Exhibit 2.1
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
VITALWORKS INC.,
PACS ACQUISITION CORP.,
AMICAS, INC.
AND
XXXX XXXXXXX, XXXXX XXXXXXXXXX AND XXXXXXXXX XXXXX
AS STOCKHOLDERS' REPRESENTATIVE
November 25, 2003
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER..................................................................................... 1
1.1 The Merger............................................................................. 1
1.2 The Closing............................................................................ 1
1.3 Actions at the Closing................................................................. 1
1.4 Additional Action...................................................................... 2
1.5 Conversion of Shares................................................................... 2
1.6 Dissenting Shares...................................................................... 6
1.7 Exchange of Shares..................................................................... 7
1.8 Post Closing Adjustments............................................................... 8
1.9 Payments on Account of Adjustments..................................................... 10
1.10 Stockholders' Representative........................................................... 10
1.11 Earn-Out Consideration................................................................. 13
1.12 Escrow and Holdback.................................................................... 21
1.13 Certificate of Incorporation and By-laws............................................... 22
1.14 Directors and Officers................................................................. 23
1.15 No Further Rights...................................................................... 23
1.16 Closing of Transfer Books.............................................................. 23
1.17 Taxes.................................................................................. 23
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................. 23
2.1 Organization, Qualification and Corporate Power........................................ 24
2.2 Capitalization......................................................................... 24
2.3 Authorization of Transaction........................................................... 25
2.4 Noncontravention....................................................................... 26
2.5 Subsidiaries........................................................................... 26
2.6 Financial Statements................................................................... 26
2.7 Absence of Certain Changes............................................................. 27
2.8 Undisclosed Liabilities................................................................ 27
2.9 Tax Matters............................................................................ 27
2.10 Assets................................................................................. 30
2.11 Owned Real Property.................................................................... 31
2.12 Intellectual Property.................................................................. 31
2.13 Real Property Leases................................................................... 35
2.14 Contracts.............................................................................. 36
2.15 Powers of Attorney..................................................................... 38
2.16 Insurance.............................................................................. 38
2.17 Litigation............................................................................. 39
2.18 Employees and Subcontractors........................................................... 39
2.19 Employee Benefits...................................................................... 40
2.20 Environmental Matters.................................................................. 43
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2.21 Legal Compliance....................................................................... 45
2.22 Permits................................................................................ 46
2.23 Certain Business Relationships With Affiliates......................................... 47
2.24 Brokers' Fees.......................................................................... 47
2.25 Books and Records...................................................................... 47
2.26 Prepayments, Prebilled Invoices and Deposits........................................... 47
2.27 Banking Facilities..................................................................... 48
2.28 Accounts Receivable.................................................................... 48
2.29 Warranties............................................................................. 48
2.30 Customers and Suppliers................................................................ 48
2.31 Controls and Procedures................................................................ 49
2.32 Inventory.............................................................................. 49
2.33 Government Contracts................................................................... 49
2.34 Personally Identifiable Information and Privacy........................................ 50
2.35 Disclosure............................................................................. 51
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY SUBSIDIARY.................... 51
3.1 Organization and Corporate Power....................................................... 51
3.2 Authorization of Transaction........................................................... 51
3.3 Noncontravention....................................................................... 51
3.4 Reports and Financial Statements....................................................... 52
3.5 Broker's Fees.......................................................................... 52
ARTICLE IV COVENANTS..................................................................................... 53
4.1 Closing Efforts........................................................................ 53
4.2 Governmental and Third-Party Notices and Consents...................................... 53
4.3 Stockholder Approval; Termination of Options and Warrants.............................. 53
4.4 Operation of Business.................................................................. 54
4.5 Access to Information.................................................................. 56
4.6 Notice of Breaches..................................................................... 57
4.7 Exclusivity............................................................................ 57
4.8 Expenses............................................................................... 58
4.9 Bonus Plan............................................................................. 58
4.10 Tax Disclosure......................................................................... 58
4.11 Cooperation in Insurance............................................................... 59
4.12 Listing of Earn-out Shares............................................................. 59
4.13 FIRPTA................................................................................. 59
4.14 Indemnification........................................................................ 59
4.15 Cooperation in Financial Reporting..................................................... 59
4.16 Earn-out Shares........................................................................ 60
4.17 Tax Returns............................................................................ 60
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ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER........................................................... 61
5.1 Condition to Each Party's Obligations.................................................. 61
5.2 Conditions to Obligations of the Buyer and the Transitory Subsidiary................... 61
5.3 Conditions to Obligations of the Company............................................... 63
ARTICLE VI INDEMNIFICATION............................................................................... 64
6.1 Pro Rata Indemnification by the Company Stockholders................................... 64
6.2 Several Indemnification by the Company Stockholders.................................... 65
6.3 Indemnification by the Buyer and the Surviving Corporation............................. 66
6.4 Indemnification Claims................................................................. 67
6.5 Survival of Representations and Warranties............................................. 69
6.6 Limitations............................................................................ 70
6.7 Treatment of Indemnity Payments........................................................ 72
ARTICLE VII REGISTRATION RIGHTS.......................................................................... 72
7.1 Registration of Shares................................................................. 72
7.2 Limitations on Registration Rights..................................................... 72
7.3 Registration Procedures................................................................ 73
7.4 Requirements of Company Stockholders................................................... 74
7.5 Indemnification........................................................................ 74
7.6 Assignment of Rights................................................................... 75
7.7 Resales under Rule 144................................................................. 75
ARTICLE VIII TERMINATION................................................................................. 75
8.1 Termination of Agreement............................................................... 75
8.2 Effect of Termination.................................................................. 76
ARTICLE IX DEFINITIONS.................................................................................. 76
ARTICLE X MISCELLANEOUS................................................................................. 80
10.1 Press Releases and Announcements....................................................... 80
10.2 No Third Party Beneficiaries........................................................... 80
10.3 Entire Agreement....................................................................... 81
10.4 Succession and Assignment.............................................................. 81
10.5 Counterparts and Facsimile Signature................................................... 81
10.6 Headings............................................................................... 81
10.7 Notices................................................................................ 81
10.8 Governing Law.......................................................................... 83
10.9 Amendments and Waivers................................................................. 83
10.10 Severability........................................................................... 83
10.11 Submission to Jurisdiction............................................................. 84
10.12 Construction........................................................................... 84
10.13 Specific Performance................................................................... 84
10.14 Conflict Waiver........................................................................ 84
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Note: The following schedules (or similar attachments) do not contain
information which is material to an investment decision and which is
not otherwise disclosed in the agreement or the disclosure document.
Pursuant to Item 601 of Regulation S-K such documents are not being
filed herewith.
Exhibit A - Escrow Agreement
Exhibit B - Investment Representation Letter
Exhibit C- Financial Model
Exhibit D- Opinion of Counsel to the Company
Exhibit E - Non-Competition Agreement
Exhibit F- Amendment to Non-Competition Agreement
Exhibit G - Opinion of Counsel to the Buyer and Transitory Subsidiary
Schedule 1.5 Preliminary Allocation Schedule
Schedule 1.5(a)(iii) Closing Bonus Payments
Schedule 1.11(f)(ix) Managers
Schedule 1.11(f)(x) Protected Accounts
Schedule 1.11(h)(ii)(E) FDA Compliance Plan
Schedule 1.11(h)(ii)(F) Intellectual Property Plan
Schedule 1.12(b) Holdback Recipients
Schedule 4.9 Bonus Plan
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Schedule 5.2(j)(A) Non-Competition Parties
Schedule 5.2(j)(B) Non-Competition Amendment Parties
Schedule 5.2(b)(i) Required Consents
Schedule 5.2(b)(ii) Non-Required Consents
Schedule 6.1 Special Indemnification Matters
Disclosure Schedule
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is entered into as
of November 25, 2003, by and among VITALWORKS INC., a Delaware corporation (the
"Buyer"); PACS ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of the Buyer (the "Transitory Subsidiary"); AMICAS, INC., a Delaware
corporation (the "Company"); and Xxxx Xxxxxxx, Xxxxx Xxxxxxxxxx and Xxxxxxxxx
Xxxxx, each of whom is an individual with an address as set forth in Section
10.7 hereof, solely in their respective capacity as "Committee Members"
constituting the Stockholders' Representative (as defined herein). The Buyer,
the Transitory Subsidiary and the Company are referred to collectively herein as
the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into
the Company (the "Merger"). In the Merger, the stockholders of the Company will
receive cash in exchange for their shares of capital stock of the Company.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger.Upon and subject to the terms and conditions of
this Agreement, the Transitory Subsidiary shall merge with and into the Company
at the Effective Time (as defined below). From and after the Effective Time, the
separate corporate existence of the Transitory Subsidiary shall cease and the
Company shall continue as the surviving corporation in the Merger (the
"Surviving Corporation"). The "Effective Time" shall mean the time at which the
Surviving Corporation files a certificate of merger or other appropriate
documents prepared and executed in accordance with Section 251(c) of the
Delaware General Corporation Law (the "Certificate of Merger") with the
Secretary of State of the State of Delaware. The Merger shall have the effects
set forth in Section 259 of the Delaware General Corporation Law.
1.2 The Closing. The closing of the Merger and the other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Xxxx and Xxxx LLP, 00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000,
commencing at 9:00 a.m. local time on November 25, 2003, or, if all of the
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby have not been satisfied or waived by such date, on such
mutually agreeable later date as soon as practicable (and in any event not later
than three business days) after the satisfaction or waiver of all conditions
(excluding the delivery of any documents to be delivered at the Closing by any
of the Parties) set forth in Article V hereof (the "Closing Date").
1.3 Actions at the Closing. At the Closing:
(a) the Company shall deliver to the Buyer and the
Transitory Subsidiary the various certificates, instruments and documents
referred to in Section 5.2;
(b) the Buyer and the Transitory Subsidiary shall deliver
to the Company the various certificates, instruments and documents referred to
in Section 5.3;
(c) the Surviving Corporation shall file with the
Secretary of State of the State of Delaware the Certificate of Merger;
(d) the Buyer shall deliver the Net Merger Consideration
(as defined below) to a bank, trust company or other entity reasonably
satisfactory to the Company appointed by the Buyer to act as the exchange agent
(the "Exchange Agent") in accordance with Section 1.7; and
(e) the Buyer, the Stockholders' Representative (as
defined in Section 1.10) and Boston Trust & Investment Management Company (the
"Escrow Agent") shall execute and deliver the Escrow Agreement attached hereto
as Exhibit A (the "Escrow Agreement") and the Buyer or the Transitory Subsidiary
shall deposit $1,314,564.31 with the Escrow Agent in accordance with Section
1.12.
1.4 Additional Action. The Surviving Corporation may, at any time
and from time to time from and after the Effective Time, take any action,
including executing and delivering any document, in the name and on behalf of
either the Company or the Transitory Subsidiary, in order to consummate and give
effect to the transactions contemplated by this Agreement; provided, however,
that no such action shall amend or terminate this Agreement or any other
agreement, instrument, or document executed and delivered by or on behalf of any
Party in connection with the transactions contemplated hereby or adversely
affect in any manner the rights, remedies or obligations of any person who is an
intended beneficiary of this Agreement as provided in Section 10.2 hereof
without the consent of the person to be bound thereby.
1.5 Conversion of Shares.
(a) Definitions. For the purposes hereof, the following
definitions shall apply:
(i) "Aggregate Participation Amount" shall mean
(A) the Net Merger Consideration less (B) the sum of (1) the product of (x) the
Series A Preference and (y) the number of Company Series A Shares outstanding
immediately prior to the Effective Time, AND (2) the product of (x) the Series B
Preference and (y) the number of Company Series B Shares outstanding immediately
prior to the Effective Time, AND (3) the product of (x) the Series C Preference
and (y) the number of Company Series C Shares outstanding immediately prior to
the Effective Time.
(ii) "Applicable Share Consideration" shall mean
(A) in the case of each Company Common Share, the Per Share Net Participation
Amount, (B) in the case of each Company Series A Share, the sum of (1) the
Series A Preference and (2) the Per Share Net
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Participation Amount, (C) in the case of each Company Series B Share, the sum of
(1) the Series B Preference and (2) the Per Share Net Participation Amount and
(D) in the case of each Company Series C Share, the sum of (1) the Series C
Preference and (2) the Per Share Net Participation Amount.
(iii) "Closing Payments" shall mean any amounts
payable as of the Effective Time with respect to (A) any debt of the Company
(other than ordinary trade payables) or (B) any incentive compensation, change
in control, bonus or similar amount payable to any officer, director or current
or former employee of the Company including, without limitation, the amounts set
forth on Schedule 1.5(a)(iii), but not including ordinary accrued payroll,
vacation or sick pay and other employee benefits arising in the Ordinary Course
of Business (as defined in Section 2.4).
(iv) "Company Common Shares" shall mean shares of
Company's common stock, $0.001 par value per share.
(v) "Company Option" shall mean each unexpired
option to acquire Company Common Shares granted pursuant to the Company's 1997
Incentive Stock Option Plan or its 2000 Stock Incentive Plan and which is
outstanding immediately prior to the Effective Time, but shall not include any
Warrant (as defined in Section 2.2 hereof) or other right to acquire Company
Common Shares.
(vi) "Company Preferred Shares" shall mean the
Company Series A Shares, Company Series B Shares and Company Series C Shares.
(vii) "Company Series A Shares" shall mean shares
of the Company's Series A preferred stock, $0.001 par value per share,
outstanding immediately prior to the Effective Time.
(viii) "Company Series B Shares" shall mean shares
of the Company's Series B preferred stock, $0.001 par value per share,
outstanding immediately prior to the Effective Time.
(ix) "Company Series C Shares" shall mean shares
of the Company's Series C preferred stock, $0.001 par value per share,
outstanding immediately prior to the Effective Time.
(x) "Company Shares" shall mean the Company
Common Shares, Company Series A Shares, Company Series B Shares and Company
Series C Shares.
(xi) "Merger Consideration" shall mean
$30,142,069.
(xii) "Net Merger Consideration" shall mean the
Merger Consideration less (A) the Expenses (as defined in Section 4.8 hereof),
(B) any Closing Payments and (C) any
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payroll, employment or similar Taxes (as defined in Section 2.9 hereof), to the
extent not otherwise withheld, required to be paid by the Buyer, the Company or
the Surviving Corporation with respect to any amounts payable or contemplated
hereunder.
(xiii) "Net Participation Amount" shall mean the
Aggregate Participation Amount less the Escrow Fund (as defined in Section
1.12(a)) and less the Holdback Amount (as defined in Section 1.12(b)).
(xiv) "Outstanding Company Shares" shall mean the
aggregate number of Company Shares outstanding, on an as-converted to Company
Common Shares basis, immediately prior to the Effective Time.
(xv) "Per Share Escrow Amount" shall mean, with
respect to any Company Share, the Escrow Fund multiplied by a fraction, the
numerator of which is the Applicable Share Consideration payable with respect to
such Company Share and the denominator of which is the Net Merger Consideration
less the Escrow Fund.
(xvi) "Per Share Net Participation Amount" shall
mean the Net Participation Amount divided by the Outstanding Company Shares.
(xvii) "Series A Preference" shall mean $0.50.
(xviii) "Series B Preference" shall mean $1.08.
(xix) "Series C Preference" shall mean with
respect to Company Series C Shares issued on November 13, 2001, $0.9077, and
with respect to any other Company Series C Shares, $0.78.
(b) Conversion of Company Shares. Subject to Section
1.17, as of the Effective Time, each Company Common Share that is issued and
outstanding immediately prior to the Effective Time (except for Dissenting
Shares) shall, by virtue of the Merger and without any action on the part of any
Party or holder thereof, be cancelled and converted into the right to receive
consideration equal to:
(i) the Applicable Share Consideration payable
with respect to such Company Share; and
(ii) a conditional amount of cash equal to the
Per Share Escrow Amount with respect to such Company Share.
(c) Company Options and Warrants. The Company shall take
all actions necessary or appropriate so that, as of the Effective Time and as a
result of the Merger, (A) no options, warrants or other rights to acquire any
Company Shares or any securities, debt or other rights convertible into or
exchangeable or exercisable for shares of Company's capital stock are
- 4 -
outstanding, and (B) no person other than the holders of Company Shares, prior
to the Closing, shall have any right, title or interest in or to the ownership
of the Company or the Surviving Corporation or any securities issued by Company
or the Surviving Corporation, and (C) the holders of Company Shares shall, on
and after the Closing, have no right, title or interest in or to the Company or
the Surviving Corporation or any securities of the Company or the Surviving
Corporation, other than the right to payments of cash in the manner described
herein, except as otherwise provided in Section 1.6, and (D) except as provided
in paragraph (d) below, no person holding Company Shares or rights to acquire
Company Shares shall by virtue of any such securities have any right to acquire
any securities of the Buyer. No provision of this Section 1.5 or other provision
of this Agreement is intended by its terms to amend any Company Option or to
give any rights to any holders of Company Options to require accelerated vesting
or other amendments to Company Options, except to the extent that the Company in
its discretion and prior to the Closing, elects to implement any such
accelerated vesting or other amendments in accordance with and subject to the
provisions of Section 4.4(a) hereof.
(d) Delivery of Merger Consideration. Subject to Section
1.17, each holder of Company Shares shall receive the Applicable Share
Consideration payable with respect to such Company Share by the Buyer's delivery
to the Exchange Agent of cash in an amount equal to the Applicable Share
Consideration.
(e) Closing Payments. Promptly after the Closing, the
Buyer shall pay or cause the Company or the Surviving Corporation to pay all
Closing Payments and Expenses.
(f) Preliminary Allocation of Proceeds. The Company has
prepared Schedule 1.5 attached hereto (the "Preliminary Allocation Schedule") as
a preliminary summary of the allocation of proceeds to holders of Company Shares
contemplated by this Section 1.5 based on, among other things, the Company's
allocation of preferences set forth in Section 1.5(b), certain assumptions
concerning Closing Payments and estimates of the adjustments to the Merger
Consideration required under this Agreement as of the Effective Time, but
excluding any assumptions concerning (i) the adjustments, if any, based on the
October Balance Sheet described in Section 1.8, or (ii) any claims against the
Holdback Amount (as defined in Section 1.12(b)) or the Escrow Fund. The Parties
acknowledge and agree that the Company and the Buyer will jointly amend Schedule
1.5 as of the Effective Time to (A) reflect the actual adjustments and
allocation of proceeds then required by the applicable provisions of this
Agreement and the respective rights, preferences and privileges of the Company
Shares, (B) reflect any Taxes required to be withheld by the Buyer, the Company
or the Surviving Corporation with respect to any payments under Section 1.5 and
(C) instruct the Exchange Agent as to the portion of the Exchange Fund payable
as of the Effective Time to specific holders of Company Shares. The Parties
acknowledge that the aggregate dollar amount allocated to holders of Company
Shares at the Closing may differ from the Preliminary Allocation Schedule based
upon (X) final amounts allocated to the Expenses, Closing Payments and Taxes,
(Y) the number of Company Shares issued or deemed issued as of the Effective
Time pursuant to Company Options and other outstanding securities of the Company
convertible into or exercisable for
- 5 -
Company Shares, and (Z) other applicable provisions of this Agreement.
Notwithstanding the foregoing or anything to the contrary set forth herein, in
no event shall the aggregate amounts of the Holdback Amount and the
consideration to be deposited by the Buyer to the Exchange Fund and the Escrow
Fund exceed $30,142,069, but without regard to any positive or negative
adjustments provided for in Section 1.8 hereof.
(g) Company Treasury Shares. Each Company Share held in
the Company's treasury immediately prior to the Effective Time and each Company
Share owned beneficially by the Buyer or the Transitory Subsidiary shall be
cancelled and retired without payment of any consideration therefor.
(h) Transitory Subsidiary Shares. Each share of common
stock, $.01 par value per share, of the Transitory Subsidiary issued and
outstanding immediately prior to the Effective Time shall be converted into and
thereafter evidence one share of common stock, $.01 par value per share, of the
Surviving Corporation.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares"
means Company Shares held as of the Effective Time by stockholders of record of
the Company immediately prior to the Effective Time (the "Company Stockholders")
who have not voted (whether at a meeting or by a written action) such Company
Shares in favor of the adoption of this Agreement and approval of the Merger and
with respect to which appraisal shall have been duly demanded and perfected in
accordance with Section 262 of the Delaware General Corporation Law and not
effectively withdrawn or forfeited prior to the Effective Time. Dissenting
Shares shall not be converted into or represent the right to receive any portion
of the Merger Consideration unless such Company Stockholder shall have forfeited
his, her or its right to appraisal under the Delaware General Corporation Law or
properly withdrawn his, her or its demand for appraisal. If such Company
Stockholder has so forfeited or withdrawn his, her or its right to appraisal of
Dissenting Shares, then, as of the occurrence of such event, such holder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the Applicable Share Consideration
payable in respect of such Company Shares pursuant to Section 1.5.
(b) The Company shall give the Buyer (i) prompt notice of
any written demands for appraisal of any Company Shares, withdrawals of such
demands, and any other instruments that relate to such demands received by the
Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under the Delaware General
Corporation Law ("Dissent Proceedings"). The Company shall not, except with the
prior written consent of the Buyer, not to be unreasonably withheld, make or
agree to make any payment with respect to any demands for appraisal of Company
Shares or offer to settle or settle any such demands.
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1.7 Exchange of Shares.
