods
ending on or before said date.
(i) The Company has not made an election under Section 341(f)
of the Code, and does not have any other tax elections, federal or state, in
effect except as set forth on the Disclosure Letter.
2.10 Collectibility of Accounts Receivable. All of the accounts
receivable of the Company and ViraTrac, Inc. set forth on the receivables run of
the Company as of the date
19
specified in the Disclosure Letter, which has been provided to Purchaser, less
the reserve for bad debts set forth on the Interim Balance Sheet, are valid and
enforceable claims, fully collectible and subject to no setoff or counterclaim.
Each of the Company and ViraTrac, Inc. has no accounts or loans receivable from
any person, firm or corporation which is affiliated with the Company or from any
director, officer or employee of the Company, except as disclosed in the
Disclosure Letter, and all accounts and loans receivable from any such person,
firm or corporation shall be paid in cash prior to the Closing.
2.11 Absence of Certain Changes. Except as disclosed in the Disclosure
Letter and except to the extent reflected in the Interim Statements, since
December 31, 1997 there has not been:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of the Company or ViraTrac, Inc., which
change by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has been materially adverse with
respect to the Company or ViraTrac, Inc.;
(b) any contingent liability incurred by the Company or
ViraTrac, Inc. as guarantor or otherwise with respect to the obligations of
others or any cancellation of any material debt or claim owing to, or waiver of
any material right of, the Company or ViraTrac, Inc.;
(c) any mortgage, encumbrance or lien placed on any of the
properties of the Company or ViraTrac, Inc.;
(d) any material obligation or liability of any nature,
whether accrued, absolute, contingent or otherwise, asserted or unasserted,
known or unknown (including, without limitation, liabilities for Taxes due or to
become due or contingent or potential liabilities relating to products or
services provided by the Company or ViraTrac, Inc. or the conduct of the
business of the Company or ViraTrac, Inc. since December 31, 1997 regardless of
whether claims in respect thereof have been asserted), incurred by the Company
or ViraTrac, Inc. other than obligations and liabilities incurred in the
ordinary course of business consistent with the terms of this Agreement (it
being understood that product or service liability claims that could reasonably
be expected to result in a material liability shall not be deemed to be incurred
in the ordinary course of business);
(e) any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of the Company or ViraTrac, Inc. other than in the ordinary
course of business;
(f) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of the Company or ViraTrac, Inc.;
(g) any declaration, setting aside or payment of any dividend
by the Company, or the making of any other distribution in respect of the
capital stock of the Company, or any
20
direct or indirect redemption, purchase or other acquisition by the Company of
its own capital stock;
(h) any labor trouble or dispute or claim of unfair labor
practices involving the Company or any attempt or threat of an attempt by a
labor union to organize the Company's employees; any change in the compensation
payable or to become payable by the Company to any of its officers, employees,
agents or independent contractors other than normal merit increases in
accordance with its usual practices; or any bonus payment or arrangement made to
or with any of such officers, employees, agents or independent contractors;
(i) any change with respect to the officers or management of
the Company;
(j) any payment or discharge of a material lien or liability
of the Company or ViraTrac, Inc.;
(k) any obligation or liability incurred by the Company to any
of its officers, directors, stockholders or employees, or any loans or advances
made by the Company to any of its officers, directors, stockholders or
employees, except normal compensation and expense allowances payable to officers
or employees;
(l) any change in accounting methods or practices, credit
practices or collection policies used by the Company;
(m) any material amendment or termination of any material
contract, lease or license to which the Company or ViraTrac, Inc. is a party or
by which it may be bound, other than in the ordinary course of business;
(n) any acquisition by the Company or ViraTrac, Inc. of the
assets or capital stock of another business entity;
(o) any termination of any permit or license issued to the
Company or ViraTrac, Inc. or to any of its employees or agents;
(p) to the best knowledge of the Company, any order, judgment,
writ, injunction, or decree of any court or any governmental or regulatory body
adopted or entered or proposed to be adopted or entered which could reasonably
be expected to materially and adversely affect the property or business of the
Company or ViraTrac, Inc.;
(q) any statute, permit, rule or regulation which Company
management is actually dealing with and which management expects would
materially and adversely affect the property or business of the Company or
ViraTrac, Inc.;
(r) any event or occurrence affecting the Company or ViraTrac,
Inc., which could reasonably be expected to cause an adverse change in any
material respect affecting the Company's sales, profitability or financial
condition or to otherwise adversely affect the
21
Company which Company management is actively dealing with and which management
expects would materially and adversely affect the property or business of the
Company;
(s) any contracts entered into with or (except for payment of
compensation in accordance with past practices and as disclosed to Purchaser),
any payments or transfers of property to any shareholder of the Company, any
relatives of any shareholder, or any corporation, partnerships, limited
liability companies or other business entities controlled by any shareholder or
in which any shareholder has any significant equity interest;
(t) any other transaction entered into by the Company or
ViraTrac, Inc. other than transactions in the ordinary course of business; or
(u) any agreement or understanding whether in writing or
otherwise, for the Company to take any of the actions specified in paragraphs
(a) through (t) above.
2.12 Ordinary Course. Since December 31, 1997, except to the extent
reflected in the Interim Statements, each of the Company or ViraTrac, Inc. has
conducted its business only in the ordinary course and consistently with its
prior practices.
2.13 Banking Relations. All of the arrangements which the Company or
ViraTrac, Inc. has with any banking or financial institution are completely and
accurately described in the Disclosure Letter, indicating with respect to each
of such arrangements the type of arrangement maintained (such as checking
account, borrowing arrangements, safe deposit box, etc.) and the person or
persons authorized in respect thereof.
2.14 Intellectual Property.
(a) As used in this Section 2.14, "Intellectual Property"
means patents, patent rights, patent applications, trademarks, trademark
applications, service marks, service xxxx applications, trade names, trade
secrets, copyrights and other proprietary rights. No proceedings have been
instituted, or are pending or, to the best knowledge of the Company, threatened,
which challenge the rights of the Company or ViraTrac, Inc. to the Intellectual
Property owned or used by it or ViraTrac, Inc., and, to the best knowledge of
the Company, there are no claims or demands of any other person challenging the
ownership of any such Intellectual Property owned by the Company or ViraTrac,
Inc., or challenging the use by the Company or ViraTrac, Inc. of any such
Intellectual Property in the manner in which it is currently being used by the
Company or ViraTrac, Inc., as applicable.
(b) Each of the Company and ViraTrac, Inc. does not or own or
use in its business any patents, patent rights, patent applications or own any
registered copyrights or applications for registered copyrights. The Disclosure
Letter lists the registered trademarks, registered service marks and
applications for the same which are owned by the Company and also lists all
material trade names, unregistered trademarks and unregistered service marks
owned by the Company. Except as set forth in the Disclosure Letter, each of the
Company and ViraTrac, Inc. does not license or otherwise use in its business
trademarks, service marks or trade names of any other person. All of such
trademark and service xxxx registrations and
22
applications have been duly registered in, filed in or issued by the United
States Patent and Trademark Office, or the corresponding offices of other
jurisdictions as identified on the Disclosure Letter, and have been properly
maintained and renewed in accordance with all applicable provisions of law and
administrative regulations of the United States and each such jurisdiction. All
other items of Intellectual Property which are material to the business or
operations of the Company or ViraTrac, Inc., are listed in the Disclosure
Letter. Each of the Company and ViraTrac, Inc. has the right, and the
consummation of the transactions contemplated hereby will not affect the right
each has, to use all Intellectual Property currently used in its business in the
manner in which it currently uses such Intellectual Property, including without
limitation all trademarks, service marks, trade names, customer lists, designs,
manufacturing and other processes, computer software, systems, data
compilations, research results and other information required for or incident to
its business as presently conducted.
(c) All licenses or other agreements under which the Company
or ViraTrac, Inc. is granted rights in Intellectual Property are listed in the
Disclosure Letter. All said licenses or other agreements are in full force and
effect, and there is no material default by any party thereto. To the best
knowledge of the Company, the licensors under said licenses and other agreements
have and had all requisite power and authority to grant the rights purported to
be conferred thereby. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been delivered to Purchaser.
(d) All licenses or other agreements under which the Company
or ViraTrac, Inc. has granted rights to others in Intellectual Property owned or
licensed by the Company or ViraTrac, Inc. are listed in the Disclosure Letter.
All of said licenses or other agreements are in full force and effect, and there
is no material default by any party thereto. True and complete copies of all
such licenses or other agreements, and any amendments thereto, have been
provided to Purchaser.
(e) The Company has required all professional and technical
employees and other employees and consultants having access to valuable
non-public information of the Company or ViraTrac, Inc. to execute agreements
under which such employees and consultants are required to convey to the Company
or ViraTrac, Inc. ownership of all inventions, copyrights and developments
conceived or created by them in the course of their employment and to maintain
the confidentiality of all such information of the Company or ViraTrac, Inc.
Each of the Company and ViraTrac, Inc. has not made any such valuable,
non-public information of the Company or ViraTrac, Inc. available to any person
other than employees of the Company except pursuant to written agreements
requiring the recipients to maintain the confidentiality of such information and
appropriately restricting the use thereof. The Company has no knowledge of any
infringement by others of any Intellectual Property rights of the Company or
ViraTrac, Inc..
(f) The present business, activities and products of the
Company or ViraTrac, Inc. do not infringe any Intellectual Property of any other
person in any manner that cannot be cured in all material respects by (i) making
modifications to the Company's method of conducting its business that do not
have a material adverse affect on the Company, or (ii) obtaining a license from
such person to use such Intellectual Property at a cost to the Company
23
that is not material. No proceeding charging the Company and ViraTrac, Inc. with
infringement of any adversely held Intellectual Property or any opposition to
registration has been filed or is threatened to be filed. Each of the Company
and ViraTrac, Inc. is not making unauthorized use of any confidential
information or trade secrets of any person received by the Company or ViraTrac,
Inc. under an agreement limiting the Company's or ViraTrac's use of such
information, including without limitation, any former employer of any past or
present employee of the Company. To the best knowledge of the Company, the
activities of its employees on behalf of the Company do not violate any
agreements or arrangements with any persons other than the Company related to
confidential information or trade secrets of such persons or restricting any
such employee's ability to engage in business activities of any nature. To the
best of Company's knowledge, the persons or entities who are party to
confidentiality agreements protecting confidential information or trade secrets
of the Company are in compliance with such agreements. Copies of all
confidentiality agreements to which the Company or ViraTrac, Inc. is a party,
both those which protect confidential information or trade secrets of the
Company or ViraTrac, Inc., and those which protect the confidential information
or trade secrets of other parties, are properly filed in the Company's files, so
that a person dealing with the matter or relationship giving rise to the
confidentiality agreement will locate a copy of such agreement in the file or
files relating to such matter or relationship.