(a) Prior to the Effective Time, the Buyer shall enter
into an agreement with the Exchange Agent, in customary form (the "Exchange
Agreement"), to (i) effect the exchange for the Applicable Share Consideration
of certificates that, immediately prior to the Effective Time, represented
Company Shares converted into the Applicable Share Consideration pursuant to
Section 1.5 ("Certificates") and (ii) pay any excess Adjusted Merger
Consideration (as defined in Section 1.8(e)) to the Company Stockholders in
accordance with the provisions of Section 1.9 of this Agreement. On the Closing
Date, the Buyer shall deliver to the Exchange Agent, in trust for the benefit of
holders of Certificates, a wire transfer in the amount of the aggregate cash
consideration payable by the Buyer pursuant to Section 1.5, less any Taxes
required to be withheld pursuant to Section 1.17 or otherwise (the "Exchange
Fund"). As soon as practicable after the Effective Time (but in no event later
than 10 business days thereafter), the Buyer shall cause the Exchange Agent to
send a notice and a transmittal form to each holder of a Certificate advising
such holder of the effectiveness of the Merger and the procedure for
surrendering to the Exchange Agent such Certificate in exchange for the
Applicable Share Consideration payable pursuant to Section 1.5. Each holder of a
Certificate, upon proper surrender thereof to the Exchange Agent in accordance
with the instructions in such notice, shall be entitled to receive in exchange
therefor (subject to any Taxes required to be withheld pursuant to Section 1.17
or otherwise and without interest) the Applicable Share Consideration payable to
such holder pursuant to Section 1.5. Until properly surrendered, each such
Certificate shall be deemed for all purposes to evidence only the right to
receive the Applicable Share Consideration payable pursuant to Section 1.5.
Holders of Certificates shall not be entitled to receive the Applicable Share
Consideration to which they would otherwise be entitled until such Certificates
are properly surrendered.
(b) If any Applicable Share Consideration is to be
delivered to a person other than the person in whose name the Certificate
surrendered in exchange therefor is registered, it shall be a condition to the
delivery of such Applicable Share Consideration that (i) the Certificate so
surrendered shall be transferable, and shall be properly assigned, endorsed or
accompanied by appropriate stock powers, (ii) such transfer shall otherwise be
proper and (iii) the person requesting such transfer shall pay to the Exchange
Agent any transfer or other Taxes payable by reason of the foregoing or
establish to the satisfaction of the Exchange Agent that such Taxes have been
paid or are not required to be paid. Notwithstanding the foregoing, neither the
Exchange Agent nor any Party shall be liable to a holder of Company Shares for
any Applicable Share Consideration payable to such holder pursuant to Section
1.5 that are delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(c) In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, the Exchange Agent
shall deliver in exchange for such lost, stolen or destroyed Certificate the
Applicable Share Consideration payable in exchange therefor pursuant to Section
1.5. The Exchange Agent shall not require the owner of such lost, stolen or
destroyed
- 7 -
Certificate to give the Exchange Agent a bond but may require an unsecured
indemnity against any claim that may be made against the Exchange Agent and/or
the Buyer with respect to the Certificate alleged to have been lost, stolen or
destroyed.
(d) Any portion of the Exchange Fund which remains
undistributed to the holders of Company Shares for six (6) months after the
Effective Time shall be delivered to the Buyer, upon demand, and any holder of
Company Shares who has not previously complied with this Section 1.7 shall
thereafter look only to the Buyer, as a general unsecured creditor, for payment
of its Applicable Share Consideration pursuant to Section 1.5.
1.8 Post Closing Adjustments. The Merger Consideration shall be
subject to adjustment after the Closing Date as follows:
(a) The Stockholders' Representative shall use Reasonable
Best Efforts (as defined in Section 4.1) to cause BDO Xxxxxxx LLP (the
"Company's Auditor") to deliver to the Buyer an audited balance sheet of the
Company as October 31, 2003 (the "October Balance Sheet") not later than 45
calendar days after the Closing Date. The October Balance Sheet shall be
prepared in conformity with United States generally accepted accounting
principles ("GAAP"). One half of the costs of the audit of the October Balance
Sheet and, if not paid by the Company prior to the Closing Date, one half of the
cost of the SAS 100 review of the Company's financial statements as of and for
the quarterly periods ended September 30, 2003 and 2002, shall be paid by the
Company Stockholders (the cost of which shall be estimated and included in the
Expenses in accordance with the provisions of Section 4.8) and one half of the
costs of the audit of the October Balance Sheet and one half of the cost of the
SAS 100 review of the Company's financial statements as of and for the quarterly
periods ended September 30, 2003 and 2002 shall be paid by the Buyer. The Buyer
shall afford the Stockholders' Representative and the Company's Auditor
reasonable access to the Company's books and records during normal business
hours for purposes of the preparation and audit of the October Balance Sheet and
shall enter into such agreements with the Company's Auditor, in form and
substance reasonably satisfactory to the Buyer, as the Company's Auditor may
reasonably request in connection with the audit of the October Balance Sheet.
(b) The October Balance Sheet delivered pursuant to
paragraph (a) above shall be accompanied by (i) relevant backup materials and
schedules, in detail reasonably acceptable to the Buyer, (ii) copies of all
accounting work papers relevant to the preparation of the October Balance Sheet,
and (iii) a statement setting forth the amount, if any, by which the October
Working Capital (as hereinafter defined) is greater than, or less than, negative
$5,642,501 (the "Minimum Working Capital"). For purposes of this Agreement,
"October Working Capital" shall mean the total current assets of the Company
minus the total current liabilities of the Company (including in current assets
all cash and cash equivalents, accounts receivable, inventory and prepaid
expenses and excluding from current assets deferred income tax assets, and
including in current liabilities accounts payable, deferred revenue, the current
portions of long term debt, notes and loans payable and capital lease
obligations and accrued
- 8 -
expenses, and excluding from current liabilities deferred income tax liabilities
and any liabilities in respect of the Closing Payments, and Expenses), in each
case, as determined in conformity with GAAP from the October Balance Sheet. The
October Balance Sheet shall not include any long-term liabilities as determined
in conformity with GAAP. If the October Balance Sheet includes such long-term
liabilities they shall be considered and treated as current liabilities for the
purpose of determining October Working Capital.
(c) In the event that the Buyer disputes the October
Balance Sheet or the calculation of the October Working Capital, the Buyer shall
notify the Stockholders' Representative in writing (the "Dispute Notice") of the
amount, nature and basis of such dispute, within 30 calendar days after delivery
of the October Balance Sheet. In the event of such a dispute, the Buyer and the
Stockholders' Representative shall first use their diligent good faith efforts
to resolve such dispute between themselves. If the parties are unable to resolve
the dispute within 30 calendar days after delivery of the Dispute Notice, then
any remaining items in dispute shall be submitted to an independent nationally
recognized accounting firm selected in writing by the Stockholders'
Representative and the Buyer or, if the Stockholders' Representative and the
Buyer fail or refuse to select a firm within 10 calendar days after written
request therefor by the Stockholders' Representative or the Buyer, such an
independent nationally recognized accounting firm shall be selected in
accordance with the rules of the Boston, Massachusetts office of the American
Arbitration Association (the "Arbitrator"). All determinations pursuant to this
paragraph (c) shall be in writing and shall be delivered to the Parties. The
determination of the Arbitrator as to the resolution of any dispute shall be
binding and conclusive upon all Parties. A judgment on the determination made by
the Arbitrator pursuant to this Section 1.8 may be entered in and enforced by
any court having jurisdiction thereover.
(d) The fees and expenses of the Arbitrator in connection
with the resolution of disputes pursuant to paragraph (c) above shall be shared
equally by the Company Stockholders and the Buyer; provided that if the
Arbitrator determines that one Party has adopted a position or positions with
respect to the October Balance Sheet or the calculation of the October Working
Capital that is frivolous or clearly without merit, the Arbitrator may, in its
discretion, assign a greater portion of any such fees and expenses to such
Party.
(e) Immediately upon the expiration of the 30-day period
for giving the Dispute Notice, if no Dispute Notice is given, or upon
notification by the Buyer to the Stockholders' Representative that no Dispute
Notice will be given, or immediately upon the resolution of disputes, if any,
pursuant to this Section 1.8, the Merger Consideration shall be adjusted as
follows (as so adjusted, the "Adjusted Merger Consideration"):
(i) If the October Working Capital is less than
the Minimum Working Capital the amount of such deficiency in the October Working
Capital shall be deducted from the Merger Consideration to obtain the Adjusted
Merger Consideration.
- 9 -
(ii) If the October Working Capital equals or
exceeds the Minimum Working Capital, the Adjusted Merger Consideration shall be
equal to the Merger Consideration.
1.9 Payments on Account of Adjustments. The difference, if any,
between the Adjusted Merger Consideration and the Merger Consideration shall be
paid by the Company Stockholders to the Buyer upon the expiration of the 30-day
period for giving the Dispute Notice, if no Dispute Notice is given, or upon
notification by the Buyer to the Stockholders' Representative that no Dispute
Notice will be given, or immediately upon final resolution of any dispute in
connection with the determination of the Adjusted Merger Consideration. Any
amounts payable to the Buyer pursuant to this Section 1.9 shall be promptly
paid, pro rata, from the Holdback Amount and the Initial Escrow Fund (as defined
in Section 1.12(a)).
1.10 Stockholders' Representative.
(a) In order to efficiently administer the transactions
contemplated hereby, including (i) the determination of the October Working
Capital and the Adjusted Merger Consideration, (ii) the determination of the
[**] of the Business Unit (as defined in Section 1.11(f)) and the Earn-out
Consideration (as defined in Section 1.11(d)), and (iii) the defense and/or
settlement of any claims (other than Several Claims (as defined in Section 6.2))
for which the Company Stockholders may be required to indemnify the Buyer and/or
the Surviving Corporation pursuant to Article VI hereof, the Company
Stockholders, by the approval and adoption of this Agreement, shall designate a
committee consisting of Xxxx Xxxxxxx, Xxxxx Xxxxxxxxxx, and Xxxxxxxxx Xxxxx as
their representative (collectively, the "Stockholders' Representative"). The
persons constituting the Stockholders' Representative from time to time
hereunder (each such person, in such capacity, a "Committee Member") shall make
any and all decisions in such capacity, and take or decline to take any action
in such capacity, by (and only by) majority consent of such persons.
(b) The Company Stockholders by the approval and adoption
of this Agreement authorize the Stockholders' Representative (i) to make all
decisions relating to the determination of the October Working Capital
adjustment and the Adjusted Merger Consideration, (ii) to make all decisions
relating to the determination of the [**] of the Business Unit and the Earn-out
Consideration, (iii) to take all actions the Stockholders' Representative may
deem necessary or appropriate in connection with the defense and/or settlement
of any claims (other than Several Claims) for which the Company Stockholders may
be required to indemnify the Buyer and/or the Surviving Corporation pursuant to
Article VI hereof, (iv) to give and receive all notices required to be given
under this Agreement or that the Stockholders' Representative may deem necessary
or appropriate in connection with the transactions contemplated hereby (in each
case other than in respect of Several Claims), (v) to take any and all
additional actions as are contemplated to be taken by or on behalf of the
Company Stockholders by the terms of this Agreement or that the Stockholders'
Representative may deem necessary or appropriate in connection with the
transactions contemplated hereby (in each case other than in respect of Several
Claims), and (vi) to incur such costs and expenses, including
- 10 -
without limitation the fees and expenses of legal, financial, tax, accounting,
and other experts and advisors, as the Stockholders' Representative may deem
necessary or appropriate in connection with the exercise of the Stockholders'
Representative's responsibilities, authority, and powers hereunder and/or the
transactions contemplated hereby, and to recoup such costs and expenses from any
amount otherwise payable to the Company Stockholders, including without
limitation the Merger Consideration and the Earn-out Consideration.
(c) The initial Committee Members shall be Xxxx Xxxxxxx,
Xxxxx Xxxxxxxxxx, and Xxxxxxxxx Xxxxx. In the event at any time or from time to
time any Committee Member becomes unable to perform his or her responsibilities
hereunder or resigns from such position, then the persons referred to below are
authorized to and shall select another person to fill such vacancy and such
substituted person shall thereupon be a Committee Member for all purposes of
this Agreement and the documents delivered pursuant hereto. The Buyer shall be
entitled to conclusively rely on any actions taken by any Committee Member at
any time prior to the time the Buyer has received written notice of the removal
of such Committee Member.
(d) The persons that immediately prior to the Closing
held a majority of the Company Series C Shares then outstanding shall be
authorized and entitled to fill any vacancy in the position as a Committee
Member of Xxxx Xxxxxxx or any successor to his position as a Committee Member.
The persons that immediately prior to the Closing held a majority of the Company
Series A Shares and Series B Shares, collectively, then outstanding shall be
authorized and entitled to fill any vacancy in the position as a Committee
Member of Xxxxxxxxx Xxxxx or any successor to his position as a Committee
Member. The persons that immediately prior to the Closing held a majority of the
Company Common Shares then outstanding shall be authorized and entitled to fill
any vacancy in the position as a Committee Member of Xxxxx Xxxxxxxxxx or any
successor to his position as a Committee Member.
(e) All decisions and actions by the Stockholders'
Representative made in accordance with the foregoing, including without
limitation any agreement between the Stockholders' Representative and the Buyer
relating to the determination of the October Working Capital adjustment and/or
the Adjusted Merger Consideration, the determination of the [**] of the Business
Unit and/or the Earn-out Consideration, or the defense or settlement of any
claims (other than Several Claims) for which the Company Stockholders may be
required to indemnify the Buyer and/or the Surviving Corporation pursuant to
Article VI hereof, shall be binding upon all of the Company Stockholders, and no
Company Stockholder shall have the right to object, dissent, protest or
otherwise contest the same.
(f) As among the Company Stockholders and the Committee
Members, no Committee Member shall be liable for any act done or omitted
hereunder in connection with the acceptance, performance, or administration of
his duties hereunder except with respect to any fraud or bad faith on the part
of such Committee Member, and for this purpose any act done or omitted pursuant
to the advice of counsel shall be conclusive evidence of the absence of fraud
and bad faith. Each of the Company Stockholders shall severally indemnify each
of the
- 11 -
Committee Members and hold him harmless against such Company Stockholder's pro
rata share (determined in proportion to the portion of the aggregate Merger
Consideration and Earn-out Consideration paid to such Company Stockholder
hereunder) of any loss, liability, or expense incurred (other than as a direct
result of fraud or bad faith on his part) on his part arising out of or in
connection with the acceptance, performance, or administration of his duties
hereunder.
(g) By his, her or its adoption of this Agreement and
approval of the Merger, each Company Stockholder agrees, in addition to the
foregoing, that:
(i) the Buyer shall be entitled to rely
conclusively on the instructions and decisions of the Stockholders'
Representative as to the determination of the October Working Capital adjustment
and/or the Adjusted Merger Consideration, the determination of the [**] of the
Business Unit and/or the Earn-out Consideration, or the settlement of any claims
for indemnification (other than Several Claims) by the Buyer and/or the
Surviving Corporation pursuant to Article VI hereof, or any other actions
required or permitted to be taken by the Stockholders' Representative hereunder,
and no party hereunder shall have any cause of action against the Buyer for any
action taken by the Buyer in reliance upon the written instructions or decisions
of the Stockholders' Representative;
(ii) all actions, decisions and instructions of
the Stockholders' Representative in accordance with this Agreement shall be
conclusive and binding upon all of the Company Stockholders and no Company
Stockholder shall have any cause of action against any Committee Member for any
action taken, decision made or instruction given by such Committee Member or the
Stockholders' Representative under this Agreement, except to the extent of any
fraud or bad faith on the part of such Committee Member;
(iii) the provisions of this Section 1.10 are
independent and severable, are irrevocable and coupled with an interest and
shall be enforceable notwithstanding any rights or remedies that any Company
Stockholder may have in connection with the transactions contemplated by this
Agreement;
(iv) remedies available at law for any breach of
the provisions of this Section 1.10 are inadequate; therefore, the Buyer and the
Surviving Corporation shall be entitled to temporary and permanent injunctive
relief without the necessity of proving damages if either the Buyer and/or the
Surviving Corporation brings an action to enforce the provisions of this Section
1.10; and
(v) the provisions of this Section 1.10 shall be
binding upon the executors, heirs, legal representatives, personal
representatives, successor trustees and successors of each Company Stockholder,
and any references in this Agreement to a Company Stockholder or the Company
Stockholders shall mean and include the successors to the Company Stockholder's
rights hereunder, whether pursuant to testamentary disposition, the laws of
descent and distribution or otherwise.
- 12 -
1.11 Earn-Out Consideration. The Company Stockholders receiving the
Merger Consideration shall be entitled to additional consideration in the form
of Earn-out Consideration (as hereinafter defined) as follows:
(a) If the [**] of the Business Unit (as defined below)
for the [**] period commencing on [**] and ending on [**] (the "Earn-out
Period") exceeds $[**] then the amount of [**] of the Business Unit for the
Earn-out Period that exceeds $[**], which amount shall not exceed $[**], shall
be multiplied by [**] to calculate the "Raw Initial Earn-out Consideration"
which shall not exceed $[**].
(b) If the [**] of the Business Unit for the Earn-out
Period exceeds $[**] then the amount of [**] of the Business Unit for the
Earn-out Period that exceeds $[**], which amount shall not exceed $[**], shall
be multiplied by 3 to calculate the "Raw Additional Earn-out Consideration"
which shall not exceed $[**].
The Raw Initial Earn-out Consideration and the Raw Additional
Earn-out Consideration, if any, shall be inserted into the following formula to
calculate the "Earn-out Consideration," which shall not exceed $25,110,089.41:
A = Raw Initial Earn-out Consideration
B = Raw Additional Earn-out Consideration
C = Earn-out Consideration
C = [[**]]- $[**]; provided that C shall not be less than
zero.
(c) If the [**] of the Business Unit for the Earn-out
Period is equal to or less than $[**] then the Company Stockholders receiving
the Merger Consideration shall not be entitled to receive any additional
consideration.
(d) No later than [**] days after the termination of the
Earn-out Period, the Buyer shall at its expense, but with the full cooperation
of the Managers (as hereinafter defined), prepare (or cause to be prepared) and
deliver to the Stockholders' Representative a calculation of the [**] of the
Business Unit for the Earn-out Period and a statement (the "Earn-out Statement")
of the amount, if any, of the Earn-out Consideration to be delivered to the
Company Stockholders receiving the Merger Consideration. No Company Stockholder
shall be permitted to assign such Company Stockholder's right to receive the
Merger Consideration to any third party (other than pursuant to a transfer by
operation of law). Unless the Stockholders' Representative shall, in accordance
with the provisions of subsection (e) below, challenge the Buyer's determination
of the [**] of the Business Unit for the Earn-out Period within 30 days after
the delivery of the Buyer's calculation thereof, the Buyer's determination shall
be conclusive and binding upon the Company Stockholders. In addition, until the
end of the Earn-Out Period the Buyer may, in its discretion, deliver to the
Stockholders' Representative quarterly
- 13 -
statements of the amount of [**] of the Business Unit during the Earn-out
Period, provided that the failure of the Stockholder's Representative to dispute
or otherwise respond to any such quarterly information statement shall in no way
affect the rights of the Stockholders' Representative to dispute the calculation
of the [**] of the Business Unit for the Earn-out Period as provided herein.
(e) In the event that the Stockholders' Representative
disputes the calculation of the [**] of the Business Unit for the Earn-out
Period, the Stockholders' Representative shall notify the Buyer in writing by
delivery of a notice (an "Earn-out Dispute Notice") within 30 calendar days
after delivery of the Buyer's calculation of the [**] of the Business Unit for
the Earn-out Period, which Earn-out Dispute Notice shall set forth in reasonable
detail the basis for such dispute. Any such dispute shall be resolved in
accordance with Section 1.8(c) of this Agreement. On the Earn-out Payment Date
(as hereinafter defined), but subject to the provisions of Section 1.12 of this
Agreement, each of the Company Stockholders receiving the Merger Consideration
shall be eligible to receive that portion of any Earn-out Consideration equal to
the product of (x) the total amount of the Earn-out Consideration divided by the
Outstanding Company Shares and (y) the total number of Company Shares, on an
as-converted to Company Common Share basis, held by such Company Stockholder
immediately prior to the Effective Time. The "Earn-out Payment Date" shall be
the later to occur of (i) [**] months after the Closing Date and (ii) [**] days
after the later to occur of the resolution of any Earn-out dispute or the
Stockholders' Representative's failure to deliver an Earn-out Dispute Notice
with respect to the Earn-out Statement on a timely basis (the later of such
dates under this clause (ii), the "Earn-out Determination Date"). Subject to
Section 1.17, such Earn-out Consideration shall be delivered by the Buyer, at
Buyer's election, by either (A) wire transfer to an account designated in
writing by the Stockholders' Representative or other delivery of immediately
available funds to the Stockholders' Representative, whose receipt of the same
shall be an absolute discharge of the Buyer's obligations to pay the Earn-out
Consideration to the Company Stockholders, (B) delivery to the Stockholders'
Representatives of shares of Buyer Common Stock (as hereinafter defined) issued
in the name of each Company Stockholder receiving the Merger Consideration
having a Value (as hereinafter defined) equal to the Earn-out Consideration
payable to such Company Stockholder (the "Earn-out Shares") or (C) any
combination thereof; provided, however, that (i) the Buyer shall not issue any
shares of Buyer Common Stock to any Company Stockholder who shall not have
executed an Investment Representation Letter (as hereinafter defined), (ii)
Buyer shall in all events pay Earn-out Consideration in cash in an amount equal
to the $[**]of Earn-out Consideration to be deposited into the Escrow Fund in
accordance with the provisions of Section 1.12 and (iii) in the event the Buyer
elects to issue Earn-out Shares for more than [**]% of the Earn-out
Consideration payable to the Company Stockholders then the number of Earn-out
Shares to be issued with respect to such Earn-out Consideration shall be
determined by dividing the number of Earn-out Shares to be issued with respect
to such Earn-out Consideration in excess of [**]% by [**]% without any
corresponding decrease in the cash portion of the Earn-out Consideration. By way
of example and not of limitation, in the event the total Earn-out Consideration
payable by the Buyer is $[**], each share of Buyer Common Stock has a Value of
$10.00 per share and the Buyer elects to pay half of the Earn-out Consideration
in
- 14 -
cash and half the Earn-out Consideration in Earn-out Shares then the total
Earn-out Consideration shall equal $[**] in cash and [**] shares of Buyer Common
Stock.
(f) For the purposes of this Agreement, the following
terms shall have the respective meanings set forth below:
(i) "Business Unit" shall mean that portion of
the business and operations of the branch, division, legal entity or operating
unit of the Buyer representing the former business and operations of the
Company.
(ii) "Buyer Common Stock" shall mean shares of
common stock, $0.001 par value per share, of the Buyer.
(iii) "Cause" shall mean (A) a good faith finding
by the Buyer that (x) the Manager has failed to perform his or her reasonably
assigned duties for the Business Unit (which duties shall be assigned by the
chief executive officer of the Business Unit for all Managers other than the
chief executive officer of the Business Unit and by the chief executive officer
of the Buyer with respect to the chief executive officer of the Business Unit)
and has failed to remedy such failure within 30 days following written notice
from the Buyer to the Manager notifying him or her of such failure, or (y) the
Manager has engaged in dishonesty, gross negligence or misconduct in connection
with his or her employment by the Business Unit, or (B) the conviction of the
Manager of, or the entry of a pleading of guilty or nolo contendere by the
Manager to, any crime involving moral turpitude or any felony.
(iv) "Direct Expense" means any direct expense
and cost incurred by Buyer directly related to the operation of the Business
Unit (e.g. supplies, payroll, outside counsel and auditor fees and expenses,
salary and benefits (at 25% of salary) to be allocated for the time of in-house
counsel, finance and accounting staff based upon a forty (40) hour work week)
and that were incurred as a result of (A) the request of the Managers of the
Business Unit, (B) the acts or omissions of the Managers of the Business Unit
resulting in an amount payable to any third party or (C) the exercise of Buyer's
Oversight Rights (as hereinafter defined).
(v) "Discretionary Items" mean actions that the
Buyer reasonably requests the Managers of the Business Unit to undertake in
connection with the operation of the Business Unit that could not reasonably be
expected to have an adverse impact on the [**] of the Business Unit. By way of
example and without limitation, Discretionary Items include obtaining insurance
from Buyer's preferred insurer and making bulk purchases from Buyer's preferred
vendors.
(vi) "[**] of the Business Unit" means the [**]
of the Business Unit for the Earn-out Period (i) [**] of the Business Unit for
the Earn-out Period), [**] the Merger Consideration to determine the Net Merger
Consideration in accordance with this Agreement (including the Closing Payments
and Expenses), [**] of the Earn-out Period and [**] of the
- 15 -
Business Unit [**] in accordance with the provisions of this Section 1.11, [**]
from and after the Closing Date. In any case, the Parties agree that the [**] of
the Business Unit shall include [**] in the Earn-out Period [**].
(vii) "Financial Model" means the financial model
attached to this Agreement as Exhibit C hereto (it being acknowledged and agreed
that the revenue figures therein are goals not entirely within the control of
the Parties or any individual).
(viii) "Investment Representation Letter" means an
Investment Representation Letter in the form attached as Exhibit B.
(ix) "Managers" means the those individuals
listed on Schedule 1.11(f)(ix), other than any of those whose employment is
terminated by the Buyer for Cause .
(x) "PACS Revenue" means (A) 80% of any
recognized license revenue generated by Buyer or the Business Unit through March
31, 2004 from the sale to any of the entities listed on Schedule 1.11(f)(x) of
the Business Unit's software into so-called imaging centers, radiology
practices, hospitals that perform less than 100,000 radiological studies per
annum and international markets, (B) 50% of any other recognized license revenue
generated by Buyer or the Business Unit from the sale of the Business Unit's
software into so-called imaging centers, radiology practices, hospitals that
perform less than 100,000 radiological studies per annum and international
markets and (C) 75% of the recognized revenue generated by the Buyer or the
Business Unit from the sale of Business Unit's services (other than engineering
services, of which 100% of recognized revenue shall be deemed to be PACS
Revenue) into so-called imaging centers, radiology practices, hospitals that
perform less than 100,000 radiological studies per annum and international
markets (it being agreed that the Buyer shall not have any obligation to make
any such sales).
(xi) "Value" of any shares of Buyer Common Stock
delivered in satisfaction of Buyer's obligation to pay the Earn-out
Consideration shall be the weighted average closing price per share (based on
the number of shares traded each day) of the Buyer Common Stock on the Nasdaq
National Market over the 20 consecutive trading days ending on the final day of
the Earn-out Period (subject to proportionate adjustment in the event of any
stock split, stock dividend, reverse stock split or similar event affecting the
Earn-out Shares since the final day of the Earn-out Period).
(g) Notwithstanding any other provision of this Section
1.11, if during the Earn-out Period a Change in Control Event (as hereinafter
defined) shall occur, then the Earn-out Consideration payable to the Company
Stockholders after the expiration of the Earn-out Period shall equal $[**]. A
"Change in Control Event" shall mean that (i) the Buyer shall cease to be,
directly or indirectly, the owner of 100% of the equity interest in the Business
Unit or that (ii)(A) more than 40% of the outstanding shares of any class of the
capital stock or other equity securities of the Buyer are acquired, directly or
indirectly, by a party that sells, licenses or
- 16 -
markets PACS (as defined in Section 1.11(h)(v)) (without regard to the PACS sold
by the Business Unit) and (B) the acquirer does not sell, license or market the
PACS sold by the Business Unit as its sole and exclusive PACS product in all
markets other than the so-called large market (meaning, for this purpose,
imaging centers and hospitals, that, individually, perform more than 250,000
radiological studies per annum).
(h) Subject to the provisions of Section 1.11(i) hereof,
which Section 1.11(i) shall prevail in the event of any conflict between it and
this Section 1.11(h), during the Earn-out Period, the Business Unit shall be
operated in such a manner as to maximize the [**] of the Business Unit during
and after the Earn-out Period, and to produce for Buyer a sustainable business
with financial results that are equal to, or better than, the forecasts included
in the Financial Model. In particular and subject to the provisions of Section
1.11(i) hereof, during the Earn-out Period:
(i) For purposes of calculating the [**] of the
Business Unit, the Business Unit shall maintain separate and free-standing
financial reports that shall not include the financial results of any other
current or future business operations of the Buyer or its other subsidiaries.
(ii) The business and affairs of the Business
Unit shall be managed by or under the direction of the Managers of the Business
Unit, who shall have authority and discretion to make all strategic and
operating decisions affecting the business and affairs of the Business Unit;
provided, however that the Business Unit shall be operated (A) on a basis that
is consistent with the Financial Model, (B) except as otherwise provided by the
Financial Model, in a manner consistent with the Ordinary Course of Business,
(C) using proper business practices, (D) in compliance in all material respects
with applicable law, (E) in compliance in all material respects with the FDA
Compliance Plan attached hereto as Schedule 1.11(h)(ii)(E) and (F) in compliance
in all material respects with the Intellectual Property Plan attached hereto as
Schedule 1.11(h)(ii)(F). The Managers of the Business Unit shall fully cooperate
with the Buyer in the preparation of the Earn-out Statement and shall also
implement any Discretionary Items requested by the Buyer that the Buyer
demonstrates to the Managers' reasonable satisfaction could not reasonably be
expected to have an adverse impact on the [**] of the Business Unit. During the
earn out period the Business Unit will not accept pro xxxx or below market
products or services or employee compensation. In no event shall the Managers of
the Business Unit have the right to bind the Buyer or the Business Unit for any
obligations which extend beyond the Earn-out Period other than by the execution
and delivery of a standard form license agreement in a form approved by the
Buyer (and not modified by any agreement, whether written or oral, that has not
been approved by the Buyer).
(iii) The Buyer shall fund the operations of the
Business Unit by making an aggregate of $[**] of capital contributions to the
Business Unit in accordance with the schedule set forth in the Financial Model;
provided, however, that such $[**] shall be reduced by the amount, if any, by
which the working capital of the Company as of the Closing Date,
- 17 -
determined in accordance with GAAP, is less than the October Working Capital
(such reduced amount of funding, the "Required Funding"). The Business Unit
shall not seek and/or obtain capital funding and/or financing from any party,
other than the Buyer.
(iv) Neither the Buyer nor any of its
subsidiaries (other than the Business Unit) shall sell radiology information
system (RIS) products to MEDITECH hospitals (meaning, for this purpose,
hospitals that license or use either the MEDITECH admissions, discharge or
transfer module or the MEDITECH radiology information system module).
(v) Neither the Buyer nor any of its
subsidiaries shall directly or indirectly (A) acquire a majority ownership in a
company that sells picture archiving and communications systems ("PACS") to
healthcare providers, or (B) enter into any partnering or other significant
business arrangement or relationship with any person or entity for the purpose
of selling PACS to healthcare providers.
(i) Notwithstanding the provisions of Section 1.11(h)
above, the Buyer shall have the absolute right to take such actions the Buyer in
good xxxxx xxxxx necessary or proper to (A) fulfill its fiduciary obligations to
its shareholders ( a "Fiduciary Exercise"), (B) compel compliance with the
provisions of Section 1.11(h)(ii), (C) prevent any act that would present a
material risk of material impairment of the value of the Business Unit or
remediate the impact of any act that has materially impaired the value of the
Business Unit or (D) terminate any Manager for Cause (the "Buyer's Oversight
Rights"). The Buyer shall exercise Buyer's Oversight Rights by written notice to
the Managers and the Stockholders' Representative setting forth, in reasonable
detail, the event giving rise to such exercise and the steps, to the extent then
known, to be taken by the Buyer as a result of such event (and no exercise of
the Buyer's Oversight Rights shall be binding upon the Buyer, the Managers or
the Company Stockholders in the absence of such written notice). Without
limitation of the foregoing, the Buyer shall be entitled to exercise Buyer's
Oversight Rights after December 31, 2003 in the event that (1) the [**] of the
Business Unit for the calendar quarter ending [**] is not greater than [**], (2)
the cumulative [**] of the Business Unit through the end of any calendar quarter
of [**] other than the first calendar quarter is less than [**]% of the
cumulative [**] of the Business Unit through the end of such calendar quarter
set forth in the Financial Model or (3) the [**] of the Business Unit for any
calendar quarter of [**] other than the first calendar quarter is less than
[**]% of the [**] of the Business Unit set forth in the Financial Model for such
calendar quarter. The Buyer's Oversight Rights shall include, but not be limited
to, the right to (x) intervene in the business and affairs of the Business Unit,
(y) approve and execute all agreements, contracts and other binding arrangements
of the Business Unit and (z) overrule the decision-making and operating
authority of the Business Unit's Managers, provided that:
(i) To the extent the Buyer deems it reasonably
practicable and prudent in the circumstances, before exercising Buyer's
Oversight Rights the Buyer shall consult with the Business Unit's Managers.
- 18 -
(ii) During any period in which the Buyer is
exercising the Buyer's Oversight Rights, the Buyer shall, to the extent the
Buyer deems it reasonably practicable and prudent in the circumstances, keep the
Business Unit's Managers advised on a regular basis and in reasonable detail
with respect to the Buyer's exercise of the Buyer's Oversight Rights.
(iii) The Company agrees and acknowledges that the
exercise of the Buyer's Oversight Rights may have an impact on the [**] of the
Business Unit and, except as provided in paragraph (iv) below, the Company
Stockholders will have no right to claim any lost earn-out or other damages as a
result of such decisions so long as the actions were taken in accordance with
the provisions of this Agreement.
(iv) In the case of any Fiduciary Exercise that
is not caused by the operation of the Business Unit in violation of the
provisions of this Agreement (a "Non-Violation Fiduciary Exercise"), then the
Earn-out Consideration shall equal (A) $[**]in the case of any Non-Violation
Fiduciary Exercise within the first [**] months of the Earn-out Period, (B)
$[**] in the case of any Non-Violation Fiduciary Exercise after the first [**]
months of the Earn-out Period if at the time of the Non-Violation Fiduciary
Exercise the cumulative [**] of the Business Unit is at least [**]% of the
cumulative [**] of the Business Unit set forth in the Financial Model and (C)
the Fiduciary Exercise Amount (as hereinafter defined) in the case of any
Non-Violation Fiduciary Exercise after the first [**] months of the Earn-out
Period if at the time of the Non-Violation Fiduciary Exercise the cumulative
[**] of the Business Unit is less than [**]% of the cumulative [**] of the
Business Unit set forth in the Financial Model. For purposes of determining the
cumulative [**] of the Business Unit set forth in the Financial Model at any
date, such amount shall equal the cumulative [**] of the Business Unit set forth
in the Financial Model as of the end of the previous calendar quarter plus the
pro rated amount (based on the number of days elapsed in the current calendar
quarter) of the [**] for the current calendar quarter set forth in the Financial
Model. The "Fiduciary Exercise Amount" shall mean the amount of Earn-out
Consideration, if any, payable after the [**] Determination (as hereinafter
defined) has been made. The Buyer and the Stockholders' Representative shall
appoint an independent third party experienced in the operation of companies in
the radiology information technology market (or, if the Stockholders'
Representative and the Buyer fail or refuse to select such an independent third
party within 10 calendar days after written request therefor by the
Stockholders' Representative or the Buyer, such an independent third party shall
be selected in accordance with the rules of the Boston, Massachusetts office of
the American Arbitration Association) to determine what the [**] of the Business
Unit for the Earn-out Period would have been had the Buyer not made a
Non-Violation Fiduciary Exercise (such person, the "[**] Arbitrator" and such
determination, the "[**] Determination"). The Buyer, on one hand, and the
Stockholders' Representative, on the other hand, shall each be entitled to
present to the [**] Arbitrator such evidence as such party deems relevant for
purposes of the [**] Determination. Without limitation, each party shall be
entitled to present evidence regarding (A) the performance of the Business Unit
against the Financial Model as of the date of the Non-Violation Fiduciary
Exercise, (B) the Business Unit's past performance, (C) the provisions of this
Section 1.11 and (D) market conditions that would reasonably be expected to
impact the [**]
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of the Business Unit. The [**] Determination shall be made by the [**]
Arbitrator within 30 days of the appointment of such individual. The [**]
Determination shall be binding and conclusive upon all Parties and a judgment on
the [**] Determination pursuant to this Section 1.11(i)(iv) may be entered in
and enforced by any court having jurisdiction thereover.
(j) Except as hereinafter provided, in the event the
Buyer exercises the Buyer's Oversight Rights, such exercise shall be only for so
long as, and to the extent, reasonably necessary to prevent or remediate the
situation giving rise to Buyer's Oversight Rights. Notwithstanding the
foregoing, if any of the following events shall occur, the Buyer shall be
permitted to exercise the Buyer's Oversight Rights for the remainder of the
Earn-out Period and the Buyer shall not be obligated to pay any Earn-out
Consideration to the Company Stockholders (each, an "Earn-out Termination
Event"):
(i) The Business Unit requires (in addition to
cash generated from its operations, cash to be contributed to the Company by the
Buyer to fund payment of the Closing Payments and the Expenses and any other
payment in connection with the transactions contemplated hereby that is deducted
from the Merger Consideration to determine the Net Merger Consideration, and the
Required Funding, and assuming that the Required Funding is funded on the dates
set forth in the Financial Model), cash in the form of capital contributions or
other funding and/or financing to fund an operating cash shortfall; provided,
however, that the Buyer may exercise the Buyer's Oversight Rights as a result of
such cash shortfall, but an Earn-out Termination Event shall not be deemed to
have occurred, if the amount of the cash shortfall does not exceed the lesser of
(A) $[**]or (B) [**] of the Business Unit's net working capital provided that
net working capital is greater than zero.
For purposes of this Section 1.11(j)(i), the Business
Unit's "net working capital" shall mean the excess, if any, of its total current
assets over its total current liabilities (including in current assets all cash
and cash equivalents, accounts receivable (excluding accounts receivable that
are more than 120 days past due), inventory, and prepaid expenses; and excluding
from current assets deferred income tax assets; and including in current
liabilities accounts payable, deferred revenue (excluding deferred software
license revenue), the current portions of long term debt, notes, and loans
payable and capital lease obligations, and accrued expenses, long-term
liabilities, all amounts contributed, funded and/or financed by the Buyer in
excess of the Required Funding; and excluding from current liabilities deferred
income tax liabilities; all as derived from the then current balance sheet of
the Business Unit determined in conformity with GAAP).
(ii) Any fraud occurs by the Business Unit or any
of the Managers and such fraud (A) has a material adverse effect on the Buyer
and its subsidiaries, taken as a whole or (B) would reasonably be expected to
have a material adverse effect on the Buyer and its subsidiaries, taken as a
whole, and such material adverse effect is not cured within 10 business days
after notice; provided, however if the fraud only has or would reasonably be
expected to
- 20 -
have a material adverse effect on the Business Unit or any of the Buyer's
affiliates, but not the Buyer and its subsidiaries, taken as a whole, then the
Buyer may exercise the Buyer's Oversight Rights as a result of such fraud, but
an Earn-out Termination Event shall not be deemed to have occurred.
(k) Notwithstanding any other provision in this Agreement
to the contrary, the Buyer may elect to set off all or a portion of any Earn-out
Consideration to satisfy (i) any amount payable to the Buyer pursuant to Section
1.8 hereof, and (ii) any claim, whether resolved or pending, for indemnification
by the Company Stockholders' as provided in Sections 6.1 and 6.2 below;
provided, however, that pending resolution of any dispute with respect to the
Buyer's entitlement to such adjustment or indemnification, the Earn-out
Consideration so set off will promptly be deposited by the Buyer into escrow
with the Escrow Agent (or another reasonably equivalent escrow agent designated
by the Buyer if the Escrow Agent is unwilling to serve in such capacity)
pursuant to an escrow agreement that is in substantially the same form as the
Escrow Agreement, and such Earn-out Consideration will thereafter be held in and
released from such escrow only pursuant to the terms of such escrow agreement.
(l) The Parties acknowledge that a portion of the
Earn-out Consideration constitutes interest ("Imputed Interest") for income Tax
purposes. The amount of the Earn-out Consideration constituting Imputed Interest
shall be determined in accordance with the rules under Sections 483 and 1274 of
the Code and the Treasury Regulations (as defined in Section 2.9(a)(iv))
promulgated thereunder. The parties hereto agree to the extent allowable by law
(i) to file all income Tax Returns in a manner consistent with this Section
1.11(l), and (ii) not to take any income Tax position inconsistent with this
Section 1.11(l).
1.12 Escrow and Holdback.
(a) On the Closing Date, the Buyer shall (or shall cause
the Transitory Subsidiary to) deliver to the Escrow Agent a wire transfer in the
amount of $1,314,564.31, which amount shall be deemed withheld from the Merger
Consideration that would otherwise be paid in the Merger to the Company
Stockholders pursuant to Section 1.5(a) of this Agreement and shall be deposited
with the Escrow Agent for the purpose of securing the indemnification, Merger
Consideration adjustment and Expense reimbursement obligations of the Company
Stockholders set forth in this Agreement. Such $1,314,564.31 (together with all
accrued interest thereon, the "Initial Escrow Fund") shall be deemed to have
been withheld from each Company Stockholder in the proportions set forth in
Section 1.5. The Initial Escrow Fund and the Additional Escrow Fund (as defined
in Section 1.12(e)) (collectively, the "Escrow Fund") shall be held by the
Escrow Agent under the Escrow Agreement pursuant to the terms thereof. The
Escrow Fund shall be held as a trust fund and shall not be subject to any lien,
attachment, trustee process or any other judicial process of any creditor of any
party, and shall be held and disbursed solely for the purposes and in accordance
with the terms of the Escrow Agreement.
- 21 -
(b) On the Closing Date, the Buyer shall also hold back
$185,435.69 that would otherwise be paid in the Merger to the Company
Stockholders pursuant to Section 1.5(a) of this Agreement (the "Holdback
Amount") for the purpose of securing the indemnification, Merger Consideration
adjustment and Expense reimbursement obligations of the Company Stockholders set
forth in this Agreement. The Buyer agrees that any such claims for
indemnification, Merger Consideration adjustment and Expense reimbursement shall
be made first, pro rata, against the Initial Escrow Fund and the Holdback Amount
and then against the Additional Escrow Fund. The unused portion of the Holdback
Amount, if any, shall be distributed by the Buyer to those individuals set forth
on Schedule 1.12(b) (the "Holdback Recipients") on the date that the entire
Initial Escrow Fund, including any amounts to be retained in accordance with the
provisions of Section 3 of the Escrow Agreement, are released from the Escrow
Fund in accordance with the provisions of the Escrow Agreement.
(c) If on the Earn-out Determination Date it is
determined that any Earn-out Consideration is payable under the terms of Section
1.11 of this Agreement and the amount of such Earn-out Consideration is in
excess of the Initial Escrow Fund, then the remaining portion of the Initial
Escrow Fund, less any amounts to be retained in accordance with the provisions
of Section 3 of the Escrow Agreement, shall be released from escrow and
delivered to the Stockholders' Representative for distribution to the Company
Stockholders.