2.15 Software and Database. The Disclosure Letter lists:
(a) All software programs or databases owned by third parties
currently used by the Company or ViraTrac, Inc.;
(b) All software programs or databases currently used by the
Company or ViraTrac, Inc. which the Company or ViraTrac, Inc. either owns or has
the exclusive right to use or which were developed by the Company or ViraTrac,
Inc.;
(c) All individuals or companies, whether or not employees,
who have, since the inception of the Company, provided to the Company or
ViraTrac, Inc. material software or database services for software or databases
currently used by the Company or ViraTrac, Inc., together with any agreements
that the Company or ViraTrac, Inc. has with such individuals or companies. For
these purposes, (i) such services include, but are not limited to, design of or
modifications to the software or database, writing code for the database or
software or designing interfaces for the database or software; and (ii) such
services will not be considered material if they are rendered with respect to
software or databases that are not material to the Company's operations or
business and if the software and databases can be replicated by the Company
without substantial cost or delay.
2.16 Contracts.
(a) The Disclosure Letter attached hereto lists, and the
Company has made available (including providing a copy as requested) to
Purchaser, true and complete copies of, all of the following contracts or other
obligations to which either the Company or ViraTrac, Inc. is a party or by which
either is bound:
24
(i) Employment agreements and any other contracts
with or loans by the Company or ViraTrac, Inc. to any of the Company's
or ViraTrac, Inc.'s shareholders, officers, directors, employees,
consultants, salesmen, distributors or sales representatives;
(ii) Any employee benefit plan made available by the
Company to any of its employees;
(iii) Any collective bargaining agreement;
(iv) Any contracts with customers, including those
which have been completed by the Company or ViraTrac, Inc. within the
past two years, which impose any material liabilities upon, or
reasonably could be expected to result in any material liabilities
against, the Company or ViraTrac, Inc..
(v) Any deeds of trust, mortgages, conditional sales
contracts, security agreements, pledge agreements, trust receipts, or
any other agreements or arrangements whereby any assets of the Company
or ViraTrac, Inc. are subject to a lien, encumbrance, charge or other
restriction;
(vi) Any loan agreements, letters of credit or lines
of credit;
(vii) Any contracts expressly restricting the Company
or ViraTrac, Inc. from doing business in any areas and any contracts,
including without limitation contracts with suppliers, which limit,
restrict or transfer rights to any technology utilized or developed by
the Company or ViraTrac, Inc. or which establish rights of a supplier
or customer to a particular product marketed or being developed by the
Company or ViraTrac, Inc., excluding the license implied in any sale of
product;
(viii) Other than purchase orders issued in the
ordinary course of business, any contracts calling for aggregate
payments by the Company or ViraTrac, Inc. in excess of $10,000 and
which are not terminable without cost or liability on notice of 90 days
or less;
(ix) Any joint venture, partnership, limited
liability company or limited partnership agreement involving the
Company or ViraTrac, Inc.;
(x) Any guarantees by the Company or ViraTrac, Inc.
of the obligations of any other party except those resulting from the
endorsement of customer checks deposited by the Company for collection;
(xi) The Company Shareholder Agreement;
(xii) Any other contracts which could reasonably be
expected to have a material adverse impact on the Company's or
ViraTrac, Inc.'s assets, results of operations or financial condition;
and
25
(xiii) Any commitments to enter into any of the types
of contracts and obligations referred to in this Section 2.16.
Each of the Company and ViraTrac, Inc. has not received notice
of any material default under any such contracts, obligations or commitments, is
not in material default under any such contracts, obligations or commitments,
and there are no facts (to the best knowledge of the Company in the case of
facts relating to the other party thereto) which, with notice and/or the passage
of time, would constitute such a default. To the best knowledge of the Company,
no other party to such contracts, obligations or commitments is in material
default and there are no facts which, with notice and/or the passage of time,
would constitute such a default. No consent is required under the contracts,
obligations and commitments referred to in this Section in connection with the
transactions contemplated by this Agreement.
(b) Proposals and Prospects. The Disclosure Letter attached
hereto lists, and the Company has previously delivered to Purchaser, true and
complete copies of all outstanding proposals to perform services for customers
by the Company or ViraTrac, Inc.
2.17 Litigation. There are no legal, administrative, arbitration or
other proceedings or claims pending or, to the best knowledge of the Company,
threatened against the Company or any subsidiary, nor is the Company or any
subsidiary subject to any existing judgments. To the best knowledge of the
Company, there is no reasonable basis for any such proceeding or claim against
the Company or any subsidiary which could reasonably be expected to result in a
material liability. Each of the Company and ViraTrac, Inc. is not operating
under or subject to, or in default with respect to, any order, writ, injunction
or decree of any court or federal, state, municipal or other governmental
department, commission, board, agency or instrumentality, domestic or foreign.
2.18 Compliance with Applicable Laws; Environmental Matters.
(a) Laws. Each of the Company and ViraTrac, Inc., and its
operations and assets, are in compliance in all material respects, with all
federal, state, county, and municipal laws, ordinances, regulations, rules,
reporting requirements, judgments, orders, decrees and requirements of common
law applicable to the conduct and business of the Company or ViraTrac, Inc. and
to the assets owned, used or occupied by it (collectively referred to
hereinafter as the "General Laws"), including without limitation all applicable
federal, state, county and municipal laws, ordinances, regulations, rules,
reporting requirements, judgments, orders, decrees and requirements of common
law concerning or relating to the protection of health and the environment
(collectively referred to hereinafter as the "Environmental Laws"). Each of the
Company and ViraTrac, Inc. has not received any notice of violation, citation,
complaint, request for information, order, directive, compliance schedule or
other similar enforcement order, or any other notice from any administrative or
governmental agency or entity, indicating that either the Company or ViraTrac,
Inc. were not or currently are not in compliance in all material respects with
all Environmental Laws and General Laws, and to the best knowledge of the
Company, no such item is threatened.
26
(b) Environmental Laws. All businesses and operations of the
Company and ViraTrac, Inc. are in compliance in all material respects with any:
(i) judgments, orders, decrees, awards or directives, of any court, arbitrator
or administrative or governmental agency or entity binding the Company or
ViraTrac, Inc. and concerning compliance with the Environmental Laws; and (ii)
consent decrees, administrative orders, settlement agreements or other
settlement documents entered into by the Company or ViraTrac, Inc. with any
administrative or governmental agency or entity concerning compliance with the
Environmental Laws.
(c) Hazardous Materials. As used herein the "Company Real
Property" means real property now or previously operated, used or leased by, to
or for the Company, but only the portion thereof, actually operated, used or
leased by, to or for the Company, including without limitation, the real
property subject to the Leases. No materials designated as hazardous substances,
wastes, hazardous materials, pollutants or contaminants under any Environmental
Laws (collectively, "Hazardous Materials") stored, used or generated by the
Company or any subsidiary have been treated, stored, transported or disposed of
in violation of any Environmental Laws; and all Hazardous Materials which have
been utilized in the business or operation of the Company or any subsidiary or
which have been removed, released, discharged or emitted by the Company or any
subsidiary from the Company Real Property were and are documented, transported
and disposed of in compliance with all Environmental Laws in all material
respects. The Company does not know of Hazardous Materials in the Company Real
Property which have harmed or could reasonably be expected to harm persons.
(d) Licenses and Permits. The Disclosure Letter lists material
permits, licenses and other authorizations issued by administrative or
governmental agencies or entities under the General Laws and the Environmental
Laws or otherwise required for the conduct of the Company's or ViraTrac, Inc.'s
business as presently conducted which are held by the Company or, with respect
to the Company's or ViraTrac, Inc., as applicable business or assets, by its
employees or agents ("Licenses and Permits"). The Licenses and Permits include
all such permits which are necessary to the Company's and ViraTrac, Inc.'s
business and operations as presently conducted and each of the Company and
ViraTrac, Inc. is and has been in compliance in all material respects with the
terms and conditions of the Licenses and Permits. Under the General Laws and the
Environmental Laws and the Licenses and Permits, the consummation of the
transactions contemplated by this Agreement do not and will not: (i) affect the
validity of the Licenses and Permits; or (ii) require the consent of any
governmental authority or third party.
2.19 Insurance. The physical properties and assets of the Company and
ViraTrac, Inc. are insured to the extent disclosed in the Disclosure Letter
attached hereto and all such insurance policies and arrangements are disclosed
in said Letter. Said insurance policies and arrangements are in full force and
effect, all premiums with respect thereto are currently paid, and the Company is
in compliance in all material respects with the terms thereof. Said insurance is
sufficient for compliance by the Company with all requirements of law and all
agreements and leases to which the Company and ViraTrac, Inc. is a party.
2.20 Powers of Attorney. Each of the Company and ViraTrac, Inc. does
not have any outstanding power of attorney.
27
2.21 Finder's Fee. Each of the Company and its subsidiaries has not
incurred or become liable for any broker's commission or finder's fee relating
to or in connection with the transactions contemplated by this Agreement, except
that Xxxxx Xxxxxx is entitled to a fee for which the Stockholders are
responsible. Except as provided in Section 1.7, such fee shall not be charged to
or paid by the Company or Purchaser.
2.22 Burdensome Agreements. Except as disclosed in the Disclosure
Letter, each of the Company and ViraTrac, Inc. is not subject to or bound by any
agreement, judgment, decree or order which Company's management expects to
materially and adversely affect the Company's or ViraTrac, Inc.'s business
prospects, condition, financial or otherwise, or assets.