(d) If on the Earn-out Determination Date it is
determined that no Earn-out Consideration is payable under the terms of Section
1.11 of this Agreement, then no portion of the Initial Escrow Fund will be
released to the Stockholders' Representative for distribution to the Company
Stockholders until the second anniversary of the Closing Date, at which time
such release shall be made in accordance with and subject to the terms and
conditions of the Escrow Agreement.
(e) If any Earn-out Consideration is payable under the
terms of Section 1.11 of this Agreement, on the Earn-out Payment Date the Buyer
shall (or shall cause the Surviving Corporation to) deliver to the Escrow Agent
a wire transfer in the amount of $6,000,000 (or, if the Earn-out Consideration
is less than $6,000,000, the total amount of the Earn-out Consideration, which
amount so delivered to the Escrow Agent, together with all accrued interest
thereon, is hereinafter referred to as the "Additional Escrow Fund"), which
amount shall be deemed withheld from the Earn-out Consideration that would
otherwise be paid in to the Company Stockholders pursuant to Section 1.11.
(f) The adoption of this Agreement and the approval of
the Merger by the Company Stockholders shall constitute approval of the Holdback
Amount, the Escrow Agreement and of all of the arrangements relating thereto,
including without limitation the placement of the Escrow Fund in escrow in
accordance with the terms thereof and the holdback of the Holdback Amount and
the payment thereof to the Holdback Recipients.
1.13 Certificate of Incorporation and By-laws.
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(a) The certificate of incorporation of the Surviving
Corporation immediately following the Effective Time shall be amended and
restated in its entirety to be the same as the certificate of incorporation of
the Transitory Subsidiary immediately prior to the Effective Time, except that
(i) the name of the corporation set forth therein shall be changed to the name
of the Company and (ii) the identity of the incorporator shall be deleted.
(b) The by-laws of the Surviving Corporation immediately
following the Effective Time shall be the same as the by-laws of the Transitory
Subsidiary immediately prior to the Effective Time, except that the name of the
corporation set forth therein shall be changed to the name of the Company.
1.14 Directors and Officers. The directors of the Transitory
Subsidiary shall become the directors of the Surviving Corporation as of the
Effective Time. Officers of the Transitory Subsidiary shall become the officers
of the Surviving Corporation as of the Effective Time, in their respective
positions as with the Transitory Subsidiary.
1.15 No Further Rights. From and after the Effective Time, no
Company Shares shall be deemed to be outstanding, and holders of certificates
formerly representing Company Shares shall cease to have any rights with respect
thereto except as provided herein or by law.
1.16 Closing of Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Company Shares
shall thereafter be made. If, after the Effective Time, certificates formerly
representing Company Shares are presented to the Buyer or the Surviving
Corporation, they shall be cancelled and exchanged for the Merger Consideration
in accordance with Section 1.5, subject to Section 1.12 and to applicable law in
the case of Dissenting Shares.
1.17 Taxes. Notwithstanding any other provision in this Agreement,
the Buyer, the Company, the Surviving Corporation and the Exchange Agent shall
have the right to deduct and withhold Taxes from any payments to be made
hereunder (including any payments from the Holdback Amount and any payments to
be made under the Escrow Agreement) if such withholding is required by law and
to collect any necessary Tax forms, including Forms W-8 or W-9, as applicable,
or any similar information, from the Company Stockholders, the Holdback
Recipients and any other recipients of payments hereunder. To the extent that
amounts are so withheld, such withheld amounts shall be treated for all purposes
of this Agreement as having been delivered and paid to the Company Stockholder,
the Holdback Recipient or other recipient of payments in respect of which such
deduction and withholding was made.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer and the Transitory
Subsidiary that the statements contained in this Article II are true and
correct, except as set forth in the disclosure
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schedule attached hereto (the "Disclosure Schedule"). The Disclosure Schedule
shall be initialed by the Parties and shall be arranged in sections and
paragraphs corresponding to the numbered and lettered sections and paragraphs
contained in this Article II, and the disclosures in any section or paragraph of
the Disclosure Schedule shall qualify only (a) the corresponding section or
paragraph of this Article II and (b) other sections and paragraphs in this
Article II solely to the extent it is clear from a reading of the disclosure
that such disclosure is applicable to such other sections and paragraphs.
2.1 Organization, Qualification and Corporate Power. The Company
is a corporation duly organized, validly existing and in corporate and Tax good
standing under the laws of the State of Delaware. The Company is duly qualified
to conduct business and is in corporate and Tax good standing under the laws of
each jurisdiction in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification, and each such
jurisdiction is set forth in Section 2.1 of the Disclosure Schedule. The Company
has all requisite corporate power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it. The
Company has furnished to the Buyer true and complete copies of its certificate
of incorporation and by-laws, each as amended and as in effect on the date
hereof. The Company has at all times complied with, and is not in default under
or in violation of any provision of, its certificate of incorporation or
by-laws.
2.2 Capitalization. The authorized capital stock of the Company
consists of (a) 46,000,000 Company Common Shares, of which, as of the date of
this Agreement, 7,660,809 shares are issued and outstanding and no shares are
held in the treasury of the Company, and (b) 29,909,618 Preferred Shares, of
which (i) 4,231,333 shares have been designated as Series A Preferred Stock, all
of which shares, as of the date of this Agreement, are issued and outstanding,
(ii) 3,645,835 shares have been designated as Series B Preferred Stock, all of
which shares, as of the date of this Agreement, are issued and outstanding, and
(iii) 22,032,450 shares have been designated as Series C Preferred Stock, of
which, as of the date of this Agreement, 11,410,256 shares are issued and
outstanding. Section 2.2 of the Disclosure Schedule sets forth a complete and
accurate list of (i) all stockholders of the Company, indicating the number and
class or series of Company Shares held by each Stockholder and (for Shares other
than Company Common Shares) the number of Company Common Shares (if any) into
which such Company Shares are convertible, (ii) all outstanding options to
purchase Company Shares pursuant to the Company's 1997 Incentive Stock Option
Plan and 2000 Stock Incentive Plan (collectively, the "Option Plans") or
otherwise ("Options") and warrants to purchase Company Shares other than Options
("Warrants"), indicating (A) the holder thereof, (B) the number and class or
series of Company Shares subject to each Option and Warrant and (for Company
Shares other than Company Common Shares) the number of Company Common Shares (if
any) into which such Company Shares are convertible, (C) the exercise price,
date of grant, vesting schedule and expiration date for each Option or Warrant,
and (D) any terms regarding the acceleration of vesting, and (iii) the Option
Plans and other stock or equity related plans of the Company. All of the Options
and Warrants, to the extent not previously exercised, will terminate and be of
no further force or effect at or immediately prior to the Effective Time, and
none of the Company, the Buyer, the
- 24 -
Transitory Subsidiary or the Surviving Corporation shall, thereafter, have any
liability or obligation, including any obligation to pay any Merger
Consideration, with respect thereto. All of the issued and outstanding Company
Shares are, and all Company Shares that may be issued upon exercise of Options
or Warrants will be (upon issuance in accordance with their terms), duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. Other than the Options and Warrants listed in Section 2.2 of the
Disclosure Schedule and the conversion and redemption rights set forth in the
Company's certificate of incorporation, there are no outstanding or authorized
options, warrants, rights, agreements or commitments to which the Company is a
party or which are binding upon the Company providing for the issuance or
redemption of any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to the Company.
Except as listed in Section 2.2 of the Disclosure Schedule (which listed
agreements will terminate as of the Closing), there are no agreements to which
the Company is a party or by which it is bound with respect to the voting
(including without limitation voting trusts or proxies), registration under the
Securities Act of 1933, as amended (the "Securities Act"), or any foreign
securities law, or sale or transfer (including without limitation agreements
relating to preemptive rights, rights of first refusal, co sale rights or "drag
along" rights) of any securities of the Company. To the knowledge of the
Company, there are no agreements among other parties, to which the Company is
not a party and by which it is not bound, with respect to the voting (including
without limitation voting trusts or proxies) or sale or transfer (including
without limitation agreements relating to rights of first refusal, co sale
rights or "drag along" rights) of any securities of the Company, in each case
other than under the agreements listed in Section 2.2 of the Disclosure
Schedule. All of the issued and outstanding Company Shares were issued in
compliance with applicable federal and state securities laws. All of the
Company's convertible debt was incurred to fund the Company's operations.
2.3 Authorization of Transaction. The Company has all requisite
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and, subject
to the adoption of this Agreement and the approval of the Merger by (i) a
majority of the votes represented by the outstanding Company Shares entitled to
vote on this Agreement and the Merger, voting as a single class and (ii) a
majority of the votes represented by the outstanding Series C Preferred Stock
entitled to vote on this Agreement and the Merger, voting as a single class
(collectively, the "Requisite Stockholder Approval"), the performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. Without limiting the
generality of the foregoing, the Board of Directors of the Company, at a meeting
duly called and held, by the unanimous vote of all directors (i) determined that
the Merger is fair and in the best interests of the Company and its
stockholders, (ii) adopted this Agreement in accordance with the provisions of
the Delaware General Corporation Law, and (iii) directed that this Agreement and
the Merger be submitted to the stockholders of the Company for their adoption
and approval and resolved to recommend that the stockholders of Company vote in
favor of the adoption of this Agreement and the approval of the Merger. This
Agreement has been duly and validly executed and
- 25 -
delivered by the Company and, assuming the due authorization, execution and
delivery by the Buyer and the Transitory Subsidiary, constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
2.4 Noncontravention. Subject to the filing of the Certificate of
Merger as required by the Delaware General Corporation Law, neither the
execution and delivery by the Company of this Agreement, nor the consummation by
the Company, the Surviving Corporation or the Company Stockholders of the Merger
or the other transactions contemplated hereby (the "Transactions"), will (a)
conflict with or violate any provision of the certificate of incorporation or
by-laws of the Company, (b) require on the part of the Company any filing with,
or any permit, authorization, consent or approval of, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity"), (c) conflict with,
result in a breach of, constitute (with or without due notice or lapse of time
or both) a default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify or cancel, or require any notice, consent
or waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest (as defined below) or other arrangement to which
the Company is a party or by which the Company is bound or to which any of its
assets are subject, (d) result in the imposition of any Security Interest upon
any assets of the Company or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or any of its properties
or assets. For purposes of this Agreement, "Security Interest" means any
mortgage, pledge, security interest, encumbrance, charge or other lien (whether
arising by contract or by operation of law), other than (i) mechanic's,
materialmen's and similar liens, (ii) liens arising under worker's compensation,
unemployment insurance, social security, retirement and similar legislation, and
(iii) liens on goods in transit incurred pursuant to documentary letters of
credit, in each case arising in the ordinary course of business consistent with
past custom and practice (including with respect to frequency and amount)
("Ordinary Course of Business") of the Company and not material to the Company.
2.5 Subsidiaries. The Company has never had any ownership interest
in any corporation, partnership, limited liability company or other form of
business association (a "Business Entity") with respect to which the Company,
directly or indirectly, had the power to vote or direct the voting of sufficient
securities to elect a majority of the directors or managers.
2.6 Financial Statements.
(a) The Company has provided to the Buyer (i) the audited
balance sheet and statements of operations, stockholders' equity and cash flows
of the Company as of and for the fiscal year ended December 31, 2001; (ii) the
audited balance sheet and statements of income, stockholders' equity and cash
flows of the Company for the fiscal year ended December 31, 2002; and (iii) the
unaudited balance sheet (the "Most Recent Balance Sheet") and statements of
income, stockholders' equity and cash flows of the Company as of and for the
nine-month period
- 26 -
ended September 30, 2003 (the "Balance Sheet Date"). Such financial statements
(collectively, the "Financial Statements") have been prepared in accordance with
GAAP (except that the unaudited Financial Statements referred to above lack
footnotes and are subject to normal end-of-period adjustments, the effect of
which will not be material), fairly present the financial condition, results of
operations and cash flows of the Company as of the respective dates thereof and
for the periods referred to therein and are consistent with the books and
records of the Company.
(b) Section 2.6(b) of the Disclosure Schedule lists, and
the Company has delivered to the Buyer copies of the documentation creating or
governing, all securitization transactions and "off-balance sheet arrangements"
(as defined in Item 303 (a)(4) of Regulation S-K of the Securities and Exchange
Commission (the "SEC")) effected by the Company since January 1, 1998. Section
2.6(b) of the Disclosure Schedule lists all non-audit services performed by the
Company's Auditors for the Company since January 1, 2002.
2.7 Absence of Certain Changes. Since the Balance Sheet Date, (a)
there has not been any material adverse change in the assets, business,
financial condition, results of operations or prospects of the Company, nor to
the Company's knowledge has there occurred any event or development or series of
events or developments which could reasonably be foreseen to result in such a
material adverse change, and (b) the Company has not taken any of the actions
set forth in paragraphs (a) through (p) of Section 4.4 below.
2.8 Undisclosed Liabilities. The Company does not have any
liability (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated and whether due or to become due), except for (a)
liabilities accrued or expressly reserved for on the Most Recent Balance Sheet,
a copy of which is included in Section 2.8 of the Disclosure Schedule, (b)
liabilities which have arisen since the Balance Sheet Date in the Ordinary
Course of Business and which are similar in nature and amount to the liabilities
which arose during the comparable period of time in the immediately preceding
fiscal year and (c) contractual liabilities incurred in the Ordinary Course of
Business of the Company which are not required by GAAP to be reflected on a
balance sheet and that are not in the aggregate material.
2.9 Tax Matters.
(a) For purposes of this Agreement:
(i) The term "Taxes" (including with correlative
meaning "Tax" and "Taxable") means (x) any and all taxes, and any and all other
levies, duties or other similar assessments or liabilities in the nature of a
tax, including without limitation any income, gross receipts, ad valorem, net
worth, premium, value-added, alternative or add-on minimum, excise, severance,
stamp, occupation, windfall profits, real property, personal property, assets,
sales, use, capital stock, capital gains, documentary, recapture, transfer,
transfer gains, estimated, withholding, employment, unemployment insurance,
unemployment compensation, social
- 27 -
security, business license tax, business organization, environmental, workers
compensation, payroll, profits, license, lease, service, service use, gains,
franchise and other taxes imposed by any federal, state, local, or foreign
Governmental Entity and (y) any interest, fines, penalties, assessments, or
additions resulting from, attributable to, or incurred in connection with any
items described in this paragraph or any contest or dispute thereof;
(ii) The term "Tax Returns" means any and all
reports, returns, declarations, statements, forms, or other information required
to be supplied to a Governmental Entity or to any individual or entity in
connection with Taxes and any associated schedules, attachments, work papers or
other information provided in connection with such items, including any
amendments thereof;
(iii) The term "Code" means the Internal Revenue
Code of 1986, as amended; and
(iv) The term "Treasury Regulations" means the
Treasury Regulations promulgated under the Code, including temporary and
proposed Treasury Regulations, as such regulations may be amended from time to
time (including corresponding provisions of succeeding regulations).
(b) The Company has properly filed on a timely basis all
Tax Returns that it was required to file, and all such Tax Returns were true,
correct and complete in all respects. The Company has paid on a timely basis all
Taxes, whether or not shown on any of its Tax Returns, that were due and
payable. All Taxes that the Company is or was required by law to withhold or
collect have been withheld or collected and, to the extent required, have been
paid on a timely basis to the appropriate Governmental Entity. The Company has
complied with all information reporting and back-up withholding requirements
including maintenance of the required records with respect thereto, in
connection with amounts paid to any employee, independent contractor, creditor
or other third party.
(c) The unpaid Taxes of the Company for periods through
the date of the Most Recent Balance Sheet do not exceed the accruals and
reserves for Taxes (excluding accruals and reserves for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the Most Recent Balance Sheet. All Taxes attributable to the period from and
after the date of the Most Recent Balance Sheet and continuing through the
Closing Date (but without regard to the Merger) are attributable to the conduct
by the Company of its operations in the Ordinary Course of Business.
(d) The Company is not and has never been a member of any
group of corporations with which it has filed (or been required to file)
consolidated, combined, or unitary Tax Returns. The Company does not have any
actual or potential liability under Treasury Regulation Section 1.1502-6 (or any
comparable or similar provision of federal, state, local, or foreign law), as a
transferee or successor, by contract, or otherwise for any Taxes of any person
- 28 -
(including without limitation any affiliated, combined, or unitary group of
corporations or other entities that included the Company during a prior Taxable
period). The Company is not a party to, bound by, or obligated under any Tax
allocation, Tax sharing, Tax indemnity or similar agreement.
(e) The Company has delivered to the Buyer (i) complete
and correct copies of all income Tax Returns of the Company relating to Taxes
for all Taxable periods for which the applicable statute of limitations has not
yet expired and (ii) complete and correct copies of all private letter rulings,
revenue agent reports, information document requests, notices of proposed
deficiencies, deficiency notices, protests, petitions, closing agreements,
settlement agreements, pending ruling requests and any similar documents
submitted by, received by or agreed to by or on behalf of the Company relating
to Taxes for all Taxable periods for which the applicable statute of limitations
has not yet expired. The income Tax Returns of the Company have been audited by
the Internal Revenue Service or other applicable Governmental Entity or are
closed by the applicable statute of limitations for all periods through and
including the Taxable period ended December 31, 1999. The Company has delivered
or made available to the Buyer complete and correct copies of all other Tax
Returns of the Company relating to Taxes for all Taxable periods for which the
applicable statute of limitations has not yet expired. No examination or audit
of any Tax Return of the Company by any Governmental Entity is currently in
progress or, to the knowledge of the Company, threatened or contemplated. The
Company is not a party to any Tax litigation. The Company has not been informed
by any jurisdiction that the jurisdiction believes that the Company was required
to file any Tax Return that was not filed.
(f) The Company has not (i) waived any statute of
limitations with respect to Taxes or agreed to extend the period for assessment
or collection of any Taxes or (ii) requested any extension of time within which
to file any Tax Return, which Tax Return has not yet been filed.
(g) There are no liens or other encumbrances with respect
to Taxes upon any of the assets or properties of the Company, other than with
respect to Taxes not yet due and payable.
(h) The Company has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(l)(A)(ii) of the Code.
(i) The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement, contract,
arrangement, or plan that could obligate it to make any payments, that are or
could be, separately or in the aggregate, "excess parachute payments" within the
meaning of Section 280G of the Code.
(j) To the Company's knowledge, no Company Stockholder
holds Company Shares that are non-transferable and subject to a substantial risk
of forfeiture within the meaning
- 29 -
of Section 83 of the Code with respect to which a valid election under Section
83(b) of the Code has not been made.
(k) None of the assets of the Company (i) is property
that is required to be treated as being owned by any other person pursuant to
the provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954,
(ii) is "tax-exempt use property" within the meaning of Section 168(h) of the
Code, (iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code, or (iv) is subject to a lease under
Section 7701(h) of the Code or under any predecessor section.
(l) The Company will not be required to include any item
of income in, or exclude any item of deduction from, Taxable income for any
Taxable period (or portion thereof) ending after the Closing Date as a result of
any (i) change in method of accounting for a Taxable period ending on or prior
to the Closing Date (or as a result of the Transactions) under Section 481 of
the Code (or any corresponding or similar provision of federal, state, local or
foreign Tax law) or (ii) "closing agreement" as described in Section 7121 of the
Code (or any corresponding or similar provision of state, local or foreign Tax
law) executed on or prior to the Closing Date.
(m) The Company has not distributed to its stockholders
or security holders stock or securities of a controlled corporation, nor have
stock or securities of the Company been distributed, in a transaction to which
Section 355 of the Code applies.
(n) The Company is not a party to any gain recognition
agreement under Section 367 of the Code.
(o) The Company does not own any interest in an entity
that is characterized as a partnership for federal income Tax purposes.
(p) Section 2.9(p) of the Disclosure Schedule sets forth
each jurisdiction (other than United States federal) in which the Company has
filed or has been required to file a Tax Return or has been liable for Taxes on
a "nexus" basis.
(q) The Company is not a "consenting corporation" within
the meaning of former Code Section 341(f), and none of the assets of the Company
are subject to an election under former Code Section 341(f).
2.10 Assets.
(a) The Company owns or leases all tangible assets
necessary for the conduct of its businesses as presently conducted and as
presently proposed to be conducted during the twenty four (24) month period
following the Effective Time. Each such tangible asset is free from defects, has
been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear) and is suitable
for the purposes for which it presently is used.
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(b) No asset of the Company (tangible or intangible) is
subject to any Security Interest.
(c) Section 2.10(c) of the Disclosure Schedule sets forth
(i) a true, correct and complete list of all items of tangible personal property
and all purchased and capitalized software owned by the Company as of the date
hereof, or not owned by the Company but in the possession of or used in the
business of the Company (the "Personal Property"), other than individual assets
with a book value of less than $1,000, and (ii) a description of the owner of,
and any agreement relating to the use of, each item of Personal Property not
owned by the Company and the circumstances under which such Personal Property is
used. Each item of Personal Property not owned by the Company is in such
condition that upon the return of such property to its owner in its present
condition at the end of the relevant lease term or as otherwise contemplated by
the applicable agreement between the Company and the owner or lessor thereof,
the obligations of the Company to such owner or lessor will be discharged.
2.11 Owned Real Property. The Company has never owned any real
property.
2.12 Intellectual Property.
(a) Section 2.12(a) of the Disclosure Schedule lists (i)
all Patent Rights, Trademark Rights, and copyright registrations or applications
therefor, that are now or were at any time in the past registered or filed in
the name of the Company, alone or jointly with others (the "Registered
Intellectual Property"), enumerating specifically the applicable filing or
registration number, date of filing or issuance, name of all inventors,
applicant(s), registrant(s) and/or assignee(s), as applicable, and status of any
required issuance, renewal, maintenance or other payments, and (ii) each
Customer Offering, together with a summary of the functionality of such Customer
Offering and the distribution channel(s) therefor. To Company's knowledge, (i)
all Registered Intellectual Property is valid, enforceable and subsisting, and
all issuance, renewal, maintenance and other payments that are or have become
due with respect thereto have been timely paid by or on behalf of Company and
(ii) all assignments, certificates and other instruments necessary to perfect
and record Company's ownership thereof have been timely filed with the relevant
governmental or quasi-governmental offices.
(b) Except as disclosed in Schedule 2.12(c), the Company
owns or has the legally enforceable right to use all Intellectual Property
necessary (i) to make, use, sell, have made, used and sold, import, reproduce,
market and distribute the Customer Offerings in the manner done currently and
currently contemplated to be done in all versions of the Customer Offerings
through the Next Release, and (ii) to operate and use the Internal Systems as
they are currently used and currently contemplated to be used in connection with
the operation of all versions of the Customer Offerings through the Next
Release. Notwithstanding anything to the contrary, nothing in this clause (b) is
intended to, or does, constitute any representation or warranty as to whether
there exists a legally enforceable right to use such Intellectual Property if
and to the extent a party other than the purported licensor asserts a claim that
any third party
- 31 -
product or component contained within or provided with the Customer Offerings
for which the Company has obtained a license violates the intellectual property
or other proprietary rights of a third party. Each item of Company Intellectual
Property will be owned or licensed and available for use by the Surviving
Corporation (as and to the extent currently used by or available to the Company)
immediately following the Closing on substantially identical terms and
conditions as it was immediately prior to the Closing. The Company has taken
commercially reasonable measures to protect the proprietary nature of each item
of Company Intellectual Property owned by the Company and to maintain in
confidence all trade secrets and confidential information comprising a part
thereof. No other person or entity has any joint ownership interest, royalty
interest, or license right to any of the Company Intellectual Property owned by
the Company except pursuant to agreements or licenses specified in Section
2.12(d) of the Disclosure Schedule.
(c) None of the Customer Offerings or the marketing,
distribution, provision, or use thereof as contemplated in the specifications
therefor, infringes or violates, or constitutes a misappropriation of, any
Intellectual Property rights of any third person or entity. To the Company's
knowledge, none of the Internal Systems, or the use thereof, infringes or
violates, or constitutes a misappropriation of, any Intellectual Property rights
of any person or entity. Section 2.12(c) of the Disclosure Schedule lists any
complaint, claim or notice, or written threat thereof, received by the Company
alleging any such infringement, violation or misappropriation; and the Company
has delivered to the Buyer complete and accurate copies of all written
documentation in the possession of the Company relating to any such complaint,
claim, notice or threat. To the knowledge of the Company, no other person or
entity is infringing, violating or misappropriating any of the Company
Intellectual Property owned by the Company. The Company has delivered to the
Buyer complete and accurate copies of all written documentation in the Company's
possession relating to claims or disputes known to the Company concerning any
Company Intellectual Property.
(d) Except in accordance with the terms of the Company's
standard form of Final Quote and System Sales and Service Contract (version 20),
the form of which has been delivered to the Buyer, Section 2.12(d) of the
Disclosure Schedule identifies each license or other agreement pursuant to which
the Company has licensed, distributed or otherwise granted any rights to any
third party with respect to, any Company Intellectual Property. Except as
described in Section 2.12(d) of the Disclosure Schedule, the Company has not
agreed to indemnify any person or entity against any infringement, violation or
misappropriation of any Intellectual Property rights with respect to any
Customer Offerings.
(e) Section 2.12(e) of the Disclosure Schedule identifies
each item of Company Intellectual Property that is owned by a person or entity
other than the Company, and the license or agreement pursuant to which the
Company uses or otherwise has rights with respect to it and including off the
shelf software programs licensed by the Company pursuant to "shrink wrap" or
similar licenses. No third party products, hardware, services or Software are
included in or required to use, operate, license, sell, maintain, distribute, or
modify the Customer
- 32 -
Offerings or Internal Systems, except as specifically disclosed in Section
2.12(e) of the Disclosure Schedule. The Company has delivered to the Buyer true
and complete copies of all written agreements that are in the Company's
possession between Company and such third parties listed in Section 2.12(e) of
the Disclosure Schedule.
(f) The Company has not licensed, disclosed or published,
and knows of no license, disclosure or publication by others (including its
employees and contractors) of, the source code for any Software included in the
Customer Offerings or Internal Systems or other confidential information
constituting, embodied in or pertaining to such Software ("Company Source Code")
to any person or entity, except pursuant to the agreements listed in Section
2.12(f) of the Disclosure Schedule, and the Company has taken reasonable
measures to prevent disclosure of such Company Source Code. No event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time, or both) will, or would reasonably be expected to, nor will
the consummation of the Transactions result in the disclosure or release of such
Company Source Code by Company, its escrow agent(s), the Surviving Corporation
or any other person to any third party.
(g) Except as set forth in Section 2.12(g) of the
Disclosure Schedule, all of the copyrightable materials (including Software and
Documentation) comprising, incorporated in or bundled with the Customer
Offerings have been invented, created, designed, authored, tested and debugged
by regular employees of the Company within the scope of their employment or by
independent contractors of the Company who have executed valid and binding
agreements agreeing to maintain confidentiality and expressly assigning all
right, title and interest in such copyrightable materials to the Company,
waiving their non-assignable rights (including moral rights) in favor of the
Company and its permitted assigns and licensees, and have no residual claim to
such materials. Except as set forth in Section 2.12(g) of the Disclosure
Schedule, such copyrightable materials do not include or constitute a derivative
work of any public domain software, open source code, shareware or any software
licensed under the General Public License, Lesser General Public License or any
other "open source code" license. No portion of such copyrightable materials was
jointly developed with any third party.
(h) The Customer Offerings and, to the Company's
knowledge, the Internal Systems that are used for the development, testing and
maintenance of the Customer Offerings, are free from significant defects or
programming errors and conform in all material respects to the written
documentation and specifications therefor. The Customer Offerings, as delivered
by the Company, do not contain any disabling device, virus, worm, back door,
Trojan horse or other disruptive or malicious code that may or are intended to
impair their intended performance or otherwise permit unauthorized access to,
hamper, delete or damage any computer system, software, network or data;
provided that there exists code in the Company Offerings or accompanying
hardware components that is designed and used to permit the Company to obtain
access to or control over Customer Offerings (e.g., remote access via modem)
installed at the Company's clients' facilities. The Company has not received any
warranty claims, contractual terminations or requests for settlement or refund
due to the failure of the Customer Offerings to
- 33 -
meet end user needs or for harm or damage to any third party except as set forth
in Section 2.12(h) of the Disclosure Schedule.
(i) Except as set forth in Section 2.12(i) of the
Disclosure Schedule, the Customer Offerings, Company Software and the Internal
Systems shall comply with, and handle information in accordance with, HIPAA (as
defined in Section 2.19(o)) and the rules and regulations promulgated
thereunder, including, but not limited to, the Standards for Electronic
Transactions, Privacy and Security, as and to the extent applicable; provided
that users of the Customer Offerings and Company Software and such users'
computer systems and networks operate and use the Customer Offerings and Company
Software and such information in accordance therewith.
(j) Definitions.
(i) "Company Intellectual Property" shall mean
all Intellectual Property purported to be owned by the Company or which is
licensed to the Company
(ii) "Customer Offerings" shall mean (a) the
products (including hardware, services, Software and Documentation) that the
Company (i) currently manufactures, markets, distributes, makes available, sells
or licenses to third parties, or (ii) has manufactured, marketed, distributed,
made available, sold or licensed to third parties within the previous three
years, or (iii) currently plans to manufacture, market, distribute, make
available, sell or license to third parties in all versions of such products
through the Next Release and (b) the services that the Company (i) currently
provides or makes available to third parties, or (ii) has provided or made
available to third parties within the previous three years, or (iii) currently
plans to provide or make available to third parties in all versions of such
services through the Next Release.
(iii) "Documentation" shall mean printed, visual
or electronic materials, reports, white papers, documentation, specifications,
designs, flow charts, code listings, instructions, user manuals, frequently
asked questions, release notes, recall notices, error logs, diagnostic reports,
marketing materials and other information describing the use, operation,
installation, configuration, features, functionality, pricing, marketing or
correction of a product, whether or not provided to end users.
(iv) "Intellectual Property" shall mean all:
(A) patents, patent applications, patent
disclosures, invention disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, patent applications and
registrations thereof (collectively, "Patent Rights");
(B) registered or common law trademarks and
service marks, trade dress, Internet domain names, logos, trade names and
corporate names and all registrations and
- 34 -
applications for registration of the foregoing ("Trademark Rights"), and all
goodwill in the foregoing;
(C) copyrights, data and database rights and
registrations and applications for registration thereof, including moral rights
of authors;
(D) mask works and registrations and
applications for registration thereof;
(E) inventions, trade secrets and
confidential business information, whether patentable or nonpatentable and
whether or not reduced to practice, know-how, manufacturing and product
processes and techniques, research and development information, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information;
(F) other proprietary rights relating to any
of the foregoing (including remedies against infringement thereof and rights of
protection of interest therein under the laws of all jurisdictions); and
(G) copies and tangible embodiments thereof.
(v) "Internal Systems" shall mean (1) the
Software and Documentation and (2) the computer, communications and network
systems (both desktop and enterprise-wide) used by the Company or any Subsidiary
in their business or operations or to provide, distribute, support or test the
Customer Offerings, whether located on the premises of the Company or hosted at
a third party site; provided that with respect to any representation or warranty
in this Section 2.12 with respect to Internal Systems, any such representation
or warranty shall be limited to the Company's knowledge with respect to the
items described in clause (2) of this definition.
(vi) "Next Release" shall mean the next major
release of the Customer Offerings (excluding any releases intended primarily to
correct bugs or offer minor improvements to functionality, design or
performance). The Next Release is currently designated as Vision 1.1.
(vii) "Software" shall mean computer software
code, applications, utilities, development tools and tool kits, diagnostics,
databases and embedded systems, whether in source code, interpreted code or
object code form.
2.13 Real Property Leases. Section 2.13 of the Disclosure Schedule
lists all real property leased or subleased to the Company and lists the term of
such lease, any extension and expansion options, and the rent payable
thereunder. The Company has delivered to the Buyer correct and complete copies
of the leases and subleases (as amended to date) listed in Section
- 35 -
2.13 of the Disclosure Schedule. With respect to each lease and sublease listed
in Section 2.13 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect with respect to the Company, and to the
knowledge of the Company, is legal, valid, binding, enforceable and in full
force and effect with respect to each other party thereto, subject, in each
case, to (i) laws of general application relating to bankruptcy, insolvency and
the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies;
(b) the lease or sublease will continue to be legal,
valid, binding, enforceable and in full force and effect immediately following
the Closing in accordance with the terms thereof as in effect prior to the
Closing, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies;
(c) the Company is not in breach or default thereunder
and no event has occurred which, with notice or lapse of time, would constitute
a breach or default by the Company or permit termination, modification, or
acceleration thereunder and, to the knowledge of the Company, no other party to
the lease or sublease is in breach or default, and no event has occurred which,
with notice or lapse of time, would constitute a breach or default by any other
party to the lease or sublease or permit termination, modification, or
acceleration thereunder;
(d) there are no disputes, oral agreements or enforceable
forbearance programs in effect as to the lease or sublease;
(e) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(f) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the operation of said
facilities; and
(g) no construction, alteration or other leasehold
improvement work with respect to the lease or sublease remains to be paid for or
performed by the Company.
2.14 Contracts. Section 2.14 of the Disclosure Schedule lists the
following written arrangements (including without limitation written agreements)
to which the Company is a party:
(a) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third parties
providing for lease payments in excess of $10,000 per annum or having a
remaining term longer than six (6) months;
(b) any written arrangement (or group of related written
arrangements) for the licensing or distribution of Software, products or other
personal property or for the furnishing or
- 36 -
receipt of services (i) which calls for performance over a period of more than
six (6) months, (ii) which involves more than the sum of $10,000, or (iii) in
which the Company has granted rights to license, sublicense or copy, "most
favored nation" pricing provisions or exclusive marketing or distribution rights
relating to any products or territory or has agreed to purchase a minimum
quantity of goods or services or has agreed to purchase goods or services
exclusively from a certain party;
(c) any written arrangement establishing a partnership or
joint venture;
(d) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or guaranteed (or
may create, incur, assume, or guarantee) indebtedness (including capitalized
lease obligations) involving more than $10,000 or under which it has imposed (or
may impose) a Security Interest on any of its assets, tangible or intangible;
(e) any written arrangement concerning confidentiality or
noncompetition (other than (i) the Company's standard form of confidentiality,
nonsolicitation and non-competition agreement with its employees, a copy of
which has been provided to the Buyer, (ii) the nondisclosure agreements entered
into among any of the Parties in connection with the Transactions, and (iii)
nondisclosure agreements entered into with prospective customers of the Company
which do not impose any ongoing obligations on the Company);
(f) any written arrangement involving any of the Company
Stockholders or their Affiliates (for the purpose of this Agreement, "Affiliate"
shall mean (A) in the case of an individual, the members of the immediate family
(including parents, siblings and children) of (i) the individual and (ii) the
individual's spouse, and (iii) any Business Entity that directly or indirectly,
through one or more intermediaries controls, or is controlled by, or is under
common control with any of the foregoing individuals, or (B) in the case of a
Business Entity, another Business Entity or a person that directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with the Business Entity), other than agreements
providing for reimbursement of travel and related out of pocket expenses
incurred in the Ordinary Course of Business;
(g) any written arrangement under which the consequences
of a default or termination could have a material adverse effect on the assets,
business, financial condition, results of operations or prospects of the
Company;
(h) any agency, reseller, sublicense, distributor, sales
representative, franchise or similar agreements to which the Company is a party
or by which the Company is bound;
(i) any business associate contracts (as such term is
used at 45 C.F.R. 164.504(e)) pertaining to privacy and/or security safeguards
for individually identifiable health
- 37 -
information, entered into between the Company and (i) any of its customers and
(ii) any vendor, contractor, or agent of the Company; and
(j) any other written arrangement (or group of related
written arrangements) either involving more than $10,000 or not entered into in
the Ordinary Course of Business of the Company.
The Company has delivered to the Buyer a correct and complete copy of
each written arrangement (as amended to date) listed in Section 2.12 and Section
2.14 of the Disclosure Schedule. With respect to each written arrangement so
listed: (i) the written arrangement is legal, valid, binding and enforceable and
in full force and effect with respect to the Company and, to the knowledge of
the Company, the written arrangement is legal, valid, binding and enforceable
and in full force and effect with respect to each other party thereto, subject,
in each case, to (a) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (b) rules of law governing specific
performance, injunctive relief and other equitable remedies; (ii) the written
arrangement will continue to be legal, valid, binding and enforceable and in
full force and effect immediately following the Closing in accordance with the
terms thereof as in effect prior to the Closing; (iii) the Company is not in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default by the Company, or permit termination,
modification or acceleration, under the written arrangement and (iv) to the
knowledge of the Company, no other party is in breach or default, and no event
has occurred which with notice or lapse of time would constitute a breach or
default by any such other party, or permit termination, modification or
acceleration, under the written arrangement. The Company is not a party to any
oral contract, agreement or other arrangement, or any oral amendment to any
written agreement, which, if reduced to written form, would be required to be
listed in Section 2.12 or Section 2.14 of the Disclosure Schedule under the
terms of this Section 2.14. The Company is not restricted by any arrangement
from carrying on its business anywhere in the world.
2.15 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
2.16 Insurance.
(a) Section 2.16 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers'
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company is a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past year. Each such insurance policy is in full force and
effect and will continue to be in full force and effect immediately following
the Closing in accordance with the terms thereof as in effect prior to the
Closing. All premiums due and payable under all such policies have been paid,
the Company will not be liable for retroactive premiums or similar payments, and
the Company is otherwise in compliance with the terms of such policies. The
- 38 -
Company has no knowledge of any threatened termination of, or material premium
increase with respect to, any such policy.
(b) The Company is not in breach or default (including
with respect to the payment of premiums or the giving of notices) under any such
policy, and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default or permit termination, modification or
acceleration, under such policy; and the Company has not received any notice
from the insurer disclaiming coverage or reserving rights with respect to a
particular claim or such policy in general. Section 2.16 of the Disclosure
Schedule identifies all claims asserted by the Company pursuant to any insurance
policy since January 1, 2001 and describes the nature and status of such claim.
The Company has not incurred any loss, damage, expense or liability covered by
any such insurance policy for which it has not properly asserted a claim under
such policy. The Company is covered by insurance in scope and amount that the
Company believes is customary and reasonable for the businesses in which it is
engaged.
2.17 Litigation. Except as identified and described in Section 2.17
of the Disclosure Schedule, (a) there is no action, suit, proceeding or
investigation to which the Company is a party (either as a plaintiff or
defendant) pending or, to the knowledge of the Company, threatened before any
court, Governmental Entity or arbitrator, and to the knowledge of the Company,
there is no basis for any such action, suit, proceeding or investigation; (b)
neither the Company nor, to the knowledge of the Company, any officer, director
or employee of the Company has been permanently or temporarily enjoined by any
order, judgment or decree of any court or Governmental Entity from engaging in
or continuing to conduct the business of the Company or any part thereof; (c) no
order, judgment or decree of any court or Governmental Entity has been issued in
any proceeding to which the Company is or was a party or, to the knowledge of
the Company, in any other proceeding that enjoins or requires the Company to
take an action of any kind with respect to its business, assets or properties;
and (d) the Company has not settled any actual or threatened action, suit,
proceeding or investigation at any time within the past five (5) years. None of
the actions, suits, proceedings or investigations set forth in Section 2.17 of
the Disclosure Schedule, individually or collectively, if determined adversely
to the interests of the Company, could reasonably be expected to have a material
adverse effect on the assets, business, financial condition, results of
operations or prospects of the Company.
2.18 Employees and Subcontractors.
(a) Section 2.18(a) of the Disclosure Schedule contains a
list of (i) all current employees of the Company, along with the position, date
of hire and the annual rate of compensation of each such person including salary
and other benefits (or, with respect to employees compensated on an hourly or
per diem basis, the hourly or per diem rate of compensation) and estimated or
target annual incentive compensation of each such employee and (ii) all former
employees of the Company who are bound by any nonsolicitation and
non-competition agreement with the Company. Each current and former Company
employee has entered into a binding and enforceable confidentiality/assignment
of inventions agreement with
- 39 -
the Company, a copy of which has previously been delivered to the Buyer. To the
knowledge of the Company, no employee or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. The Company does not have any knowledge of any organizational effort
made or threatened, either currently or within the past two years, by or on
behalf of any labor union with respect to employees of the Company.
(b) Section 2.18(b) of the Disclosure Schedule sets forth
(i) a list of all subcontractors that either performed services in the last two
(2) years or are currently performing services or under contract to perform
future services for the Company and (ii) the start date, type of services to be
provided, estimated completion date and hourly or per diem pay rate of such
subcontractors.
(c) Neither the Company nor any officer or director of
the Company nor, to the Company's knowledge, any key employee of the Company
owns, directly or indirectly, individually or collectively, any interest in any
corporation, company, partnership, entity or organization which is in a business
similar or competitive to the businesses of the Company or which has any
existing undisclosed contractual relationship with the Company, other than stock
of publicly-traded companies, which holdings are less than five (5%) percent of
the outstanding capital stock of each such publicly traded company.
(d) The Company has not violated any labor legislation,
regulation or agreement in any relevant jurisdiction.
(e) Since December 31, 2002, no increases or decreases
have been made in the compensation of any employee of the Company outside of the
Ordinary Course of Business.
(f) The Company has complied with all applicable laws and
regulations concerning the hiring and employment of employees and has not
received any notice of its failure so to comply.
2.19 Employee Benefits.
(a) Section 2.19(a) of the Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans (as defined below). For
purposes of this Agreement, "Employee Benefit Plan" means any "employee pension
benefit plan" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), any "employee welfare benefit plan"
(as defined in Section 3(1) of ERISA), and any other written or oral plan or
arrangement with respect to one or more individuals involving direct or indirect
compensation, including without limitation insurance coverage, severance
benefits, disability benefits, pension, retirement plans, profit sharing,
deferred compensation, bonuses, stock options, stock purchase, phantom stock,
stock appreciation or other forms of incentive
- 40 -
compensation or post-retirement compensation maintained or contributed to by the
Company. Complete and accurate copies of (i) all Employee Benefit Plans which
have been reduced to writing and all individual employment agreements, (ii)
written summaries of all unwritten Employee Benefit Plans, (iii) all related
trust agreements, insurance contracts and summary plan descriptions, (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R for the last three plan
years for each Employee Benefit Plan, (v) copies of the most recent reports
relating to compliance with Sections 401(k), 401(m) and 410(b) of the Code, (vi)
all employee handbooks, (vii) in the case of a plan intended to be qualified
under section 401(a) of the Code, a copy of the most recent IRS determination
letter for such plan, (viii) copies of all inquiries or correspondence to or
from a Governmental Entity relating to any Employee Benefit Plan received within
the last three (3) plan years for each Employee Benefit Plan, and (ix) copies of
committee minutes relating to Employee Benefit Plan administration have been
delivered to the Buyer.