2.23 Corporate Records; Copies of Documents. The corporate record books
of each of the Company and Group accurately record all corporate action taken by
its stockholders and board of directors and committees. The copies of the
corporate records and stock records of each of the Company and ViraTrac, Inc.,
as delivered to Purchaser for review, are true and complete copies of the
originals of such documents. The Company has made available to Purchaser and its
counsel true and correct copies of all documents referred to in this Section or
in the Disclosure Letter delivered to Purchaser pursuant to this Agreement. The
Company has not yet delivered to Purchaser copies of the corporate records and
stock records for Clinical Services, Inc. or Claims Services, Inc., but it
seeking to obtain such records and will deliver them as soon as they are
obtained.
2.24 Transactions with Interested Persons. Except as set forth in the
Disclosure Letter, neither the Company, nor ViraTrac, Inc. nor, to the best
knowledge of the Company, any officer, supervisory employee or director of the
Company or ViraTrac, Inc. or any of their respective spouses or family members,
owns directly or indirectly on an individual or joint basis any material
interest in, or serves individually as, or as an officer or director or in
another similar capacity of, any competitor or supplier of the Company or
ViraTrac, Inc., or any organization which has a material contract or arrangement
with the Company or ViraTrac, Inc. There are no agreements or arrangements not
contained herein or disclosed in the Disclosure Letter, to which any Stockholder
is a party relating to the business of the Company or to any Stockholder's
rights and obligations as a stockholder, director or officer of the Company.
2.25 ERISA and Employment Matters.
(a) Except as set forth in the Disclosure Letter, no employee
of the Company has a written or oral agreement (or an assurance pursuant to any
employee manual) which would preclude the Company from terminating such
employee's employment at any time with no obligation of the Company to make any
payment except wages and accrued benefits to the date of termination. The
Company does not have any policy, practice, plan, or program of paying severance
pay or any form of severance compensation in connection with the termination of
employment. The Company has not engaged in any discriminatory hiring or
employment practices in violation of applicable law nor have any employment
discrimination complaints been filed against the Company with any state or
federal agency. The Company has not been threatened by any former employee with
any suit alleging wrongful termination or other claim
28
against the Company and there are no grounds for such a suit which could
reasonably be expected to result in material liability.
The Company has made available (including providing a copy
thereof to be retained by Purchaser) to Purchaser (i) all employment manuals
utilized by the Company within the past three (3) years, (ii) copies of any
determination letters received by the Company from the Internal Revenue Service
or any other governmental authority with respect to any employee benefit plan,
together with a copy of the most recent submission for a determination letter by
the Company for each employee benefit plan maintained by the Company, (iii)
copies of any summary plan descriptions or summaries of material modifications
relating to any employee benefit plan (as defined in Section 3(3) of ERISA) that
have been prepared or distributed in the past three (3) years.
(b) There are no present or former Company employees,
directors or independent contractors entitled to (i) pension benefits that are
"unfunded" as defined under ERISA or (ii) any pension benefit or welfare benefit
to be paid after termination of employment other than liabilities for benefits
under the plan and pursuant to the Company's 401(k) Plan (the "Plan") or as
otherwise required by law. Except with respect to continuation coverage under
group health plans pursuant to Section 4980B of the Internal Revenue Code of
1986, as amended (the "Code") or state law, and except with respect to
continuation coverage under group life insurance plans pursuant to state law, no
other welfare benefits (whether or not pursuant to any plan or benefit
arrangement that is subject to the Employee Retirement Income and Security Act
("ERISA")) whatsoever are payable to any present or former Company employees
after termination of employment or to any present or former directors or
independent contractors after cessation of service to the Company (including,
but not limited to, any post-retirement medical or death benefits, any severance
benefits or any disability benefits).
(c) There are no arrangements or contracts with any director,
officer, employee or independent contractor of the Company that require any
deferred compensation, retirement or welfare benefits to be paid or provided
following termination of services, except as may occur under the Plan.
(d) Each "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) of the Company is either funded through insurance or is
unfunded for purposes of ERISA. There are no reserves, assets, surplus or
prepaid premiums under any such plan, the Company is not in material default
under any such plan, and all such plans are in compliance in all material
respects with all applicable laws (including, but not limited to, ERISA, the
Code, the Age Discrimination in Employment Act of 1967, the Americans with
Disabilities Act, and the Health Insurance Portability and Accountability Act of
1996) since such laws became effective in respect to such plans.
(e) Each of any "employee welfare benefit plan" (as defined
above) maintained by the Company, any fiduciary thereof and the Company is not
subject to any liability (other than liabilities for benefits under the plan and
normal liabilities and expenses
29
associated with maintenance of such plan or arrangement as an ongoing benefit
plan or arrangement) under ERISA or the Code or any other applicable law.
(f) The Plan, any fiduciary thereof and the Company are not
subject to any liability (other than liabilities for benefits under the Plan and
normal liabilities and expenses associated with maintenance of such plan or
arrangement as an ongoing benefit plan or arrangement) under ERISA or the Code
or any other applicable law. The Plan has been administered in compliance in all
material respects with its terms and with the applicable provisions of ERISA,
the Code and all other federal, state and other applicable laws, rules and
regulations (including, without limitation, any funding, filing, terminating,
reporting, disclosure and fiduciary obligations and any prohibited transaction
restrictions). The Plan meets the requirements of the Code and ERISA in all
material respects, and has from its inception satisfied such requirements in all
material respects.
(g) Except for the Plan and any other employee benefit plans
identified in the Disclosure Letter, the Company neither maintains, nor has it
ever maintained or ever been obligated to contribute to, (i) a multiemployer
plan within the meaning of Section 3(37) of ERISA, or (ii) any defined benefit
pension plan, or at any time after December 31, 1994, any other employee benefit
plan within the meaning of Section 3(3) of ERISA.
(h) There are no inquiries and there are no, and, since
December 31, 1994, have been no, proceedings, claims or suits pending or, to the
best of the Company's knowledge, threatened by any governmental agency or
authority or by any participant or beneficiary against the Company, the Plan or
any other employee benefit plan maintained by the Company, or any fiduciary of
the Plan or of any other employee benefit plan maintained by the Company, with
respect to the operation of the Plan or such other benefit plans, other than
routine claims for benefits.
(i) The consummation of the transactions contemplated by this
Agreement will not, alone or together with any other event, (i) entitle any
employee of the Company to a bonus, severance pay or any other payment, or (ii)
accelerate the time of payment or vesting, or increase the amount of,
compensation due to any such employee.
(j) The Company has no obligation for (i) any long-term
disability benefits to or for any of the Company's employees who become disabled
prior to the Closing Date (including any individual who is disabled but has not
satisfied any applicable waiting period) and (ii) any life insurance benefits
promised, due and/or payable to or for any of the Company's employees who die
prior to the Closing Date, other than through life insurance policies or
disability policies disclosed in the Disclosure Letter.
2.26 List of Directors and Officers. The Disclosure Letter contains a
true and complete list of all current directors and officers of the Company and
ViraTrac, Inc. In addition, the Disclosure Letter contains a list of all
employees and consultants of the Company as of the date specified therein, and
of all employees and consultants who have received compensation from the Company
for the fiscal year ended December 31, 1997. In each case the Disclosure Letter
includes the current job title and current annual base compensation of each such
individual.
30
2.27 Employees; Labor Matters.
(a) The Company employs a total of approximately 25 full-time
employees and no part-time employees and generally enjoys good employer-employee
relationships. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses, or other direct compensation for
any services performed for it to the date hereof or amounts required to be
reimbursed to such employees.
(b) The Company is in compliance in all material respects with
all applicable laws and regulations respecting labor, employment, fair
employment practices, work place safety and health, terms and conditions of
employment, and wages and hours. There are no charges of employment
discrimination or unfair labor practices, nor are there any strikes, slowdowns,
stoppages of work, or any other concerted interference with normal operations
existing, pending, or, to the Company's knowledge, threatened against or
involving the Company. No question concerning representation exists respecting
any group of employees of the Company. There are no grievances, complaints, or
charges that have been filed against the Company under any dispute resolution
procedure (including, but not limited to, any proceedings under any dispute
resolution procedure under any collective bargaining agreement) that are
outstanding, or that were outstanding during the preceding two years, and no
arbitration or similar proceeding is pending and no claim therefor has been
asserted. No collective bargaining agreement is in effect or is currently being
or is about to be negotiated by the Company. The Company has not received
information to indicate that any of its employment policies or practices is
currently being audited or investigated by any federal, state, or local
government agency.
(c) To the best knowledge of the Company, each employee of the
Company is not a party to any non-competition, trade secret or confidentiality
agreement with any party other than the Company.
2.28 Transfer of Shares. No holder of stock of the Company has at any
time transferred any of such stock to any employee of the Company, which
transfer constituted or could be viewed as compensation for services rendered to
the Company by said employee.
2.29 Stock Repurchase. Except as set forth in its Disclosure Letter,
the Company has not redeemed or repurchased any of its capital stock.
2.30 Industrial Revenue Bonds. Each of the Company and ViraTrac, Inc.
is not indebted under any industrial revenue bonds.
2.31 Services and Warranties. The Disclosure Letter describes or
specifically references all warranties or other commitments that may give rise
to claims against the Company or ViraTrac, Inc. (collectively "Commitments")
made by the Company or ViraTrac, Inc. with respect to services provided by the
Company or ViraTrac, Inc. during the last three (3) years. Except for experience
consistent with the Company's or ViraTrac, Inc.'s past experience and disclosed
or reserved against in the Annual Statements and the Interim Statements, all
services provided by the Company and ViraTrac, Inc. during the last three (3)
years complied in all material respects with the Commitments applicable thereto
and with all requirements in the
31
agreements applicable to such services. Except as listed on the Disclosure
Letter, there has been no breach or departure in any respect by the Company or
ViraTrac, Inc. from its Commitments in connection with the services by the
Company or ViraTrac, Inc. in the last three (3) years that could reasonably be
expected to result in material liability.
Except as set forth in the Disclosure Letter, there are no claims
against the Company or ViraTrac, Inc. of any kind with respect to the services
it has provided that are pending or, to the Company's knowledge threatened, and
no such claims were outstanding during the two years preceding the date hereof.
No services were provided in a manner that will result in any claim against the
Company or ViraTrac, Inc. that could reasonably be expected to result in
material liability.
2.32 Authority Relative to Agreements; Enforceability; Company
Shareholder Agreement. Common Stockholders owning a majority of the shares of
the Company Common Stock, and Preferred Stockholders owning a majority of the
shares of the Company Preferred Stock, on the applicable record date will have
the power to approve the Merger on behalf of the Company. The Principal
Stockholders will vote their shares of stock in favor of the Merger.