(b) Each Employee Benefit Plan has been administered in
accordance with its terms and the Company has met its obligations with respect
to such Employee Benefit Plan and has made all required contributions thereto.
The Company and all Employee Benefit Plans are in compliance with the currently
applicable provisions of ERISA and the Code and other applicable federal, state
and local laws and the regulations thereunder (including without limitation
Section 4980B of the Code, Subtitle K, Chapter 100 of the Code and Sections 601
through 608 and Section 701 et seq. of ERISA). All filings and reports as to
each Employee Benefit Plan required to have been submitted to the Internal
Revenue Service or to the United States Department of Labor have been duly
submitted.
(c) There are no inquiries by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Employee Benefit Plans and proceedings with respect
to qualified domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any such claims under any
Employee Benefit Plan, nor, to the knowledge of the Company, has any
Governmental Entity commenced an investigation with respect to any such matters.
(d) All the Employee Benefit Plans that are intended to
be qualified under Section 401(a) of the Code have received determination
letters from the Internal Revenue Service to the effect that such Employee
Benefit Plans are qualified and the plans and the trusts related thereto are
exempt from federal income taxes under Sections 401(a) and 501(a), respectively,
of the Code, no such determination letter has been revoked and revocation has
not been threatened, and no such Employee Benefit Plan has been amended or
operated since the date of its most recent determination letter or application
therefor in any respect, and no act or omission has occurred, that would
adversely affect its qualification. The Company has not taken any action, or
failed to take an action, that would increase the cost of any Employee Benefit
Plan, nor will the Transactions give rise to any increased cost or liabilities
with respect to any Employee Benefit Plan. Each Employee Benefit Plan that
provides for compliance with Section 404(c) of ERISA, or is intended to comply
with such provision, so complies.
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(e) Neither the Company nor any ERISA Affiliate has ever
maintained an Employee Benefit Plan subject to Section 412 of the Code or Title
IV of ERISA. For purposes of this Agreement, "ERISA Affiliate" means any entity
which is a member of (i) a controlled group of corporations (as defined in
Section 414(b) of the Code), (ii) a group of trades or businesses under common
control (as defined in Section 414(c) of the Code), or (iii) an affiliated
service group (as defined under Section 414(m) of the Code or the regulations
under Section 414(o) of the Code), any of which includes the Company.
(f) At no time has the Company or any ERISA Affiliate
been obligated to contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of employment to any employee
of the Company (or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but excluding (i)
continuation of health coverage required to be continued under Section 4980B of
the Code or any state law, and insurance conversion privileges under state law,
but only to the extent such continuation coverage is provided solely at the
participant's expense (except as otherwise mandated by such state law), or (ii)
any severance plan or arrangement set forth in Section 2.19(g) of the Disclosure
Schedule.
(h) No act or omission has occurred and no condition
exists with respect to any Employee Benefit Plan maintained by the Company that
would subject the Company or Buyer to any (i) fine, penalty, tax or liability
imposed under ERISA or the Code (other than liabilities incurred in the Ordinary
Course of Business that are consistent with the Code and ERISA, including
liabilities for benefits, contributions, premiums and other similar costs), or
(ii) contractual indemnification or contribution obligation protecting any
fiduciary, insurer or service provider with respect to any Employee Benefit
Plan.
(i) No Employee Benefit Plan is funded by, associated
with, or related to a "voluntary employee's beneficiary association" within the
meaning of Section 501(c)(9) of the Code.
(j) No Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written communication distributed
generally to employees by its terms prohibits the Company from amending or
terminating any such Employee Benefit Plan and any Employee Benefit Plan may be
terminated without liability to the Company, the Surviving Corporation or the
Buyer, except for benefits accrued through the date of termination and
administrative and professional costs incurred in such termination. Except for
participation in continuation of health coverage required to be continued under
Section 4980B of the Code or any state law, no former employees participate in
any welfare benefit plans listed in Section 2.19(a) of the Disclosure Schedule.
No Employee Benefit Plan includes in its assets any securities issued by the
Company.
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(k) Section 2.19(k) of the Disclosure Schedule discloses
each: (i) agreement with any director, executive officer or other employee of
the Company (A) the benefits of which are contingent, or the terms of which are
altered, upon the occurrence of a transaction involving the Company or the
Surviving Corporation of the nature of any of the Transactions, (B) providing
any term of employment, compensation guarantee, post employment benefits or any
other payouts or commissions or (C) providing severance benefits or other
benefits after the termination of employment of such director, executive officer
or employee; (ii) agreement, plan or arrangement under which any person may
receive payments from the Company that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code (without regard to Sections
280G(b)(4) and 280G(b)(5) of the Code); and (iii) agreement or plan of the
Company, including without limitation any stock option plan, stock appreciation
right plan, restricted stock plan, stock purchase plan, severance benefit plan,
or any Employee Benefit Plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the Transactions or the value of any of the benefits of which will be
calculated on the basis of any of the Transactions.
(l) Section 2.19(l) of the Disclosure Schedule sets forth
the policy and practice of the Company with respect to accrued vacation, accrued
sick time and earned time-off.
(m) Each individual who has received compensation for the
performance of services on behalf of the Company has been properly classified as
an employee or independent contractor in accordance with applicable law.
(n) There are no loans or extensions of credit from the
Company to any employee (other than advances of travel and other business
expenses made in the Ordinary Course of Business).
(o) Each Employee Benefit Plan that is a group health
plan is in compliance with the provisions of the Health Insurance Portability
and Accountability Act of 1996 ("HIPAA"), including without limitation, the
Standards for Electronic Transactions, Privacy and Security promulgated by the
Department of Health and Human Services under 45 CFR parts 160, 162, and 164.
Copies of all agreements implementing such standards are attached to Section
2.19(o) of the Disclosure Schedule.
(p) The Company has no plan or commitment to create any
additional Employee Benefit Plans or to modify any existing Employee Benefit
Plans that could result in any liability to the Company, Surviving Corporation
or the Buyer.
2.20 Environmental Matters.
(a) The Company has complied and is in compliance with
all applicable Environmental Laws (as defined below). There is no pending or, to
the knowledge of the
- 43 -
Company, threatened civil or criminal litigation, written notice of violation,
formal administrative proceeding, or investigation, inquiry or information
request by any Governmental Entity, relating to any Environmental Law involving
the Company. For purposes of this Agreement, "Environmental Law" means any
federal, state or local law, statute, rule or regulation or the common law
relating to the environment or occupational health and safety, including without
limitation any statute, regulation or order pertaining to (i) treatment,
storage, disposal, generation and transportation of toxic or hazardous
substances or solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or threatened release
into the environment of toxic or hazardous substances, or solid or hazardous
waste, including without limitation emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants or chemicals; (v) the protection
of wild life, marine sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and containers;
(vii) underground and other storage tanks or vessels, abandoned, disposed or
discarded barrels, containers and other closed receptacles; (viii) health and
safety of employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or oil or petroleum products or solid or hazardous waste. As used above, the
terms "release" and "environment" shall have the meaning set forth in the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA").
(b) There have been no releases by the Company, or to the
Company's knowledge, by any third party, of any Materials of Environmental
Concern (as defined below) into the environment at any parcel of real property
or any facility formerly or currently owned, leased, operated or controlled by
the Company for which the Company may be liable under any Environmental Law.
With respect to any such releases of Materials of Environmental Concern, the
Company has given all required notices to Governmental Entities (copies of which
have been provided to the Buyer). The Company is not aware of any other releases
of Materials of Environmental Concern at parcels of real property or facilities
(including, without limitation, those owned, leased, operated or controlled by
the Company) that could reasonably be expected to have an impact on the real
property or facilities owned, operated or controlled by the Company. For
purposes of this Agreement, "Materials of Environmental Concern" means any
chemicals, pollutants or contaminants, hazardous substances (as such term is
defined under CERCLA or any Environmental Law), solid wastes and hazardous
wastes (as such terms are defined under the federal Resources Conservation and
Recovery Act or any Environmental Law), toxic materials, oil or petroleum and
petroleum products, asbestos, or any other material subject to regulation under
any Environmental Law.
(c) Set forth in Section 2.20(c) of the Disclosure
Schedule is a list of all environmental reports, investigations and audits
possessed or controlled by the Company (whether conducted by or on behalf of the
Company or a third party, and whether done at the initiative of the Company or
directed by a Governmental Entity or other third party) issued or conducted
during the past ten years and relating to premises currently or previously
owned,
- 44 -
leased, or operated by the Company. Complete and accurate copies of each such
report, and the results of each such investigation or audit, have been provided
to the Buyer.
(d) The Company is not aware of any material
environmental liability on the part of any of the solid or hazardous waste
transporters and treatment, storage and disposal facilities that have been
utilized by the Company.
2.21 Legal Compliance.
(a) The Company is conducting and has conducted its
business and operations in compliance with all applicable federal, state, local
and foreign laws, regulations and orders ("Laws and Regulations"), including
without limitation the rules and regulations of the United States Food and Drug
Administration ("FDA"), the United States Occupational Safety and Health
Administration and the United States Environmental Protection Agency. The
Company has not received any notice or communication from any Governmental
Entity alleging noncompliance with any applicable Laws and Regulations. There is
no civil, criminal or administrative action, suit, demand, claim, complaint,
hearing, investigation, demand letter, warning letter, proceeding or request for
information pending against the Company and the Company has no liability
(whether actual or contingent) for failure to comply with any Laws and
Regulations. There is no act, omission, event, or circumstance of which the
Company has knowledge that would reasonably be expected to give rise to any such
action, suit, demand, claim, complaint, hearing, investigation, notice, demand
letter, warning letter, proceeding or request for information or any such
liability. There has not been any violation of any Laws and Regulations by the
Company in its prior product development efforts, submissions or reports to any
Governmental Entity that could reasonably be expected to require investigation,
corrective action or enforcement action. To the Knowledge of the Company, there
is no civil or criminal proceeding relating to the Company or any Company
employee which involves a matter within or related to the FDA's jurisdiction.
The Company has never been and is not now subject to FDA's Applications
Integrity Policy ("AIP") and possesses no documents related to AIP.
(b) The Company's facility is registered, as required,
and each product manufactured by or on behalf of the Company in the United
States for commercial distribution or in current commercial distribution (the
"Products") is listed, as required, with the FDA under Section 510 of the
Federal Food, Drug, and Cosmetic Act, 21 U.S.C. Section 301 et seq. (the
"FD&C Act"), and the applicable rules and regulations thereunder. Each Product
in current commercial distribution is either a Class I or Class II medical
device as defined under 21 U.S.C. Section 360c(a)(1)(A), (B) and applicable
rules and regulations thereunder and was first marketed under, and is covered
by, a premarket notification in compliance with 21 U.S.C. Section 360(k) and the
applicable rules and regulations thereunder, or is exempt from such premarket
notification in accordance with 21 U.S.C. Section 360(l) or (m) and applicable
rules and regulations thereunder. The Company is currently in compliance with,
and each Product in current commercial distribution is designed, manufactured,
prepared, assembled, packaged, labeled, stored, installed, serviced, and
processed in compliance with, the Quality System Regulation set forth in 21
C.F.R. Part 820.
- 45 -
The Company is in compliance with the written procedures, record-keeping and FDA
reporting requirements for Medical Device Reporting set forth in 21 C.F.R. Part
803. The premises of the Company and its records relating to the Products were
most recently inspected by the FDA up to and including March 8, 2002, and the
FDA issued a form FDA 483 Notice of Observations on March 8, 2002 related to the
inspection. Since March 8, 2002, the FDA has not inspected such premises or
records. The Company is not subject to any enforcement proceedings by the FDA
and, to the Company's knowledge, no such proceedings have been threatened. The
Company has not introduced in commercial distribution during the period of six
calendar years immediately preceding the date hereof any Products which were
upon their shipment by the Company adulterated or misbranded in violation of 21
U.S.C. Section 331.
(c) The Company has not received or does not possess the
following documents: (i) 510(k) rescission letters, (ii) PMAs, PMA Supplements
or IDEs, (iii) investigational plans for currently open device investigations,
(iv) FDA regulatory actions against the Company including notice of adverse
findings, regulatory or warning letters or recalls, (v) documentation related to
voluntary or mandatory recalls of Company products, (vi) reports of removals or
corrections or correspondence to and from the FDA concerning such reports and
all related investigations or (vii) safety alerts.
(d) The Company has provided the Buyer a true and correct
copy of (i) a list of all products ever marketed by the Company or any
predecessor thereto, and for each such product, the legal basis for distributing
the product in interstate commerce, (ii) all justifications for not filing a
510(k) for a change or modification to a marketed device, including any
justifications drafted by or on behalf of any predecessor to the Company, (iii)
all substantially equivalent or not substantially equivalent letters, including
those received by or on behalf of any predecessor to the Company, (iv) all
correspondence, meeting notes or minutes, or related documents concerning
material communications between FDA and the Company or any predecessor thereto
as they relate to 510(k) submissions, including requests for additional
information and responses thereto, (v) all management review reports and
management/executive meeting minutes, (vi) all documents related to FDA
regulatory action(s), including all documents showing corrective actions
undertaken by the Company or any predecessor thereto in response to FDA
regulatory action(s), and documents showing action(s) taken by the Company or
any predecessor thereto to avert such regulatory action(s), (vii) all reports of
inspection (Establishment Inspection Reports), (viii) all MDRs, including those
filed by any predecessor to the Company, (ix) all MedWatch forms received by the
Company or any predecessor thereto, (x) all GMP audits of the Company or any
predecessor thereto and their suppliers and (xi) all product labeling and
advertising currently in use, including that posted on the Company's website and
in the Company's user's manuals.
2.22 Permits. Section 2.22 of the Disclosure Schedule sets forth a
list of all permits, licenses, registrations, certificates, orders, clearances
or approvals from any Governmental Entity (including without limitation those
issued or required under the FD&C Act, applicable export laws or regulations,
Environmental Laws and those relating to the occupancy or use of owned or
- 46 -
leased real property) ("Permits") issued to or held by the Company. Such listed
Permits are the only Permits that are required for the Company to conduct its
business as presently conducted or as proposed to be conducted during the twenty
four (24) month period following the Effective Time. Each such Permit is in full
force and effect and, to the knowledge of the Company, no suspension, revocation
or cancellation of such Permit is threatened and there is no basis for believing
that such Permit will not be renewable by the Company upon expiration. Each such
Permit will continue in full force and effect immediately following the Closing.
2.23 Certain Business Relationships With Affiliates. No Affiliate
of the Company (a) owns any property or right, tangible or intangible, which is
used in the business of the Company, (b) has any claim or cause of action
against the Company, (c) is a party to any contract or other arrangement,
written or verbal, with the Company (other than this Agreement and the
agreements entered into or to be entered into in connection with the
transactions contemplated hereby, as provided for herein or expressly
contemplated hereby), or (d) owes any money to the Company or is owed money by
the Company or any Affiliate (the agreements, arrangements and relationships
described in this sentence are hereinafter referred to as "Related Party
Transactions"); in each case, except as described in Section 2.23 of the
Disclosure Schedule. Section 2.23 of the Disclosure Schedule also lists each
Affiliate and each other person who shall have a direct or indirect right to
receive any portion of the Earn-out Consideration.
2.24 Brokers' Fees. Except as disclosed in Section 2.24 of the
Disclosure Schedule, the Company does not have any liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
Transactions.
2.25 Books and Records. The minute books and other similar records
of the Company contain true and complete records of all actions taken at any
meetings of the Company's stockholders, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company accurately reflect the assets,
liabilities, business, financial condition and results of operations of the
Company and have been maintained in accordance with good business and
bookkeeping practices.
2.26 Prepayments, Prebilled Invoices and Deposits.
(a) Section 2.26(a) of the Disclosure Schedule sets forth
(i) all prepayments, prebilled invoices and deposits that have been received by
the Company as of the date hereof from customers for products to be shipped, or
services to be performed, after the Closing Date, and (ii) with respect to each
such prepayment, prebilled invoice or deposit, (A) the party and contract
credited, (B) the date received or invoiced, (C) the products and/or services to
be delivered, and (D) the conditions for the return of such prepayment,
prebilled invoice or deposit. All such prepayments, prebilled invoices and
deposits are properly accrued for on the Most Recent Balance Sheet in accordance
with GAAP applied on a consistent basis with the past practice of the Company.
- 47 -
(b) Section 2.26(b) of the Disclosure Schedule sets forth
(i) all prepayments, prebilled invoices and deposits that have been made or paid
by the Company as of the date hereof to vendors or suppliers for products to be
shipped, or services to be performed, after the Closing Date, and (ii) with
respect to each such prepayment, prebilled invoice or deposit, (A) the party to
whom such prepayment, prebilled invoice or deposit was made or paid, (B) the
date made or paid, (C) the products and/or services to be delivered, and (D) the
conditions for the return of such prepayment, prebilled invoice or deposit. All
such prepayments, prebilled invoices and deposits are properly accrued for on
the Most Recent Balance Sheet in accordance with GAAP applied on a consistent
basis with the past practices of the Company.
2.27 Banking Facilities. Section 2.27 of the Disclosure Schedule
identifies:
(a) each bank, savings and loan or similar financial
institution in which the Company has an account or safety deposit box and the
numbers of the accounts or safety deposit boxes maintained by the Company
thereat; and
(b) the names of all persons authorized to draw on each
such account or to have access to any such safety deposit box facility, together
with a description of the authority (and conditions thereof, if any) of each
such person with respect thereto.
2.28 Accounts Receivable. All accounts receivable of the Company
reflected on the Most Recent Balance Sheet are valid receivables subject to no
setoffs or counterclaims and are current, fully collectible and due and payable
within 90 days after the Balance Sheet Date, net of the applicable reserve for
bad debts on the Most Recent Balance Sheet. All accounts receivable reflected in
the financial or accounting records of the Company that have arisen since the
Balance Sheet Date are valid receivables subject to no setoffs or counterclaims
and are current, fully collectible and due and payable within 90 days of
recording of each receivable, net of a reserve for bad debts in an amount
proportionate to the reserve shown on the Most Recent Balance Sheet.
2.29 Warranties. No product or service manufactured, sold, leased,
licensed or delivered by the Company is subject to any guaranty, warranty, right
of return, right of credit or other indemnity other than (i) the applicable
standard terms and conditions of sale or lease of the Company, which are set
forth in Section 2.29 of the Disclosure Schedule, and (ii) manufacturers'
warranties for which the Company does not have any liability. Section 2.29 of
the Disclosure Schedule sets forth the aggregate expenses incurred by the
Company in fulfilling its obligations under its guaranty, warranty, right of
return and indemnity provisions during each of the fiscal years and the interim
period covered by the Financial Statements; and the Company knows of no reason
why such expenses should significantly increase as a percentage of sales in the
future.
2.30 Customers and Suppliers. Section 2.30 of the Disclosure
Schedule sets forth a list of (a) each customer of the Company during the last
full fiscal year or the interim period through August 31, 2003 and the amount of
revenues recognized and recorded for each such customer
- 48 -
during each such period and (b) each supplier that is the sole supplier of any
significant product, good or service to the Company. The Company has no
outstanding disputes concerning its products or services with any of its
customers and the Company has no knowledge of any dissatisfaction on the part of
any such Customer. No such customer or supplier has indicated within the past
year that it will stop, or decrease the rate of, buying products or services or
supplying products or services, as applicable, to or from the Company, as
applicable. The Company is not obligated to perform any service or provide any
product for a fee or price that is (i) below its then current fee or price for
such service or product or (ii) below its actual cost of such service or
product. No purchase order or commitment of the Company is in excess of normal
requirements, nor are prices provided therein in excess of current market prices
for the products or services to be provided thereunder.
2.31 Controls and Procedures.
(a) The Company maintains accurate books and records
reflecting its assets and liabilities and maintains proper and adequate internal
accounting controls which provide assurance that (i) transactions are executed
with management's authorization, (ii) transactions are recorded as necessary to
permit preparation of the financial statements of the Company and to maintain
accountability for the Company's assets, (iii) access to assets of the Company
is permitted only in accordance with management's authorization, (iv) the
reporting of assets of the Company is compared with existing assets at regular
intervals, and (v) accounts, notes and other receivables and inventory were
recorded accurately, and proper and adequate procedures are implemented to
effect the collection thereof on a current and timely basis.
(b) The Company maintains disclosure controls and
procedures that are effective to ensure that all material information concerning
the Company is made known on a timely basis to the individuals responsible for
the preparation of the Company's financial statements. Section 2.31(b) of the
Disclosure Schedule lists, and the Company has delivered to the Buyer copies of,
all written descriptions of, and all policies, manuals and other documents
promulgating, such disclosure controls and procedures.
2.32 Inventory. All inventory of the Company, whether or not
reflected on the Most Recent Balance Sheet, consists of a quality and quantity
usable and saleable in the Ordinary Course of Business, except for obsolete
items and items of below-standard quality, all of which have been written-off or
written-down to net realizable value on the Most Recent Balance Sheet. All
inventories not written-off have been priced at the lower of cost or net
realizable value on a specific-identification basis. The quantities of each type
of inventory, whether raw materials, work-in-process or finished goods, are not
excessive in the present circumstances of the Company.