In the Company Shareholder Agreement, the Principal Stockholders have
agreed to vote their shares in favor of the Merger and have agreed that
Purchaser is a third-party beneficiary of such voting agreement.
2.33 Disclosure. The representations, warranties and statements
contained in this Agreement and in the agreements, certificates, exhibits,
documents and schedules delivered by the Company or the Stockholders pursuant to
this Agreement to Purchaser do not contain any untrue statement of a material
fact, and, when taken together, do not omit to state a material fact required to
be stated therein or necessary in order to make such representations, warranties
or statements not misleading in light of the circumstances under which they were
made. There are no facts directly affecting the Company or ViraTrac, Inc. which
the Company's management is actively dealing with and which management expects
would have a material adverse affect on the business, properties, prospects,
operations or condition of the Company which have not been specifically
disclosed herein or in the Disclosure Letter, other than general conditions
affecting the industries in which the Company operates.
SECTION 3. COVENANTS OF THE COMPANY.
3.1 Making of Covenants and Agreements. The Company hereby makes the
covenants and agreements set forth in this Section 3.
3.2 Conduct of Business. Between the date of this Agreement and the
Closing Date, each of the Company and the Three Subsidiaries will:
(a) conduct its business only in the ordinary course and
refrain from changing or introducing any method of management or operations
except in the ordinary course of business and consistent with prior practices;
32
(b) refrain from making any purchase, sale or disposition of
any asset or property other than in the ordinary course of business and from
mortgaging, pledging, subjecting to a lien or otherwise encumbering any of its
properties or assets;
(c) refrain from incurring any contingent liability as a
guarantor or otherwise with respect to the obligations of others, and from
incurring any other obligations or liabilities except in the ordinary course of
business;
(d) refrain from making any change or incurring any obligation
to make a change in its Certificate of Incorporation, by-laws or authorized or
issued capital stock, except pursuant to the Company Shareholder Agreement;
(e) refrain from declaring, setting aside or paying any
dividend or other transfer of property to any Stockholder (other than payment of
regular compensation -- not bonuses -- to Stockholders who are employees of the
Company or repayment of the Investor Loans as provided herein), making any other
distribution in respect of its capital stock, or making any direct or indirect
redemption, purchase or other acquisition of its capital stock;
(f) refrain from making any change in the compensation payable
or to become payable to any of its officers, employees, agents or independent
contractors except for normal merit increases (not bonuses) in the ordinary
course of business and consistent with past practices;
(g) except as provided herein for the Investor Loans, refrain
from prepaying any loans (if any) from its stockholders, officers or directors
or making any change in its borrowing arrangements;
(h) use its reasonable best efforts to prevent any change with
respect to its management and supervisory personnel and banking arrangements;
(i) use its reasonable best efforts to keep intact its
business organization, to keep available its present officers and employees and
to preserve the goodwill of all suppliers, customers, independent contractors
and others having business relations with it;
(j) have in effect and maintain at all times all insurance of
the kind, in the amount and with the insurers set forth in the Disclosure Letter
or equivalent insurance with any substitute insurers approved in writing by
Purchaser;
(k) refrain from entering into any contract or agreement
relating to capital expenditures or with respect to the construction of tenant
improvements with respect to any Leased Real Property;
(l) use reasonable best efforts to fully and correctly perform
its obligations under its agreements with customers, and maintain good
relationships with its customers, [and continue to pursue new customers as it
has in the past subject to the limitation regarding material contracts set forth
below.
33
(m) refrain from entering into or making any change in the
Plan, except as required to conform to applicable law, or materially amend or
terminate any other existing employee benefit plan, or adopt any new employee
benefit plan;
(n) not acquire control or ownership of any other corporation,
association, joint venture, partnership, limited liability company, business
trust or other business entity, or acquire control or ownership of all or a
substantial portion of the assets of the foregoing, or enter into any agreement
providing for any of the foregoing;
(o) except in the ordinary course of business, not enter into
or agree to enter into any transaction, or voluntarily incur or discharge any
obligation or liability, material to the business of the Company or any of the
Three Subsidiaries;
(p) except pursuant to the Company Shareholder Agreement and
except for repayment of the Investor Loans as provided herein, not enter into
any contracts with and not make (except for payment of normal compensation --
not bonuses -- in accordance with past practices and as disclosed in the
Disclosure Letter), any payments or transfer property to any shareholder of the
Company, relatives of any shareholder, or any corporation, partnerships, limited
liability companies or, except in the ordinary course of business, other
business entities controlled by any shareholder or in which any shareholder has
any significant equity interest;
(q) not enter into any material licensing arrangement or other
material contract;
(r) not settle any pending litigation in a manner that is
materially adverse to the Company Group or commence any material litigation; and
(s) not take any action which will prevent any of its
warranties and representations herein from being true in all material respects
as of the Closing Date.
3.3 Authorization from Others. Prior to the Closing Date, the Company
will use its best reasonable efforts to obtain all authorizations, consents and
permits of others required to permit the consummation by the Company of the
transactions contemplated by this Agreement.
3.4 Notice of Default. Promptly upon the occurrence of, or promptly
upon the Company becoming aware of the impending or threatened occurrence of,
any event which would cause or constitute a breach or default, or would have
caused or constituted a breach or default had such event occurred or been known
to the Company prior to the date hereof, of any of the representations,
warranties or covenants of the Company contained in or referred to in this
Agreement or in the Disclosure Letter or any Schedule or Exhibit referred to in
this Agreement, the Company shall give detailed written notice thereof to
Purchaser, and the Company shall use its reasonable best efforts to prevent or
promptly remedy the same.
3.5 Consummation of Agreement. The Company shall use its reasonable
best efforts to perform and fulfill all conditions and obligations on its part
to be performed and fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be
34
fully carried out. To this end, the Company will use reasonable best efforts to
obtain prior to the Closing all necessary authorizations or approvals of its
stockholders.
3.6 Cooperation of the Company. The Company shall cooperate with all
reasonable requests of Purchaser and Purchaser's counsel in connection with the
consummation of the transactions contemplated hereby.
3.7 No Negotiations; Notification of Takeover Proposal and Other
Matters. The Company shall promptly advise Purchaser orally and in writing of
any "takeover proposal" or of any proposal, or inquiry reasonably likely to
result in a proposal, which the Company has reason to believe is or may lead to
any "takeover proposal". For purposes of this Agreement, the term "takeover
proposal" shall mean any proposal for a merger or other business combination
involving the Company, or for the acquisition of a substantial equity interest
in the Company, a substantial portion of the assets of the Company or a product
line or line of business of the Company, other than as contemplated by this
Agreement. The Company shall promptly advise Purchaser orally and in writing of
the receipt by the Company of any notification submitted to the Company of any
purchase or proposed purchase of any securities of the Company by any person.
The Company shall not, directly or indirectly, whether through its
officers, directors, Stockholders, agents, representatives, or otherwise, engage
in any discussions or negotiations with, or provide any information to, any
person or entity making, proposing to make or believed to be contemplating a
takeover proposal to the Company.
3.8 Confidentiality; No Trading. The Company agrees that each of the
Company, the Three Subsidiaries and their officers, directors, Stockholders, and
representatives will hold in strict confidence, and will not use, any
confidential or proprietary data or information obtained from Purchaser with
respect to its business or financial condition except for the purpose of
evaluating, negotiating and completing the transaction contemplated hereby.
Information generally known in Purchaser's industry or which has been disclosed
to the Company by third parties which have a right to do so shall not be deemed
confidential or proprietary information for purposes of this Agreement. If the
transaction contemplated by this Agreement is not consummated, the Company will
return to Purchaser (or certify that they have destroyed) all copies of such
data and information, including but not limited to financial information,
customer lists, business and corporate records, worksheets, test reports, tax
returns, lists, memoranda, and other documents prepared by or made available to
the Company in connection with the transaction.
The Company and the Three Subsidiaries will abide by and the Company
will instruct its employees, Stockholders, agents and representatives to abide
by, applicable securities and xxxxxxx xxxxxxx laws which may restrict persons
with material non-public information about Purchaser, or any matters involving
or affecting the transactions addressed herein, from purchasing or selling
securities of Purchaser or from communicating such information to any other
person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell securities.
35
3.9 Escrow Agreement. The Company shall execute and deliver the Escrow
Agreement, substantially in the form attached hereto as Schedule 1.3(t).
3.10 Access to Records and Properties. Prior to the Closing, the
Company shall permit the Purchaser and its authorized representatives to have
full access, at reasonable times and upon reasonable notice, to all properties,
assets, records, contracts and documents of the Company and its subsidiaries, to
all representatives and consultants to the Company, and, to the extent agreed
upon by Purchaser and the Company, to customers of the Company and ViraTrac,
Inc., and furnish to the Purchaser or its authorized representatives such
financial and other information with respect to the business or properties,
assets, books, records of the Company and its subsidiaries as the Purchaser may
from time to time reasonably request. The Company will cause its representatives
and independent public accountants to provide, Purchaser and its employees,
agents and representatives full access to, and complete information concerning,
all aspects of the businesses of the Company and ViraTrac, Inc., including their
respective books, records (including tax returns filed or in preparation),
projections, personnel and premises, and any documents (including any documents
filed on a confidential basis) included in any report filed with any
governmental agency, but excluding the audit work papers and other records of
its independent public accountants.
3.11 Note. Immediately subsequent to the Effective Time of the Merger,
the Company shall transfer, distribute to the Stockholders, or otherwise dispose
of or forgive, the promissory note evidencing amounts owed to the Company by
Xxxxxxx Xxxx, so that after the Closing said note shall not be held by the
Company.
3.12 Shareholder Meeting; Alternative; Notices. The Company shall call
a special meeting of its Stockholders to be held as soon as practicable for the
purpose of voting upon the transactions contemplated by this Agreement. In
connection with calling such meeting, the Company shall provide disclosure
materials which fully and fairly describe this Agreement and the transactions
and payments to be made under or in connection with this Agreement, and which
make all other required disclosures, so that all Stockholders can make a fully
informed decision when they vote upon the transactions contemplated by this
Agreement. The Company shall afford to Purchaser the opportunity to review and
comment upon said disclosure materials before they are sent to the Stockholders.