2.33 Government Contracts.
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(a) The Company has not been suspended or debarred from
bidding on contracts or subcontracts with any Governmental Entity; no such
suspension or debarment has been threatened or initiated; and the consummation
of the Transactions will not result in any such suspension or debarment of the
Company (assuming that no such suspension or debarment will result solely from
the identity of the Buyer). To the knowledge of the Company, the Company has not
been and is not now being audited or investigated by the United States
Government Accounting Office, the United States Department of Defense or any of
its agencies, the Defense Contract Audit Agency, the contracting or auditing
function of any Governmental Entity with which it is contracting, the United
States Department of Justice, the Inspector General of any Governmental Entity,
or any prime contractor with a Governmental Entity; nor, to the knowledge of the
Company, has any such audit or investigation been threatened. To the knowledge
of the Company, there is no valid basis for (i) the suspension or debarment of
the Company from bidding on contracts or subcontracts with any Governmental
Entity or (ii) any claim (including any claim for return of funds to the
Government) pursuant to an audit or investigation by any of the entities named
in the foregoing sentence. The Company has no agreements, contracts or
commitments which require it to obtain or maintain a security clearance with any
Governmental Entity.
(b) To the knowledge of the Company, no basis exists for
any of the following with respect to any of its contracts or subcontracts with
any Governmental Entity: (i) a Termination for Default (as provided in 48 C.F.R.
Ch.1 Section 52.249-8, 52.249-9 or similar sections), (ii) a Termination for
Convenience (as provided in 48 C.F.R. Ch.1 Section 52.249-1, 52.249-2 or similar
sections), or a Stop Work Order (as provided in 48 C.F.R. Ch.1 Section 52.242-15
or similar sections); (iii) a decision declining to renew or declining to
exercise an option for an additional period within the specified contract term;
and the Company has no reason to believe that funding may not be provided under
any contract or subcontract with any Governmental Entity during the specified
term of any such contract.
2.34 Personally Identifiable Information and Privacy. The Company's
collection, use, storage, transfer and disclosure of any personally identifiable
information ("Information Practices"), and use by third parties having
authorized access to the Company's websites or other records, conforms, and at
all times has conformed, to all Laws and Regulations, including applicable
provisions of HIPAA and all applicable standards set forth in any final
regulations and orders promulgated under such Act, and all contractual
commitments of the Company to its customers, the viewers of the Company's
websites, and third parties relating to such practices. The Company's
Information Practices have been consistent with all statements or
representations made to customers, potential customers and third parties,
whether orally or in writing, regarding such practices. Without limiting the
foregoing, the Company has taken all necessary and appropriate steps to comply
with the regulations set forth at 45 C.F.R. Parts 160, 162, and 164 as
promulgated by the U.S. Department of Health and Human Services, and has
obtained all written authorizations or assurances required under such
regulations.
- 50 -
2.35 Disclosure. No representation or warranty by the Company
contained in this Agreement, and no statement contained in the Disclosure
Schedule or any other document, certificate or other instrument delivered to or
to be delivered by or on behalf of the Company pursuant to this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants
to the Company as follows:
3.1 Organization and Corporate Power. Each of the Buyer and the
Transitory Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation. The Buyer has
all requisite corporate power and authority to carry on the businesses in which
it is engaged and to own and use the properties owned and used by it. The Buyer
has furnished or made available to the Company complete and accurate copies of
its certificate of incorporation and by-laws.
3.2 Authorization of Transaction. Each of the Buyer and the
Transitory Subsidiary has all requisite power and authority to execute and
deliver this Agreement and (in the case of the Buyer) the Escrow Agreement and
the Exchange Agreement and to perform its obligations hereunder and thereunder.
The execution and delivery by the Buyer and the Transitory Subsidiary of this
Agreement and (in the case of the Buyer) the Escrow Agreement and the Exchange
Agreement and the consummation by the Buyer and the Transitory Subsidiary of the
Transactions have been duly and validly authorized by all necessary corporate
action on the part of the Buyer and Transitory Subsidiary, respectively. This
Agreement has been (or, in the case of the Escrow Agreement and the Exchange
Agreement, will be) duly and validly executed and delivered by the Buyer and the
Transitory Subsidiary and constitutes (or, in the case of the Escrow Agreement
and the Exchange Agreement, will be) a valid and binding obligation of the Buyer
and the Transitory Subsidiary, enforceable against them in accordance with its
respective terms.
3.3 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws and
the filing of the Certificate of Merger as required by the Delaware General
Corporation Law, and assuming (in the case of clause (b) below) the accuracy of
the Company's representations and warranties in Section 2.6 above, neither the
execution and delivery by the Buyer or the Transitory Subsidiary of this
Agreement or (in the case of the Buyer) the Escrow Agreement or the Exchange
Agreement, nor the consummation by the Buyer or the Transitory Subsidiary of the
Transactions, will (a) conflict with or violate any provision of the certificate
of incorporation or by-laws of the Buyer or the
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Transitory Subsidiary, (b) require on the part of the Buyer or the Transitory
Subsidiary any filing with, or permit, authorization, consent or approval of,
any Governmental Entity, (c) conflict with, result in breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of obligations under, create in any party any right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Buyer or the
Transitory Subsidiary is a party or by which either is bound or to which any of
their assets are subject, or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer or the Transitory Subsidiary
or any of their properties or assets.
3.4 Reports and Financial Statements. The Buyer has previously
furnished or made available to the Company complete and accurate copies, as
amended or supplemented, of (a) the Buyer's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, as filed with SEC, and (b) all other
reports filed by the Buyer under Section 13 or subsections (a) or (c) of Section
14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") with
the SEC since January 1, 2001 (collectively, the "Buyer Reports"). The Buyer
Reports constitute all of the documents required to be filed by the Buyer under
Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act with the
SEC from January 1, 2001 through the date of this Agreement. The Buyer Reports
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder when filed. As of their respective dates,
the Buyer Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. As of the date of this Agreement, the Buyer is not
obligated under the Exchange Act, or the rules and regulations thereunder, to
amend or supplement any of the Buyer Reports. The audited financial statements
and unaudited interim financial statements of the Buyer included in the Buyer
Reports (i) complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto when filed, (ii) were prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act), and
(iii) fairly present the consolidated financial condition, results of operations
and cash flows of the Buyer as of the respective dates thereof and for the
periods referred to therein. The Buyer is eligible to use SEC Form S-3 for the
registration of any Earn-out Shares.
3.5 Broker's Fees. Neither the Buyer nor the Transitory Subsidiary
has any liability or obligation to pay any fees or commissions to any broker,
finder or agent other than Xxxxxxx Xxxxx & Company, L.L.C. with respect to the
Transactions.
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ARTICLE IV
COVENANTS
4.1 Closing Efforts. Each of the Parties shall use its or his best
efforts, to the extent commercially reasonable ("Reasonable Best Efforts"),
during the period from the date of this Agreement until the earlier to occur of
the Effective Time or the termination of this Agreement in accordance with the
provisions of Article VIII of this Agreement, to take all actions and to do all
things necessary, proper or advisable to consummate the Transactions, including
without limitation using its or his Reasonable Best Efforts to ensure that (a)
its or his representations and warranties remain true and correct in all
material respects through the Closing Date and (b) the conditions to the
obligations of the other Parties to consummate the Merger are satisfied.
4.2 Governmental and Third-Party Notices and Consents.
(a) Each Party shall use its or his Reasonable Best
Efforts, during the period from the date of this Agreement until the earlier to
occur of the Effective Time or the termination of this Agreement in accordance
with the provisions of Article VIII of this Agreement, to obtain, at its or his
expense, all waivers, permits, consents, approvals or other authorizations from
Governmental Entities, and to effect all registrations, filings and notices with
or to Governmental Entities, as may be required for such Party to consummate the
Transactions and to otherwise comply with all applicable laws and regulations in
connection with the consummation of the Transactions.
(b) The Company shall use its Reasonable Best Efforts,
during the period from the date of this Agreement until the earlier to occur of
the Effective Time or the termination of this Agreement in accordance with the
provisions of Article VIII of this Agreement, to obtain, at its expense, all
such waivers, consents or approvals from third parties, and to give all such
notices to third parties, as are listed or required to be listed in Section 2.4
of the Disclosure Schedule; provided, however, that any disclosure of the
existence of this Agreement or the Transactions by the Company or its
representatives in connection with the foregoing shall not be deemed a breach of
that certain Confidentiality Agreement dated as of July 24, 2003 between the
Company and the Buyer (the "NDA").
4.3 Stockholder Approval; Termination of Options and Warrants.
(a) The Company shall use its Reasonable Best Efforts to
obtain, as promptly as practicable, the Requisite Stockholder Approval, either
at a special meeting of stockholders or pursuant to a written Stockholder
consent, all in accordance with the applicable requirements of the Delaware
General Corporation Law. In connection with any such special meeting of
stockholders, the Company shall provide to its stockholders a written proxy or
information statement (the "Information Statement") which includes (A) a summary
of the material terms of the Merger, this Agreement and the other Transactions
(which summary shall include a summary of the material terms relating to the
indemnification obligations of the Company Stockholders,
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the escrow and holdback arrangements and the authority of the Stockholders'
Representative, and a statement that the adoption of this Agreement by the
stockholders of the Company shall constitute approval of such terms) and (B) a
statement that appraisal rights are available for the Company Shares pursuant to
Section 262 of the Delaware General Corporation Law and a copy of such Section
262. The Buyer agrees to cooperate with the Company in the preparation of the
Information Statement. The Company agrees not to distribute the Information
Statement until the Buyer has had a reasonable opportunity to review and comment
on the Information Statement (which opportunity shall be deemed reasonable if at
least three (3) business days) and the Information Statement has been approved
by the Buyer (which approval may not be unreasonably withheld or delayed). If
the Requisite Stockholder Approval is obtained by means of a written consent,
the Company shall send a summary of the material terms of the Merger and,
pursuant to Sections 228 and 262(d) of the Delaware General Corporation Law, a
written notice to all stockholders of the Company that did not execute such
written consent informing them that this Agreement and the Merger were adopted
and approved by the stockholders of the Company and that appraisal rights are
available for their Company Shares pursuant to Section 262 of the Delaware
General Corporation Law (which notice shall include a copy of such Section 262),
and shall promptly inform the Buyer of the date on which such notice was sent.
The Company, acting through its Board of Directors, shall include any
Information Statement the unanimous recommendation of its Board of Directors
that the stockholders of the Company vote in favor of the adoption of this
Agreement and the approval of the Merger.
(b) The Company shall ensure that any Information
Statement or summary of the material terms of the Merger, as the case may be,
does not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading (provided that the
Company shall not be responsible for the accuracy or completeness of any
information concerning the Buyer or the Transitory Subsidiary (i) furnished by
the Buyer in writing for inclusion in the Information Statement or any such
written summary or (ii) included in the Buyer Reports).
(c) The Company shall use its Reasonable Best Efforts to
take all actions required to terminate all outstanding Options, Warrants or
other rights to purchase Company Shares or other equity interests which have not
been exercised in full immediately prior to the Effective Time.
4.4 Operation of Business. Except as otherwise required by this
Agreement or the Stockholders Agreements, during the period from the date of
this Agreement to the Effective Time, the Company shall conduct its operations
in the Ordinary Course of Business and in compliance in all material respects
with all applicable laws and regulations and, to the extent consistent
therewith, use its Reasonable Best Efforts to preserve intact its current
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not
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be impaired in any material respect. Without limiting the generality of the
foregoing, prior to the Effective Time and except as required by this Agreement
or the Stockholders Agreements, the Company shall not, without the written
consent of the Buyer:
(a) except as provided in paragraph (c) below, issue,
sell or deliver or agree or commit to issue, sell or deliver (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise) or authorize the issuance, sale or delivery of,
or redeem or repurchase, any stock or other securities of the Company or any
rights, warrants or options to acquire any such stock or other securities
(except pursuant to the conversion or exercise of convertible debt, Preferred
Shares, Options or Warrants outstanding on the date hereof) or amend any of the
terms of (other than the vesting of) any such Options or Warrants, provided that
nothing in this Section 4.4 shall prevent, prohibit, limit or otherwise restrict
the Company's ability to amend any options, warrants or other rights to purchase
or otherwise acquire securities of the Company, outstanding on the date hereof,
to permit the early exercise or acceleration of any such options, warrants or
other rights to purchase;
(b) split, combine or reclassify any shares of its
capital stock or declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock;
(c) create, incur or assume any indebtedness (including
obligations in respect of capital leases) other than (i) ordinary trade payables
incurred in the Ordinary Course of Business; assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity or (ii) convertible
debt or other indebtedness (not in excess of the Net Merger Consideration) that
will be deducted from the Merger Consideration as a Closing Payment at Closing;
or make any loans, advances or capital contributions to, or investments in, any
other person or entity;
(d) enter into, adopt, terminate or amend any Employee
Benefit Plan or any employment or severance agreement or arrangement of the type
described in Section 2.19(j) or increase in any manner the compensation or
fringe benefits of, or materially modify the employment terms of, its directors,
officers or employees, generally or individually, or pay any bonus or other
benefit to its directors, officers or employees (except for existing payment
obligations listed in Section 2.19 of the Disclosure Schedule);
(e) acquire, sell, lease, license or dispose of any
assets or property (including without limitation any shares or other equity
interests in or securities of any corporation, partnership, association or other
business organization or division thereof), other than licenses, purchases and
sales of assets in the Ordinary Course of Business;
(f) mortgage or pledge any of its property or assets or
voluntarily subject any such property or assets to any Security Interest;
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(g) discharge or satisfy any Security Interest or pay or
assume any obligation or liability other than in the Ordinary Course of
Business;
(h) amend its charter, by-laws or other organizational
documents;
(i) change in any respect its methods of Tax or financial
accounting, or accounting principles or practices, or make any Tax election or
change any existing Tax election, except insofar as may be required by a
generally applicable change in Tax law or GAAP;
(j) enter into, amend, terminate, take or omit to take
any action that would constitute a violation of or default under, or waive any
rights under, any material contract or agreement;
(k) delay or fail to enter into any transaction with any
customer or potential customer of the Company prior to the Closing for the
purpose of [**] of the Business Unit during the Earn-out Period;
(l) sell, assign, transfer or license any Intellectual
Property, other than in the Ordinary Course of Business;
(m) make or commit to make any capital expenditure in
excess of $10,000 per item or $25,000 in the aggregate;
(n) institute or settle any action, suit, proceeding,
claim, arbitration or investigation before any Governmental Entity or before any
arbitrator;
(o) take any action or fail to take any action permitted
by this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming untrue or (ii) any of the conditions to the
Merger set forth in Article V not being satisfied; or
(p) agree in writing or otherwise to take any of the
foregoing actions.
4.5 Access to Information. The Company shall permit
representatives of the Buyer to have full access (at all reasonable times, and
in a manner so as not to interfere with the normal business operations of the
Company) to all premises, properties, financial, accounting and Tax records,
contracts, other records and documents, and personnel, of or pertaining to the
Company and, if requested by the Buyer, shall send to Buyer by overnight courier
any requested documents. The officers and management of the Company shall
cooperate fully with the Buyer's representatives and agents and shall make
themselves available to the extent necessary to complete the due diligence
process and the Closing. The Company shall, at the request of the Buyer,
introduce the Buyer to the principal suppliers, customers and employees of the
Company to facilitate discussions between such persons and the Buyer in regard
to the conduct of the business of the Company following the Closing.
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4.6 Notice of Breaches.
(a) From the date of this Agreement until the Effective
Time, the Company shall promptly deliver to the Buyer supplemental information
concerning events or circumstances occurring subsequent to the date hereof which
would render any representation, warranty or statement of the Company in this
Agreement or the Disclosure Schedule inaccurate or incomplete at any time after
the date of this Agreement until the Closing Date. Such information shall be
accompanied by a certificate from the Company indicating whether such
supplemental information provides the Buyer the right not to consummate the
transactions contemplated by this Agreement pursuant to Section 5.2(c). No such
supplemental information shall be deemed to cure any misrepresentation or breach
of warranty or constitute an amendment of any representation, warranty or
statement in this Agreement or the Disclosure Schedule except to the extent that
such supplemental information relates to an event or circumstance occurring
subsequent to the date hereof (without breach of Section 4.4) and the
certificate delivered by the Company as provided in the preceding sentence
indicates that by reason thereof the Buyer has the right not to consummate the
transactions contemplated by this Agreement pursuant to Section 5.2(c), in which
case if the Closing occurs such supplemental information shall constitute an
amendment of the representation, warranty or statement to which it relates for
purposes of Article VI.
(b) From the date of this Agreement until the Effective
Time, the Buyer shall promptly deliver to the Company supplemental information
concerning events or circumstances occurring subsequent to the date hereof which
would render any representation or warranty of the Buyer or the Transitory
Subsidiary in this Agreement inaccurate or incomplete at any time after the date
of this Agreement until the Closing Date. Such information shall be accompanied
by a certificate from the Buyer indicating whether such supplemental information
provides the Company the right not to consummate the transactions contemplated
by this Agreement pursuant to Section 5.3(a). No such supplemental information
shall be deemed to cure any misrepresentation or breach of warranty or
constitute an amendment of any representation or warranty in this Agreement
except to the extent that such supplemental information relates to an event or
circumstance occurring subsequent to the date hereof and the certificate
delivered by the Buyer as provided in the preceding sentence indicates that by
reason thereof the Company has the right not to consummate the transactions
contemplated by this Agreement pursuant to Section 5.3(a), in which case if the
Closing occurs such supplemental information shall constitute an amendment of
the representation, warranty or statement to which it relates for purposes of
Article VI.
4.7 Exclusivity.
(a) The Company shall not, and the Company shall require
each of its officers, directors, employees, representatives and agents not to,
directly or indirectly, (i) initiate, seek, encourage or support any inquiry,
proposal, offer or bid from, negotiate with, provide any information to, or
enter into any agreement with any party (other than the Buyer) in connection
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with the sale or transfer of all or any substantial portion of the Company's
stock or assets (whether by means of a stock sale, asset sale or otherwise),
(ii) furnish any non-public information concerning the business, properties or
assets of the Company or any division of the Company to any party (other than
the Buyer) or (iii) engage in discussions or negotiations with any party (other
than the Buyer) concerning any such transaction.
(b) The Company shall immediately notify any party with
which discussions or negotiations of the nature described in paragraph (a) above
were pending that the Company is terminating such discussions or negotiations.
If the Company receives any inquiry, proposal or offer of the nature described
in paragraph (a) above, the Company shall, within one business day after such
receipt, notify the Buyer of such inquiry, proposal or offer, including the
identity of the other party and the terms of such inquiry, proposal or offer.
4.8 Expenses. Except as set forth in Article VI and the Escrow
Agreement, each of the Parties shall bear its or his own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the Transactions. Notwithstanding the foregoing, if the Merger is
consummated the Company's financial advisors, brokers, legal, audit and
accounting fees (excluding one-half of the costs of the audit of the October
Balance Sheet and one-half the costs of the SAS 100 review of the Company's
financial statements), commissions and expenses in connection with the Merger
including payments or other consideration that are a result of a change in
control of the Company (the "Expenses") shall be deducted from the Merger
Consideration to be delivered at Closing in accordance with the provisions of
Section 1.5. To the extent the amount of any Expenses are not finally determined
at the time of the Closing, the amount of such Expenses shall be estimated and
deducted from the Merger Consideration. When the final amount of such Expenses
is determined any final Expenses in excess of the amount deducted at Closing
shall be first withdrawn, pro rata, from the Holdback Amount and from the
Initial Escrow Fund and any remaining amount shall then be withdrawn from the
Additional Escrow Fund. The amount by which the actual Expenses are less than
the amount of Expenses deducted at Closing shall be paid to the Stockholders'
Representative for distribution to the Company Stockholders.
4.9 Bonus Plan. After the Effective Time, the Buyer shall cause
the Surviving Corporation to implement and perform all of its obligations under
the Company's bonus plan attached hereto as Schedule 4.9.
4.10 Tax Disclosure. Notwithstanding anything herein to the
contrary, any Party to this Agreement or the NDA and any Company Stockholder
(and any employee, representative or other agent of any of these) may disclose
to any and all persons, without limitation of any kind, the Tax treatment and
Tax structure of the Transactions and all materials of any kind (including
opinions or other Tax analyses) that are provided to it relating to such Tax
treatment and Tax structure, except that (i) Tax treatment and Tax structure
shall not include the identity of any existing or future Party to this Agreement
or any Company Stockholder (or any affiliate of any of
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these) and (ii) this provision shall not permit disclosure to the extent that
nondisclosure is necessary in order to comply with applicable securities laws.
4.11 Cooperation in Insurance. The Company agrees to cooperate with
Buyer in the transition of insurance to Buyer's insurance carrier effective as
of the Closing. In furtherance thereof, the Company shall execute a so-called
broker of record letter and such additional documentation as the Buyer shall
reasonably request.
4.12 Listing of Earn-out Shares. Prior to the issuance of any
Earn-out Shares, the Buyer shall, if required by the rules of The Nasdaq
National Market, file with The Nasdaq National Market a Notification Form for
Listing Additional Shares with respect such Earn-out Shares.
4.13 FIRPTA. Prior to the Closing, (i) the Company shall deliver to
the Buyer and to the Internal Revenue Service notices that the Company Shares
are not a "U.S. real property interest" in accordance with Treasury Regulations
under Sections 897 and 1445 of the Code, or (ii) each of the Company
Stockholders shall deliver to Buyer certifications that they are not foreign
persons in accordance with the Treasury Regulations under Section 1445 of the
Code. If the Buyer does not receive either the notices or the certifications
described above on or before the Closing Date, the Buyer shall be permitted to
withhold from any payments hereunder any required withholding tax under Section
1445 of the Code.