In the alternative, the Company, in accordance with the GCL, may seek
to obtain written consent from its Stockholders approving the transactions
contemplated by this Agreement in lieu of holding a shareholders meeting.
Provided that such written consent is obtained from Stockholders holding not
less than 98% of the issued and outstanding shares of the Company Preferred
Stock at the time the written consent is executed, and from holders of not less
than 97% of the issued and outstanding shares of Company Common Stock at the
time the written consent is executed, the Company may specify that the Closing
will be held (subject to the other conditions and requirements of this
Agreement) promptly after such consents have been obtained, as provided in
Section 7.
36
The Company is responsible to prepare, in a form which complies with
all applicable requirements, including those of the GCL, any notices to
Stockholders which are required in connection with the actions described in this
Section, including but not limited to any notice of a written consent by the
Stockholders if a written consent is obtained and any notice of any appraisal
rights. Such notices will be sent before Closing if feasible. However, if this
is not feasible, the Company shall advise Purchaser of when such notices should
be sent and to whom they should be sent and in what manner, it being understood
that Purchaser shall have the responsibility solely to comply with such
instructions and shall have no responsibility for the content of such notices
and their compliance with applicable requirements.
3.13 Notification Regarding Dissenters' Shares. The Company shall give
Purchaser (i) prompt notice of any notice of intent to demand fair value for any
shares of Company Common Stock or Company Preferred Stock, withdrawals of such
notices, and any other instruments served pursuant to the Appraisal Laws and
received by the Company, and (ii) the opportunity to direct any negotiations and
proceedings with respect to demands for fair value for shares of Company Common
Stock or Company Preferred Stock under the Appraisal Laws. The Company shall
not, without the prior written consent of Purchaser, voluntarily make any
payment with respect to any demands for fair value of shares of Company Common
Stock or Company Preferred Stock or offer to settle or settle any such demands.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO.
4.1 Organization of Purchaser. Each of Purchaser and Newco is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota and Delaware, respectively, with full corporate power
and authority to own or lease its properties and to conduct its business in the
manner and in the places where such properties are owned or leased or such
business is conducted by it.
4.2 Authority of Purchaser. Each of Purchaser and Newco has full right,
authority and power to enter into this Agreement and each agreement, document
and instrument to be executed and delivered by Purchaser and Newco pursuant to
this Agreement, and to carry out the transactions contemplated hereby. The
execution, delivery and performance by Purchaser and Newco of this Agreement and
each such other agreement, document and instrument have been duly authorized by
all necessary corporate action of Purchaser and Newco and no other action on the
part of Purchaser and Newco is required in connection therewith. This Agreement
and each other agreement, document and instrument executed and delivered by
Purchaser and Newco pursuant to this Agreement constitute, or when executed and
delivered will constitute, valid and binding obligations of and Purchaser and
Newco enforceable in accordance with their terms. The execution, delivery and
performance by Purchaser and Newco of this Agreement and each such agreement,
document and instrument:
(a) do not and will not violate any provision of the Articles
of Incorporation or Certificate of Incorporation or by-laws of Purchaser or
Newco;
(b) do not and will not violate any laws, rules, or
regulations of the United States or of any state or any other jurisdiction
applicable to Purchaser or Newco or require
37
Purchaser or Newco to obtain any approval, consent, or waiver of, or make any
filing with, any person or entity (governmental or otherwise) which has not been
obtained or made; and
(c) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of any indenture, loan, or credit agreement, or any other agreement,
mortgage, lease, permit, order, judgment, or decree to which Purchaser or Newco
is a party and which is material to the business and financial condition of
Purchaser or Newco and its affiliated organizations on a consolidated basis.
4.3 Litigation. There is no litigation pending or, to its knowledge,
threatened against Purchaser or Newco which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
4.4 Finder's Fee. Each of Purchaser and Newco has not incurred or
become liable for any broker's commission or finder's fee relating to or in
connection with the transactions contemplated by this Agreement, except for a
fee payable to Xxxxxx Xxxxxxx & Company for which Purchaser is solely
responsible.
4.5 Company Representations. No representation or warranty is being
made by the Company except as expressly set forth in this Agreement, and neither
the Purchaser nor Newco is relying upon any information or documents made
available by or on behalf of the Company except as expressly covered by a
representation or warranty set forth in this Agreement. Without limiting the
generality of the foregoing, the Company makes no representation or warranty
with respect to, and neither the Purchaser nor Newco is relying upon, any
projections, estimates or budgets delivered or made available by or on behalf of
the Company.
SECTION 5. COVENANTS OF PURCHASER.
5.1 Making of Covenants and Agreement. Purchaser hereby makes the
covenants and agreements set forth in this Section 5.
5.2 Cooperation of Purchaser. Purchaser shall cooperate with all
reasonable requests of the Company and its counsel in connection with the
consummation of the transactions contemplated hereby.
5.3 Confidentiality. Purchaser agrees that, unless and until the
Closing has been consummated, Purchaser and its officers, directors, and
representatives will hold in strict confidence, and will not use any
confidential or proprietary data or information obtained from the Company with
respect to the business or financial condition of the Company except for the
purpose of evaluating, negotiating and completing the transaction contemplated
hereby. Information generally known in the industries of the Company or which
has been disclosed to Purchaser by third parties which have a right to do so
shall not be deemed confidential or proprietary information for purposes of this
agreement. If the transaction contemplated by this Agreement is not consummated,
Purchaser will return to the Company (or certify that it has destroyed) all
copies of such data and information, including but not limited to financial
information, customer lists, business and corporate records, worksheets, test
reports, tax returns,
38
lists, memoranda, and other documents prepared by or made available to Purchaser
in connection with the transaction.
5.4 Escrow Agreement. Purchaser shall execute and deliver the Escrow
Agreement, substantially in the form attached hereto as Schedule 1.3(t).
5.5 Employment Agreements. Purchaser shall execute and deliver the
Employment Agreements in the form provided in Schedule 6.1(c) and issue shares
of Purchaser's Common Stock pursuant to such Employment Agreements and grant
options to employees, in each case as described on Schedule 5.5 hereof.
5.6 Authorization from Others. Prior to the Closing Date, Purchaser
will use its reasonable best efforts to obtain all authorizations, consents and
permits of others required to permit the consummation by Purchaser and Newco of
the transactions contemplated by this Agreement.
5.7 Notice of Default. Promptly upon the occurrence of, or promptly
upon Purchaser becoming aware of the impending or threatened occurrence of, any
event that would cause or constitute a breach or default, or would have caused
or constituted a breach or default had such event occurred or been known to
Purchaser prior to the date hereof, of any of the representations, warranties or
covenants of Purchaser or Newco contained in or referred to in this Agreement or
any Schedule or Exhibit referred to in this Agreement, Purchaser shall give
detailed written notice thereof to the Company, and Purchaser shall use its
reasonable best efforts to prevent or promptly remedy the same.
5.8 Consummation of Agreement. Purchaser and Newco shall use their
reasonable best efforts to perform and fulfill all conditions and obligations on
the part of either to be performed and fulfilled under this Agreement, to the
end that the transactions contemplated by this Agreement shall be fully carried
out.
SECTION 6. CONDITIONS.
6.1 Conditions to the Obligations of Purchaser. The obligation of
Purchaser to consummate this Agreement and the transactions contemplated hereby
are subject to the fulfillment, prior to or at the Closing, of the following
conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of the Company contained in Section 2 shall be
true and correct in all material respects as of the Closing Date as though made
on and as of the Closing; and the Company shall, on or before the Closing, have
performed in all material respects all of its obligations hereunder which by the
terms hereof are to be performed on or before the Closing.
(b) No Material Change. There shall have been no material
adverse change in the financial condition, prospects, properties, assets,
liabilities, business or operations of the Company since the date hereof,
whether or not in the ordinary course of business.
39
(c) Certificate from Officer. The Company shall have delivered
to Purchaser a certificate of the Company's President dated as of the Closing to
the effect that the statements with respect to the Company set forth in
paragraph (a) and (b) above in this Section 6.1 are true and correct.
(d) Escrow Agreement.Each of the Company, the Agent and the
Escrow Agent shall have executed and delivered the Escrow Agreement,
substantially in the form attached hereto as Schedule 1.3(t).
(e) Employment Agreements; Employees. Each of the employees
referenced on Schedule 6.1(e) shall have executed and delivered an Employment
Agreement, substantially in the form provided in Schedule 6.1(e) (the
"Employment Agreements"), and Purchaser shall have received indications
satisfactory to Purchaser that the employees of the Company listed on Schedule
6.1(e), intend to continue their employment with the Company after the closing
of this Agreement.
(f) Opinion of Counsel. On the Closing Date, Purchaser shall
have received from Van Xxxx & Xxxxxx, P.C., counsel for the Company, an opinion
as of said date, in the form attached hereto as Schedule 6.1(f).
(g) No Litigation. There shall have been no determination by
Purchaser, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state or other
governmental authority of litigation, proceedings or other action against
Purchaser, the Company or any Stockholder.
(h) Consents. The Company shall have made all filings with and
notifications of governmental authorities, regulatory agencies and other
entities required to be made by the Company in connection with the execution and
delivery of this Agreement, and the performance of the transactions contemplated
hereby; and the Company and Purchaser shall have received all authorizations,
waivers, consents and permits, in form and substance reasonably satisfactory to
Purchaser, from all third parties, including, without limitation, applicable
governmental authorities, regulatory agencies, lessors, lenders and contract
parties, required to permit the continuation of the business of the Company and
the consummation of the transactions contemplated by this Agreement, and to
avoid a breach, default, termination, acceleration or modification of any
indenture, loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award as a result of, or in
connection with, the execution and performance of this Agreement.
(i) Customers. No significant customer of the Company shall
have terminated or have given notice of termination of its agreement or
agreements with the Company.
40
(j) Resignations. The Company shall have delivered to
Purchaser the resignations of all of the Directors of the Company and of such
officers of the Company as may be requested by Purchaser, such resignations to
be effective at the Closing.
(k) No Monetary Claims. The Company shall have delivered to
Purchaser written representations signed by each of the Principal Stockholders
and by each Director of the Company that they have no monetary claims against
the Company, provided that such representations shall not apply to: (i) the
rights of any Principal Stockholder under the Escrow Agreement, (ii) the rights
of Xxxxxxx Xxxx under Sections 14 and 15 of the Company Shareholder Agreement,
(iii) the Investor Loans, and (iv) in the case of officers and Directors, rights
to indemnification from the Company pursuant to its Certificate of Incorporation
and by-laws, and rights pursuant to Section 10.15 hereof.
(l) Nonsolicitation and Confidentiality. Each Principal
Stockholder shall have delivered its agreement that such Principal Stockholder
and any investment fund under common control with such Principal Shareholder (it
being understood that such agreement shall not apply to any portfolio company or
other entity in which a Principal Shareholder or any investment fund under
common control with such Principal Shareholder has made an investment):
(i) will not for two years after Closing hire,
solicit, or induce to leave the employment of the Company or any
affiliate or successor to the Company, any person employed by the
Company as of the date hereof, or cause or induce any person engaged by
the Company as a consultant as of the date hereof to cease to provide
services to the Company or to materially reduce the amount or level of
services that such consultant provides to the Company or any affiliate
or successor, and it and its officers will not recommend for employment
any person employed by the Company as of the date hereof to any third
party, including portfolio companies or entities in which they have
invested, or encourage any third parties to hire such persons.
(ii) will hold in strict confidence and will not use,
except as may be directed by Purchaser any confidential or proprietary
data or information of the Company; provided that the obligations under
this paragraph shall not apply to any data or information which (i) is
or becomes public knowledge or generally known in the Company's
industry, (ii) is disclosed to the Principal Stockholder or an
investment fund under common control with such Principal Shareholder by
a third party who is not under an obligation of confidentiality with
respect to such information to or for the benefit of the Company, or
(iii) is required to be disclosed by law.
(m) Approvals. The approval of the shareholders of the Company
shall have been obtained.
(n) Dissenting Shares. As of the Closing Date, no more than
three percent (3%) of the issued and outstanding shares of Company Common Stock
shall be eligible for treatment as Dissenting Shares hereunder, and no more than
two percent (2%) of the issued and
41
outstanding shares the Company Preferred Stock shall be eligible for treatment
as Dissenting Shares hereunder.
6.2 Conditions to Obligations of the Stockholders. The obligation of
the Stockholders to consummate this Agreement and the transactions contemplated
hereby is subject to the fulfillment, prior to or at the Closing, of the
following conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of Purchaser contained in Section 5 shall be true
and correct in all material respects as though made on and as of the Closing;
Purchaser shall, on or before the Closing, have performed in all material
respects all of its obligations hereunder which by the terms hereof are to be
performed on or before the Closing; and Purchaser shall have delivered to the
Company and the Stockholders a certificate of the President of Purchaser dated
on the Closing to such effect.
(b) Escrow Agreement. Purchaser and the Escrow Agent shall
have executed and delivered the Escrow Agreement, substantially in the form
attached hereto as Schedule 1.3(t).
(c) Employment Agreements. Purchaser shall have executed and
delivered the Employment Agreements (and issued shares of Common Stock of
Purchaser as provided in the Employment Agreements) and granted options,
substantially as provided in Schedule 5.5.
(d) Opinion of Counsel. On the Closing Date, the Company shall
have received from Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A., counsel for
Purchaser, an opinion as of said date, in the form attached hereto as Schedule
6.2(d).
(e) No Litigation. There shall have been no determination by
the Company, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state or other
governmental authority of litigation, proceedings or other action against
Purchaser, the Company or any Stockholder.
(f) Approvals. The approval of the shareholders of the Company
shall have been obtained.
SECTION 7. CLOSING; CLOSING DATE.
Unless this Agreement shall have been terminated and the Merger herein
contemplated shall have been abandoned pursuant to a provision of Section 8
hereof and subject to compliance with the conditions hereto, a closing (the
"Closing") will be held on the business day specified by the Company (i) which
is at least three (3) business days after the Company has notified Purchaser
that it has obtained the required Stockholders approval through a shareholders
meeting or by written consent as specified in Section 3.12, and which is at
least one (1) business day before the date specified by Section 8.1(d) hereof as
it may be extended pursuant to the terms thereof, or on such other date which is
mutually acceptable to Purchaser and the Company at the offices of the Company's
counsel, commencing at 10:00 A.M. At such time and place, the
42
documents referred to in Section 6 hereof will be exchanged by the parties and,
immediately thereafter, the Articles of Merger will be filed by Newco and the
Company with the Secretary of the State of Delaware; provided, however, that if
any of the conditions provided for in Section 6 hereof shall not have been met
or waived by the date on which the Closing is otherwise scheduled, then, subject
to Section 8.1(d) hereof, the party to this Agreement which is unable to meet
such condition or conditions shall be entitled (provided that such party is
acting in good faith) to postpone the Closing for a reasonable period of time by
notice to the other parties until such condition or conditions shall have been
met (which such notifying party will seek to cause to happen at the earliest
practicable date) or waived. The date on which the Closing occurs is herein
referred to as the Closing Date.
SECTION 8. TERMINATION.
8.1 Termination and Abandonment. This Agreement may be terminated and
the Merger may be abandoned before the Effective Time of the Merger,
notwithstanding any approval and adoption of this Agreement by the shareholders
of the Company or Newco:
(a) by the mutual consent of the Board of Directors of
Purchaser and the Company; or
(b) by Purchaser or the Company, if the shareholders of the
Company fail to approve the Merger at the meeting of such shareholders called to
vote upon the Merger; or
(c) by Purchaser if there has been a material
misrepresentation or material breach on the part of the Company in the
representations, warranties or covenants of the Company set forth herein, or if
there has been any material failure on the part of the Company to comply with
its obligations hereunder, or by the Company if there has been a material
misrepresentation or material breach on the part of Purchaser or Newco in the
representations, warranties or covenants of Purchaser or Newco set forth herein,
or if there has been any material failure on the part of Purchaser or Newco to
comply with their obligations hereunder; or
(d) by the Board of Directors of either the Company or
Purchaser, at its discretion, if the Merger is not effective by June 30, 1998,
except that: (i) this date is conditioned upon the Company having either held
the Shareholder meeting to approve the transactions contemplated by this
Agreement or obtained the written consent to approve the transactions
contemplated by this Agreement as contemplated in Section 3.12 hereof, at least
three (3) days in advance of June 30, 1998, and if the Company has not either
held the Shareholder meeting (irrespective of the outcome) or obtained the
written consent to approve the transactions contemplated by this Agreement,
then, at Purchaser's option, said date may be extended to a date four (4)
business days after the date on which the Company has satisfied such
requirement, and (ii) if one party's breach of this Agreement has caused a delay
in the consummation of the Merger the other party shall have the option to
extend this date to a date up to ten (10) days after the date on which the other
party is notified of the breach.
8.2 Termination Procedures. The power of termination provided for by
this Section 8 may be exercised for Purchaser or the Company only by its
respective President and will be
43
effective only after written notice thereof, signed on behalf of the party for
which it is given by its President or Vice-President or other duly authorized
officer, in the case of Purchaser, or its President in the case of the Company,
shall have been given to the other. If this Agreement is terminated in
accordance with this Section 8, then the Merger shall be abandoned without
further action by the Company, Purchaser and Newco.
8.3 Liability Upon Termination. In the event of termination and
abandonment of the Merger pursuant to this Article VIII, no party hereto shall
have any liability or further obligation to any other party hereto, except a
party that is in material breach of its representations, warranties or covenants
hereunder shall be liable for damages incurred by the other parties hereto to
the extent that such damages are proximately caused by such breach if such
breach was willful or deliberate (a "Deliberate Breach"), but in the absence of
a Deliberate Breach, the liability of the responsible party to the other party
shall be limited to out-of-pocket expenses incurred by the other party in
connection with negotiating, preparing and entering into this Agreement and
carrying out the transactions contemplated hereby.
8.4 Effect of Termination. All obligations of the parties hereunder
shall cease upon any termination pursuant to Section 8.1, provided, however,
that (a) the provisions of this Section 8, Section 3.8, Section 5.3, Section
10.1, Section 10.2 and Section 10.11 hereof shall survive any termination of
this Agreement; (b) any party's liability for a material breach of its
representations, warranties, or covenants hereunder shall be as provided in
Section 8.3, and (c) any party may proceed as further set forth in Section 8.5
below.
8.5 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Section 6.1 hereof have
not been fulfilled, Purchaser shall have the right to proceed with the
transactions contemplated hereby without waiving any of its rights hereunder,
and if any of the conditions specified in Section 6.2 hereof have not been
fulfilled, the Stockholders shall have the right to proceed with the
transactions contemplated hereby without waiving any of their rights hereunder.
8.6 Waiver. The Company may extend the time for the performance of any
of the obligations or other acts of Purchaser hereunder, waive any inaccuracies
in the representations and warranties of Purchaser contained herein or in any
document delivered pursuant hereto, or waive compliance by Purchaser with any of
the agreements or conditions contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the Company.
Purchaser may extend the time for the performance of any of the obligations or
other acts of the Company hereunder, waive any inaccuracies in the
representations and warranties of the Company contained herein or in any
document delivered pursuant hereto, or waive compliance by the Company with any
of the agreements or conditions contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by Purchaser.
44
SECTION 9. INDEMNIFICATION.
9.1 Survival of Warranties.
(a) Each of the representations, warranties, agreements,
covenants and obligations herein or in any Schedule, Exhibit, certificate,
agreement, document, or financial statement delivered by any party to the other
party incident to the transactions contemplated hereby are material, shall be
deemed to have been relied upon by the other party and shall survive the Closing
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto; provided that such representations of
warranties shall expire on the date indemnification obligations expire pursuant
to this Section 9.
(b) If any representation, warranty, covenant, or agreement of
any party in this Agreement or any Schedule, Exhibit, certificate, agreement,
document, or statement delivered pursuant hereto is qualified by materiality,
material adverse effect, or words of similar import (collectively, "Materiality
Conditions"), then such representation, warranty, covenant or agreement shall
not be considered breached until such Materiality Condition has been satisfied.
However, once the Materiality Conditions have been satisfied, so that a claim
can be made, the amount of any claim for indemnification under this Section 9
arising out of the same circumstances which gave rise to such breach shall be
determined without regard to such Materiality Conditions.
9.2 Indemnification by the Company and Through Escrow. Subject to the
limitations set forth below, the Company hereby agree that, notwithstanding the
Closing, the delivery of instruments of conveyance, and regardless of any
investigation at any time made by or on behalf of any party hereto, the Company
will save, indemnify and hold Purchaser, its directors, officers, employees and
agents and, after Closing, the Surviving Corporation, (hereinafter,
collectively, "the Indemnitees") harmless from and against any and all
liabilities, losses, damages, claims, deficiencies, costs and expenses
(including, without limitation, reasonable attorney fees and other costs and
expenses incident to any suit, action or proceeding) arising out of or resulting
from, and will pay to the Indemnitees the amount of damages suffered thereby
together with any amount which they or any of them may pay or become obligated
to pay on account of:
(a) the breach or inaccuracy of any warranty or representation
by the Company herein; and
(b) any breach or failure to perform by the Company of any
material term, provision, covenant or condition hereunder.
If the Closing hereunder is held, the Company, its officers, directors
and Stockholders, and the Surviving Corporation will have no liability with
respect to indemnification claims by the Indemnitees pursuant to this Section 9.
Rather all claims will be satisfied from the Escrow Fund in accordance with the
Escrow Agreement, and any amounts distributed to Stockholders from the Escrow
Fund in accordance with its terms will no longer be available to satisfy
claims.
45
9.3 Procedure for Claims. Wherever the Indemnitees, or any of them,
have a claim for indemnification, they shall deliver notice of such claim to the
Agent specifying the claim and describing it in reasonable detail.
9.4 Limitation on Indemnification. The indemnification obligations of
the Company are subject to each of the following limitations, understandings or
qualifications:
(a) Each of the representations and warranties made by the
Company in this Agreement shall survive for a period of fifteen (15) months
after the Closing Date. After the expiration date of any representations and
warranties no claim for indemnification based on such representations and
warranties may be asserted by the Indemnitees, except that claims first asserted
in writing with reasonable detail before the expiration date may be pursued
until they are finally resolved.
(b) Provided that there has been, with respect to the claim in
question, no knowing and intentional (i) misrepresentation of a material fact,
(ii) omission of facts or information necessary to make a representation or
warranty not materially misleading, or (iii) breach or failure to perform any
material term, provision, covenant or condition hereunder, no individual claim
by Indemnitees for Indemnification under Section 9.2 can be made unless and
until the amount of damages incurred by the Indemnitees for such individual
claim exceeds $10,000, and then only to the extent that the amount of such
damages exceeds $10,000; provided, however, that such deductible shall not
apply, and Purchaser shall be entitled to recover the first dollar of, any claim
by Purchaser under Section 1.6 (relating to Options) or Section 1.7 hereof
(relating to adjustments to the amount to be paid at Closing). For purposes of
this subsection, if more than one claim arises from the same matter, all such
claims shall be considered one individual claim.
(c) The aggregate amount of claims by Indemnitees for
indemnification under Section 9.2 shall not exceed the amount of the Escrow
Fund, and shall be subject to the limitations of the Escrow Agreement.
9.5 Indemnification by Purchaser. Subject to the limitations set forth
below, Purchaser hereby agrees that, notwithstanding the Closing, the delivery
of instruments of conveyance, and regardless of any investigation at any time
made by or on behalf of any party hereto or of any information any party hereto
may have in respect thereof, it will indemnify and hold the Company but only up
until Closing, harmless from and against any and all liabilities, losses,
damages, claims, deficiencies, costs and expenses (including, without
limitation, reasonable attorney fees and other costs and expenses incident to
any suit, action or proceeding) arising out of or resulting from and will pay to
the Indemnitees the amount of damages suffered thereby together with any amount
which they or any of them may pay or become obligated to pay on account of:
(a) the breach or inaccuracy of any warranty or representation
by Purchaser herein;
46
(b) any breach or failure to perform by Purchaser of any
material term, provision, or covenant or condition hereunder;
If the Closing hereunder is held, the Company shall no longer benefit
from the foregoing indemnification.
9.6 Procedure for Claims. Wherever the Company has a claim for
indemnification, it shall deliver notice of such claim to Purchaser specifying
the claim and describing it in reasonable detail.
9.7 Limitation on Indemnification. The indemnification obligations of
Purchaser are subject to each of the following limitations, understandings or
qualifications:
(a) Each of the representations and warranties made by the
Purchaser in this Agreement shall survive for a period of fifteen (15) months
after the Closing Date. After the expiration date of any representations and
warranties no claim for indemnification based on such representations and
warranties may be asserted by the Indemnitees, except that claims first asserted
in writing with reasonable detail before the expiration date may be pursued
until they are finally resolved.
(b) Provided that there has been no knowing and intentional
(i) misrepresentation of a material fact, (ii) omission of facts or information
necessary to make a representation or warranty not materially misleading, or
(iii) breach or failure to perform any material term, provision, covenant or
condition hereunder, no individual claim by Indemnitees for Indemnification
under Section 9.2 can be made unless and until the amount of damages incurred by
the Indemnitees for such individual claim exceeds $10,000, and then only to the
extent that the amount of such damages exceeds $10,000. For purposes of this
subsection, if more than one claim arises from the same matter, all such claims
shall be considered one individual claim.
(c) The aggregate amount of claims by Indemnitees for
indemnification under Section 9.5 shall not exceed $700,000, less the dollar
amount of any distributions which have been made to the Representative from the
Escrow Fund before the time the claim is first made by Indemnitees.
9.8 Notice; Defense of Claims.
(a) The party which is entitled to indemnification hereunder
(for purposes of this Section 9.8, the "Indemnified Party") may make claims for
indemnification hereunder by giving written notice thereof to the party required
to indemnify (for purposes of this Section 9.8, the "Indemnifying Party") within
the period in which indemnification claims can be made hereunder. If
indemnification is sought for a claim or liability asserted by a third party,
the Indemnified Party shall also give written notice thereof to the Indemnifying
Party promptly after it receives notice of the claim or liability being
asserted, but the failure to do so, or any delay in doing so, shall not relieve
the Indemnifying Party from any liability, unless, and then only to the extent
that, the rights and remedies of the Indemnifying Party are prejudiced as a
result of the
47
failure to give, or delay in giving, such notice. Such notice shall summarize
the bases for the claim for indemnification and any claim or liability being
asserted by a third party. Within 30 days after receiving such notice, the
Indemnifying Party shall give written notice to the Indemnified Party stating
whether it disputes the claim for indemnification and whether it will defend
against any third party claim or liability at its own cost and expense.
(b) If the Indemnifying Party gives notice of its intent to
dispute and defend a third-party claim or liability or litigation resulting
therefrom within such period, the Indemnifying Party shall be entitled to direct
the defense against such third party claim or litigation with counsel selected
by it (subject to the consent of the Indemnified Party, which consent shall not
be unreasonably withheld) as long as the Indemnifying Party is conducting a good
faith and diligent defense. So long as the Indemnifying Party has assumed and is
conducting the defense of the third-party claim or any litigation resulting
therefrom as described above, the Indemnifying Party shall not, in the defense
of such third-party claim or any litigation resulting therefrom, consent to
entry of any judgment or enter into any settlement or compromise except with the
written consent of the Indemnified Party (which consent shall not be withheld
unreasonably) unless the judgment or proposed settlement (i) involves only the
payment of money damages by the Indemnifying Party (which in the case of a claim
made under Section 9.2 is in an amount that may be satisfied through the Escrow
Fund), (ii) fully releases the Indemnified Party from all Liabilities in respect
of such claim or litigation, and (iii) does not impose an injunction or other
equitable relief upon the Indemnified Party; and the Indemnified Party will not
consent to the entry of any judgment or enter into any settlement with respect
to the third-party claim or any litigation resulting therefrom without the prior
written consent of the Indemnifying Party (which consent shall not be withheld
unreasonably). The Indemnified Party shall at all times have the right to fully
participate in the defense of a third party claim or liability at its own
expense directly or through counsel; provided, however, that if the named
parties to the action or proceeding include both the Indemnifying Party and the
Indemnified Party and the Indemnified Party is advised that representation of
both parties by the same counsel would be inappropriate under applicable
standards of professional conduct, the Indemnified Party may engage separate
counsel at the expense of the Indemnifying Party.
(c) If the Indemnifying Party shall not give notice of its
intent to dispute and defend a third party claim or liability or litigation
resulting therefrom after receipt of notice from the Indemnified Party, or if
such good faith and diligent defense is not being or ceases to be conducted by
the Indemnifying Party, the Indemnified Party shall have the right, at the
expense of the Indemnifying Party, to undertake the defense of such claim or
liability in such manner as it deems appropriate (with counsel selected by the
Indemnified Party), and to compromise or settle such claim or litigation on such
terms as it may deem appropriate, exercising reasonable business judgment, and
the Indemnifying Party will remain responsible for such third-party claim or
liability or litigation resulting therefrom to the extent provided in this
Section 9.
(d) If the third party claim or liability is one that by its
nature cannot be defended solely by the Indemnifying Party, the Indemnified
Party shall make available such information and assistance in connection
therewith as the Indemnifying Party may reasonably
48
request and shall cooperate with the Indemnifying Party in such defense at the
expense of the Indemnifying Party.
9.9 Exclusive Remedy. The provisions of this Section 9 set forth the
exclusive remedies for a breach of this Agreement (or any representation,
warranty, term, provision, covenant or condition hereunder) and shall be in lieu
of all other indemnification, contribution, liability and other remedies which
may be available by statute, at common law or otherwise, and to the maximum
extent permitted by law, the parties hereby irrevocably and unconditionally
waive all other remedies for breach of this Agreement; provided, however, that
either party may seek specific performance of this Agreement.
9.10 Determination of Amount of Claim. The parties shall make
appropriate adjustments for insurance coverage from insurance policies
maintained and paid for the Company in the ordinary course of business prior to
the Closing Date in determining the amount of liabilities, losses, damages,
claims, deficiencies, costs and expenses incurred by a party in connection with
any matter that is subject to a claim for indemnification under this Section 9.
SECTION 10. MISCELLANEOUS.
10.1 Fees and Expenses. Each of the parties will bear its own expenses
for accounting, legal, investment banking and other professional fees and
expenses in connection with the negotiation and the consummation of this
Agreement and the transactions contemplated hereby, and no such expenses of the
Company or the Stockholders relating to the negotiation and consummation of this
Agreement and the transactions contemplated hereby shall be charged to or paid
by the Company or Purchaser. The foregoing shall not limit, however, any party's
right to include expenses in any claim for damages against any other party who
breaches any legally binding provision of this Agreement.
10.2 Governing Law. This Agreement shall be construed under and
governed by the internal laws of the State of Minnesota without regard to its
conflict of laws provisions.
10.3 Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, or if
sent by registered or certified mail, upon the sooner of the date on which
receipt is acknowledged or the expiration of three days after deposit in United
States post office facilities properly addressed with postage prepaid. All
notices to a party will be sent to the addresses set forth below or to such
other address or person as such party may designate by notice to each other
party hereunder, provided, however, that no notices need to be sent to the
Company after the Effective Time of the Merger:
TO PURCHASER: Chronimed, Inc.
00000 Xxx Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Attn: President
Facsimile: (000) 000-0000
49
With a copy to: Chronimed, Inc.
00000 Xxx Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Attn: General Counsel
Facsimile: (000) 000-0000
TO COMPANY: Mr. Xxxxxxx Xxxx
Clinical Partners
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
With a copy to: Xx. Xxxxxxx Xxxxxx
Xxx Xxxx & Xxxxxx, P.C.
Xxx Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
TO THE STOCKHOLDERS: Sierra Ventures Management Company, Inc.,
as Agent for the Stockholders
0000 Xxxx Xxxx Xxxx
Xxxxxxxx Xxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000
With a copy to: Xx. Xxxxxxx Xxxxxx
Xxx Xxxx & Xxxxxx
Xxx Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
10.4 Entire Agreement. This Agreement, including the Disclosure Letter,
the Schedules and Exhibits referred to herein and the other writings
specifically identified herein or contemplated hereby, is complete, reflects the
entire agreement of the parties with respect to its subject matter, and
supersedes all previous written or oral negotiations, commitments and writings,
including, without limitation, the Letter of Intent, dated April 6, 1998,
between the parties hereto in respect of the transactions contemplated herein,
which Letter of Intent shall be completely superseded by the representations,
warranties, and covenants of the parties and the other terms and conditions
contained herein.
10.5 Assignability; Binding Effect. This Agreement shall only be
assignable by Purchaser to a corporation or partnership controlling, controlled
by or under common control with Purchaser upon written notice to the Company,
and such assignment shall not relieve Purchaser of any liability hereunder. This
Agreement may not be assigned by the Company without the prior written consent
of Purchaser. This Agreement shall be binding upon and
50
enforceable by, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.
10.6 Captions and Gender. The captions in this Agreement are for
convenience of reference only and shall not affect the construction or
interpretation of any term or provision hereof. The use in this Agreement of the
masculine pronoun in reference to a party hereto shall be deemed to include the
feminine or neuter, as the context may require.
10.7 Execution in Counterparts. For the convenience of the parties and
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
10.8 Amendments. This Agreement may not be amended or modified, nor may
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance.
10.9 Publicity and Disclosures. Purchaser will issue a press release
relating this Agreement promptly after its execution. Except where Purchaser
reasonably concludes that such press release must be issued with no further
delay Purchaser shall endeavor to provide the Company with opportunity to
comment upon such press release, but Purchaser shall make the final
determination of what must be included in such press release. Except as and to
the extent required by law, and except for such press release, without the prior
written consent of the other party, neither Purchaser, nor the Company shall,
and each shall direct its representatives not to, directly or indirectly, make
any public comment, statement, or communication with respect to the transactions
between the parties or any of the terms, conditions, or other aspects of the
transactions contemplated herein or any confidential information, except (i) to
such of their respective representatives as need to know such information for
the purpose of evaluating or otherwise effecting the transactions contemplated
herein, or (ii) to the employees of the Company in connection with the Closing.
If a party is required by law to make any such disclosure, it shall first
provide to the other party the content of the proposed disclosure, the reasons
that such disclosure is required by law, and the time and place that such
disclosure will be made.
Except as otherwise required by law or the rules of the National
Association of Securities Dealers, Inc., and except for Purchaser's press
release, so long as this Agreement is in effect, neither Purchaser nor the
Company shall issue or cause the publication of any press release with respect
to the transactions contemplated by this Agreement without the consent of the
other party, which consent shall not be unreasonably withheld or delayed.
10.10 No Third Party Rights. Except as otherwise provided in this
Agreement, nothing herein expressed or implied is intended, nor shall be
construed, to confer upon or give any person, firm or corporation, other than
Purchaser and the Company and their respective security holders, any rights or
remedies under or by reason of this Agreement.
51
10.11 Consent to Jurisdiction. Each of the parties hereby consents to
personal jurisdiction, service of process and venue in the federal or state
courts of Minnesota for any claim, suit or proceeding arising under this
Agreement, or in the case of a third party claim subject to indemnification
hereunder, in the court where such claim is brought.
10.12 Schedules and Exhibits. This Agreement shall be deemed to have
incorporated by reference the Disclosure Letter and all Schedules and Exhibits
referred to herein to the same extent as if such Schedules and Exhibits were
fully set forth herein.
10.13 Arbitration. Any dispute, controversy or claim arising out of or
in connection with, or relating to, this Agreement or any breach or alleged
breach hereof, including without limitation any claim for indemnification under
Section 9 hereof, shall be submitted to and settled by arbitration in San
Francisco, California, pursuant to the rules for expedited arbitration then in
effect of the American Arbitration Association (or at any other place or under
any other form of arbitration mutually acceptable to the parties so involved).
Such proceedings may be initiated by written notice given by either party to the
other. Such proceedings shall be conducted before a single arbitrator who will
be selected in accordance with the procedures then in effect of the American
Arbitration Association, unless the Agent gives notice that it wishes for the
proceedings to be before three arbitrators in accordance with the requirements
set forth below, in which case the provisions set forth below regarding
arbitration before three arbitrators shall apply.
The arbitrator (or board of arbitrators so constituted if three
arbitrators are utilized) shall forthwith upon its appointment hear the parties
and their witnesses and resolve the issue presented. The arbitration hearings
shall commence not more than sixty (60) days following the date of the
appointment of the arbitrator (or third arbitrator, if applicable) unless
extended by mutual agreement of the parties in interest or by the arbitrator(s).
The arbitrator(s) shall have complete discretion to establish the time and place
of the arbitration within San Francisco, California. The arbitrator(s) shall in
writing notify all interested parties of their determinations in the arbitration
proceedings. Any determination by the arbitrator or a majority of the
arbitrators, as applicable, shall be final and binding upon all interested
parties and a judgment thereon may be entered in the highest court of the forum,
state or federal, having jurisdiction. Compensation of the arbitrator(s) and all
other costs of the arbitration (collectively "Arbitration Costs") shall be paid
by the non-prevailing party, as determined by the arbitrator(s). If any party
shall fail, neglect or refuse to appear at the hearing established by the
arbitrator(s), the arbitrator(s) may act in the absence of such party. If the
Closing hereunder is held, any and all awards or determinations of the
arbitrator(s) made against the Company shall be satisfied solely from the Escrow
Fund in accordance with the Escrow Agreement, except for two-thirds of any
Arbitration Costs assessed against the Agent in cases where the Agent has
exercised its right to utilize three arbitrators as provided below.
At its option, either when the Agent is commencing arbitration
proceedings or when arbitration proceedings are commenced against the Agent, the
Agent may elect to have the arbitration proceedings conducted before a board of
three arbitrators rather than before a single arbitrator, but subject to the
requirement that in order to exercise such right, the Agent must post
52
funds sufficient in amount to pay two-thirds of the Arbitration Costs in the
event that Purchaser is the prevailing party, with such amount not to be paid
from the Escrow Fund. If the Agent desires to exercise its rights to have a
board of three arbitrators, then if the Agent commences the arbitration
proceedings, in the Agent's notice of arbitration (and as an essential part
thereof) the Agent shall designate the name and address of an arbitrator willing
to act and state that a board of three arbitrators is required. If Purchaser
commences the arbitration, then, in a notice responding to Purchaser's notice of
arbitration, to be delivered within ten (10) days after the receipt of notice
from Purchaser, the Agent shall indicate that it wishes to have the arbitration
conducted before a board of three arbitrators and shall designate the name and
address of an arbitrator willing to act. In the event the Agent fails to deliver
such notice within ten (10) days after the receipt of notice from Purchaser, the
arbitration proceeding shall be conducted before a single arbitrator. In each
case, the Agent also must deposit with the Escrow Agent to be held in a separate
fund by the Escrow Agent two-thirds of the estimated Arbitration Costs to be
available in the event the Purchaser is the prevailing party in the arbitration.
Within twenty (20) days after receipt of a notice from the Agent that a board of
three arbitrators is required, Purchaser shall designate the name and address of
a second arbitrator willing to act, and within ten (10) days thereafter the two
arbitrators so appointed shall appoint a third arbitrator, or failing action
within such period by any party or the arbitrators, any unappointed arbitrator
or arbitrators shall be appointed by the American Arbitrator Association upon
application of any party or arbitrator. The board of arbitrators as so
constituted shall then hear the arbitration as provided above. If the Purchaser
prevails in the arbitration, then one-third of any Arbitration Costs assessed
against the Agent shall be satisfied from the Escrow Fund and the balance of
two-thirds shall be satisfied by the funds posted by the Agent as a condition to
requiring a three arbitrator process.
10.14 Section 338 Election. The parties acknowledge that Purchaser
intends to make an election under Section 338 of the Internal Revenue Code
following consummation of this Agreement and intends to apply the net operating
losses the Company has against income generated as a result of Section 338
Election.
10.15 No Amendment to Limit Indemnification. Following the Effective
Time of Merger, the Company shall not amend its Certificate of Incorporation or
by-laws in a way that reduces the indemnification now provided to its present
officers and Directors thereunder.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
PURCHASER:
CHRONIMED INC.
By /s/ Xxxxx X. Xxxxxxxxxxx
Name: Xxxxx X. Xxxxxxxxxxx
Title: President/COO
53
COMPANY:
CLINICAL PARTNERS, INC.
By: /s/ X. Xxxx
Name: X. Xxxx
Title: President
NEWCO:
RED CIRCLE VENTURES, INC.
By: Xxxxx X. Xxxxxxxxxxx
Name: Xxxxx X. Xxxxxxxxxxx
Title: President/COO
54