4.14 Indemnification.
(a) From and after the Effective Time, the Buyer shall,
to the fullest extent permitted by law, cause the Surviving Corporation, for a
period of six years from the Effective Time, to honor all of the Company's
obligations to indemnify and hold harmless each present and former director and
officer of the Company, against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities or amounts paid in
settlement incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the extent that such obligations to indemnify and hold harmless exist
on the date of this Agreement.
(b) The provisions of this Section 4.14 are intended to
be in addition to the rights otherwise available to the current officers and
directors of the Company by law, charter, statute, by-law or agreement, and
shall operate for the benefit of, and shall be enforceable by, each of the
present and former director and officer of the Company, their heirs and their
representatives.
4.15 Cooperation in Financial Reporting. The Company shall and
shall use Reasonable Best Efforts to cause its officers to fully cooperate with
Buyer's independent
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auditors in connection with any independent audit or review of the Company's
financial statements in connection with the Buyer's financial reporting. The
Company's cooperation shall include, among other things, using Reasonable Best
Efforts to obtain written representations by the Company's chief executive
officer and chief financial officer to the Buyer's independent auditors as
required by standards of the American Institute of Certified Public Accountants
to be executed at or about the Closing Date and again at any applicable filing
date.
4.16 Earn-out Shares. In the event the Buyer elects to issue any
Earn-out Shares, the Buyer shall cause such Earn-out Shares to be duly
authorized, validly issued, fully paid and nonassessable and not subject to or
issued in violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision of
the Buyer's certificate of incorporation, by-laws or other agreement to which
the Buyer is a party or by which it is bound. In addition, and assuming the
representations and warranties of the Company Stockholders set forth in the
Investment Representation Letters are true and correct, the Buyer shall cause
such Earn-out Shares to be issued under a valid exemption from the registration
requirements of Section 5 of the Securities Act and to constitute "restricted
securities" within the meaning of that term as defined in and for purposes of
Rule 144. It shall be a condition precedent to the Buyer's right to issue
Earn-out Shares that (i) the covenants set forth in this Section 4.16 shall have
been complied with prior to such issuance, (ii) the Buyer Common Stock shall be
listed on The Nasdaq National Market and the Earn-out Shares shall have been
approved for listing on The Nasdaq National Market upon notification of
issuance, and (iii) "there shall be available adequate current public
information" with respect to the Buyer within the meaning of that phrase as used
in SEC Rule 144(c).
4.17 Tax Returns. The Buyer shall prepare and timely and properly
file or cause to be prepared and timely and properly filed all Tax Returns with
respect to the Company or in respect of its business, assets, or operations
which Tax Returns are for taxable periods that begin on or before the Closing
Date and are due (taking timely-requested extensions into account) after the
Closing Date and shall timely pay all amounts shown to be due thereon. The Buyer
shall prepare or cause to be prepared all such Tax Returns in a manner
consistent with past practices employed by the Company (except to the extent
counsel for the Buyer renders a legal opinion that there is no reasonable basis
in law therefor or determines that a Tax Return cannot be so prepared and filed
without being subject to penalties). With respect to any income Tax Return of
the Company for any taxable period that ends on or before the Closing Date, the
Buyer shall provide the Stockholders' Representative with a copy of the
completed Tax Return, together with appropriate supporting information and
schedules, at least twenty (20) calendar days, or if, given the due date, it is
not possible to provide twenty (20) days, a reasonable amount of calendar days,
prior to the due date (including any extension thereof) for the filing of the
Tax Return, and the Stockholders' Representative shall have the right to review
and comment on the Tax Return prior to the filings of the Tax Return. The Buyer
shall accept any comments received from the Stockholders' Representative with
respect to the Tax Return unless counsel to the Buyer renders a legal opinion
that there is no reasonable basis in law therefor or determines that a Tax
Return cannot be so prepared and filed without being subject to penalties. The
Buyer, the Company,
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and the Stockholders' Representative shall cooperate in the preparation and
filing of any income Tax Return of the Company for any taxable period that
includes the Closing Date, but does not end on or before the Closing Date.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Condition to Each Party's Obligations. The respective
obligations of each Party to consummate the Merger are subject to the
satisfaction of the condition that this Agreement and the Merger shall have
received the Requisite Stockholder Approval by the Company Stockholders.
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the Merger is subject to the satisfaction (or waiver by the Buyer) of
the following additional conditions:
(a) the Buyer shall have received written representations
by the Company's chief executive officer and chief financial officer to the
Buyer's independent auditors as required by standards of the American Institute
of Certified Public Accountants with respect to the Company's financial
statements for the fiscal year ended December 31, 2002 and the nine months ended
September 30, 2003;
(b) the Company shall have (i) obtained (and provided
copies thereof to the Buyer) all of the waivers, permits, consents, approvals or
other authorizations, and effected all of the registrations, filings and
notices, listed in Schedule 5.2(b)(i) and (ii) obtained (and provided copies
thereof to the Buyer) any other waivers, permits, consents, approvals or other
authorizations, and effected all other registrations, filings and notices which,
if not obtained or effected, would reasonably be expected to result in a
material adverse effect on the assets, business, financial condition, results of
operations or prospects of the Company (it being understood that the failure to
obtain or effect any or all of the waivers, permits, consents, approvals or
other authorizations, and to have effected all of the registrations, filings and
notices listed in Schedule 5.2(c)(ii) would not reasonably be expected to result
in a material adverse effect on the assets, business, financial condition,
results of operations or prospects of the Company);
(c) the representations and warranties of the Company set
forth in the first sentence of Section 2.1 and in Section 2.3 and any
representations and warranties of the Company set forth in this Agreement that
are qualified as to materiality shall be true and correct, in all respects, and
all other representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects, in each case as of
the date of this Agreement and as of the Effective Time as though made as of the
Effective Time, except to the extent such representations and warranties are
specifically made as of a particular date or as of
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the date of this Agreement (in which case such representations and warranties
shall be true and correct as of such date);
(d) the Company shall have performed or complied with its
agreements and covenants required to be performed or complied with under this
Agreement as of or prior to the Effective Time;
(e) no action, suit or proceeding shall be pending or
threatened by or before any Governmental Entity wherein an unfavorable judgment,
order, decree, stipulation or injunction would (i) prevent consummation of the
Merger or any of the other Transactions, (ii) cause the Merger or any of the
other Transactions to be rescinded following consummation, or (iii) affect
adversely the right of the Company to own, operate or control any of its assets
or operations, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(f) the Company shall have delivered to the Buyer and the
Transitory Subsidiary a certificate (without qualification as to knowledge or
materiality or otherwise) (the "Company Certificate") to the effect that each of
the conditions specified in Section 5.1 and clauses (b) through (e) (insofar as
clause (e) relates to actions, suits or proceedings involving the Company) of
this Section 5.2 is satisfied in all respects;
(g) the Buyer shall have received Investment
Representation Letters from Company Stockholders sufficient to demonstrate that
that the Company has no more than 35 unaccredited investors and the Buyer shall
have no reason to believe that the statements set forth therein are not true;
(h) the Buyer shall have received from counsel to the
Company an opinion in the form attached hereto as Exhibit D, addressed to the
Buyer dated as of the Closing Date;
(i) the Buyer shall have received copies of the
resignations, effective as of the Effective Time, of each director and officer
of the Company (other than any such resignations which the Buyer designates, by
written notice to the Company, as unnecessary);
(j) each Company Stockholder listed on Schedule 5.2(j)(A)
shall have entered into non-competition and non-solicitation agreements with the
Buyer in substantially the form attached hereto as Exhibit E and each Company
Stockholder listed on Schedule 5.2(j)(B) shall have entered into an amendment to
his or her non-competition and non-solicitation agreement in substantially the
form attached hereto as Exhibit F;
(k) all employment agreements (other than at will
employment agreements) for employees of the Company shall have been terminated
on terms and conditions reasonably acceptable to the Buyer and all employees of
the Company entitled to any bonus under any Company bonus plan other than the
plan described in Section 4.9 of this Agreement shall have irrevocably waived
the right to receive such bonus;
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(l) the Company shall have terminated or received a
waiver on the restrictions on transfer set forth in the Company's Second Amended
and Restated Stockholders' Agreement;
(m) the Company shall have delivered to the Buyer
evidence satisfactory to the Buyer that all outstanding Options, Warrants or
other rights to purchase Company Shares or other equity interests in the Company
have been exercised in full or terminated effective immediately prior to the
Effective Time;
(n) the Company shall have delivered to the Buyer
evidence satisfactory to the Buyer that all incentive compensation, bonus or
similar payments (other than the Closing Payments) accrued for periods prior to
the Closing Date shall have been paid or the recipient of such payments shall
have irrevocably waived the right thereto; and
(o) the Buyer shall have received such other certificates
and instruments (including without limitation certificates of good standing of
the Company in its jurisdiction of organization and the various foreign
jurisdictions in which it is qualified, certified charter documents,
certificates as to the incumbency of officers and the adoption of authorizing
resolutions) as it shall reasonably request in connection with the Closing.
5.3 Conditions to Obligations of the Company. The obligation of
the Company to consummate the Merger is subject to the satisfaction (or waiver
by the Company) of the following additional conditions:
(a) the representations and warranties of the Buyer and
the Transitory Subsidiary set forth in the first sentence of Section 3.1 and in
Section 3.2 and any representations and warranties of the Buyer and the
Transitory Subsidiary set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and all other
representations and warranties of the Buyer and the Transitory Subsidiary set
forth in this Agreement shall be true and correct in all material respects, in
each case as of the date of this Agreement and as of the Effective Time as
though made as of the Effective Time, except to the extent such representations
and warranties are specifically made as of a particular date or as of the date
of this Agreement (in which case such representations and warranties shall be
true and correct as of such date);
(b) each of the Buyer and the Transitory Subsidiary shall
have performed or complied with its agreements and covenants required to be
performed or complied with under this Agreement as of or prior to the Effective
Time;
(c) no action, suit or proceeding shall be pending or
threatened by or before any Governmental Entity wherein an unfavorable judgment,
order, decree, stipulation or injunction would (i) prevent consummation of the
Merger or any of the other Transactions, or (ii) cause the Merger or any of the
other Transactions to be rescinded following consummation, and no such judgment,
order, decree, stipulation or injunction shall be in effect;
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(d) the Buyer shall have delivered to the Company a
certificate (without qualification as to knowledge or materiality or otherwise)
(the "Buyer Certificate") to the effect that each of the conditions specified in
clauses (a) through (c) (insofar as clause (c) relates to actions, suits or
proceedings involving the Buyer or the Transitory Subsidiary) of this Section
5.3 is satisfied in all respects;
(e) the Company shall have received such other
certificates and instruments (including without limitation certificates of good
standing of the Buyer and the Transitory Subsidiary in their jurisdiction of
organization, certified charter documents, certificates as to the incumbency of
officers and the adoption of authorizing resolutions) as it shall reasonably
request in connection with the Closing;
(f) the Company shall have received from counsel to the
Buyer and the Transitory Subsidiary an opinion in the form attached hereto as
Exhibit G, addressed to the Company Stockholders and dated as of the Closing
Date;
(g) the Buyer shall have delivered the Exchange Fund to
the Exchange Agent in accordance with Section 1.7; and
(h) the Buyer and the Escrow Agent shall have entered
into the Escrow Agreement and the Buyer shall have delivered the Escrow Fund to
the Escrow Agent in accordance with Section 1.12 hereof.
ARTICLE VI
INDEMNIFICATION
6.1 Pro Rata Indemnification by the Company Stockholders. Except
as provided in Section 6.2, each Company Stockholder receiving the Merger
Consideration pursuant to Section 1.5 shall, severally and not jointly,
indemnify the Buyer in respect of, and hold it harmless against, such Company
Stockholder's pro rata portion (determined in proportion to the portion of the
aggregate Merger Consideration and Earn-out Consideration paid to such Company
Stockholder hereunder) of any and all debts, obligations and other liabilities,
including, without limitation, Tax liabilities, monetary damages, fines, fees,
penalties, interest obligations, deficiencies, losses and reasonable expenses
(including without limitation amounts paid in settlement, interest, court costs,
costs of investigators, reasonable fees and expenses of attorneys (including the
entirety, and not just a pro rata portion, of any fees and expenses incurred in
enforcing any judgment against such Company Stockholder), accountants, financial
advisors and other experts, and other reasonable expenses of litigation)
("Damages") incurred or suffered by the Surviving Corporation or the Buyer or
any Affiliate thereof resulting from, relating to or constituting:
(a) any misrepresentation, breach of warranty or failure
to perform any covenant or agreement of the Company contained in this Agreement
or the Company Certificate;
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(b) any claim by a former stockholder of the Company, or
any other person or entity other than a Company Stockholder receiving the Merger
Consideration pursuant to Section 1.5, seeking to assert, or based upon: (i)
ownership or rights to ownership of any shares of stock of the Company; (ii) any
rights of a stockholder, including any option, preemptive rights or rights to
notice or to vote; (iii) any rights under the certificate of incorporation or
by-laws of the Company; or (iv) any claim that his, her or its shares were
wrongfully repurchased by the Company; in each case, excluding any appraisal
rights pursuant to Section 262 of the Delaware General Corporation Law;
(c) one half of any sales, use, transfer, stamp,
conveyance, value added, recording, registration, documentary, filing or other
similar Taxes and fees, whether levied on the Buyer, the Company Stockholders,
the Company, the Surviving Corporation or any of their respective Affiliates,
resulting from the Merger or otherwise on account of this Agreement or the other
Transactions;
(d) any payments of Taxes that the Buyer or the Surviving
Corporation is required to make that (i) relate to the operations of the
Company, without giving effect to the Merger, on or before the Closing Date to
the extent the payments exceed the amount of the reserves for Taxes (excluding
deferred income Tax liabilities) reflected on the October Balance Sheet or (ii)
relate to any payments made (A) to the holders of the Company's Options in
respect of those Options or (B) pursuant to the Option Cancellation and Bonus
Agreement dated as of November 24, 2003, in each case to the extent such Taxes
exceed the amounts set forth in the Preliminary Allocation Schedule, as amended
pursuant to Section 1.5(f) of this Agreement. For this purpose, Taxes
attributable to a Taxable period beginning before and ending after the Closing
Date shall be allocable to the portion of such period ending on the Closing Date
to the extent of (i) in the case of Taxes that (x) are based upon or related to
income or receipts or (y) are imposed in connection with any sale or other
transfer or assignment of property, other than the Taxes described in Section
6.1(c), the amount of such Taxes that would be payable if the Taxable period
ended with the Closing Date, and (ii) in the case of other Taxes imposed on a
periodic basis (including property Taxes), the amount of such Taxes for the
entire Tax period multiplied by a fraction, the numerator of which is the number
of calendar days in the period ending with the Closing Date and the denominator
of which is the number of calendar days in the entire period;
(e) the excess of one half of the costs and expenses
incurred in connection with any and all Dissent Proceedings plus any amounts
payable to the holders of Dissenting Shares over the Merger Consideration
otherwise payable in respect of such Company Shares pursuant to Section 1.5 had
they not been Dissenting Shares; or
(f) the matters set forth on Schedule 6.1.
6.2 Several Indemnification by the Company Stockholders. Each of
the Company Stockholders receiving the Merger Consideration pursuant to Section
1.5 shall, severally and not
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jointly, indemnify the Buyer in respect of, and hold it harmless against, any
and all Damages incurred or suffered by the Surviving Corporation or the Buyer
or any Affiliate thereof resulting from, relating to or constituting (each of
the following, a "Several Claim"):
(a) any misrepresentation, breach of warranty or failure
to perform any covenant or agreement of such Company Stockholder contained in
the Investment Representation Letter executed and delivered by such Company
Stockholder pursuant to this Agreement;
(b) any claim by such Company Stockholder seeking to
assert, or based upon: (i) ownership or rights to ownership of any shares of
stock of the Company; (ii) any rights of such Company Stockholder in respect of
any shares of stock of the Company (other than rights pursuant to this
Agreement), including any option, preemptive rights or rights to notice or to
vote; (iii) any rights under the certificate of incorporation or by-laws of the
Company; or (iv) any claim that his, her or its shares were wrongfully
repurchased by the Company; in each case, excluding any appraisal rights
pursuant to Section 262 of the Delaware General Corporation Law; or
(c) any failure of such Company Stockholder to have good
and valid title to the issued and outstanding Company Shares issued in the name
of such Company Stockholder, free and clear of all Security Interests.
6.3 Indemnification by the Buyer and the Surviving Corporation.
The Buyer and the Surviving Corporation shall jointly and severally indemnify
the Company Stockholders in respect of, and hold them harmless against, any and
all Damages incurred or suffered by the Company Stockholders resulting from,
relating to or constituting:
(a) any misrepresentation, breach of warranty or failure
to perform any covenant or agreement of the Buyer or the Transitory Subsidiary
contained in this Agreement or the Buyer Certificate;
(b) one half of any sales, use, transfer, stamp,
conveyance, value added, recording, registration, documentary, filing or other
similar Taxes and fees, whether levied on the Buyer, the Company Stockholders,
the Company, the Surviving Corporation or any of their respective Affiliates,
resulting from the Merger or otherwise on account of this Agreement or the other
Transactions; or
(c) the excess of one half of the costs and expenses
incurred in connection with any and all Dissent Proceedings plus any amounts
payable to the holders of Dissenting Shares over the Merger Consideration
otherwise payable in respect of such Company Shares pursuant to Section 1.5 had
they not been Dissenting Shares.
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6.4 Indemnification Claims.
(a) A party entitled, or seeking to assert rights, to
indemnification under this Article VI (an "Indemnified Party") shall give
written notification to the party from whom indemnification is sought (an
"Indemnifying Party") of the commencement of any suit or proceeding relating to
a third party claim for which indemnification pursuant to this Article VI may be
sought. Such notification shall be given within 20 business days after receipt
by the Indemnified Party of notice of such suit or proceeding, shall be
accompanied by reasonable supporting documentation submitted by such third party
(to the extent then in the possession of the Indemnified Party) and shall
describe in reasonable detail (to the extent known by the Indemnified Party) the
facts constituting the basis for such suit or proceeding and the amount of the
claimed damages; provided, however, that no delay or deficiency on the part of
the Indemnified Party in so notifying the Indemnifying Party shall relieve the
Indemnifying Party of any liability or obligation hereunder except to the extent
of any damage or liability caused by or arising out of such failure. Within 20
days after delivery of such notification, the Indemnifying Party may, upon
written notice thereof to the Indemnified Party, assume control of the defense
of such suit or proceeding with counsel reasonably satisfactory to the
Indemnified Party; provided, however, that (i) the Indemnifying Party may only
assume control of such defense if it acknowledges in writing to the Indemnified
Party that any damages, fines, costs or other liabilities that may be assessed
against the Indemnified Party in connection with such suit or proceeding
constitute Damages for which the Indemnified Party shall be indemnified pursuant
to this Article VI, and (ii) the Indemnifying Party may not assume control of
the defense of a suit or proceeding involving criminal liability or in which any
relief other than monetary damages is sought against the Indemnified Party. If
the Indemnifying Party does not so assume control of such defense, the
Indemnified Party shall control such defense. The party not controlling such
defense (the "Non-controlling Party") may participate therein at its own
expense; provided, however, that if the Indemnifying Party assumes control of
such defense and the Indemnified Party reasonably concludes that the
Indemnifying Party and the Indemnified Party have conflicting interests or
different defenses available with respect to such suit or proceeding, the
reasonable fees and expenses of counsel to the Indemnified Party shall be
considered "Damages" for purposes of this Agreement. The party controlling such
defense (the "Controlling Party") shall keep the Non-controlling Party advised
of the status of such suit or proceeding and the defense thereof and shall
consider in good faith recommendations made by the Non-controlling Party with
respect thereto. The Non-controlling Party shall furnish the Controlling Party
with such information as it may have with respect to such suit or proceeding
(including copies of any summons, complaint or other pleading which may have
been served on such party and any written claim, demand, invoice, billing or
other document evidencing or asserting the same) and shall otherwise cooperate
with and assist the Controlling Party in the defense of such suit or proceeding.
The Indemnifying Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnified Party, which shall not be unreasonably withheld or
delayed; provided, however, that the consent of the Indemnified Party shall not
be required if the Indemnifying Party agrees in writing to pay any amounts
payable pursuant to such settlement or judgment and such settlement
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or judgment only requires the payment of money and/or the execution of an
unconditional release and includes a complete release of the Indemnified Party
from further liability. The Indemnified Party shall not agree to any settlement
of, or the entry of any judgment arising from, any such suit or proceeding
without the prior written consent of the Indemnifying Party, which shall not be
unreasonably withheld or delayed.
(b) In order to seek indemnification under this Article
VI, an Indemnified Party shall give written notification (a "Claim Notice") to
the Indemnifying Party which contains (i) a description and the amount (the
"Claimed Amount") of any Damages incurred or reasonably expected to be incurred
by the Indemnified Party, (ii) a statement that the Indemnified Party is
entitled to indemnification under this Article VI for such Damages and a
reasonable explanation of the basis therefor, and (iii) a demand for payment (in
the manner provided in paragraph (c) below) in the amount of such Damages. If
the Indemnified Party is the Buyer, the Indemnifying Party shall deliver a copy
of the Claim Notice to the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the
Indemnifying Party shall deliver to the Indemnified Party a written response
(the "Response") in which the Indemnifying Party shall: (i) agree that the
Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Response shall be accompanied by a payment by the Indemnifying Party to
the Indemnified Party of the Claimed Amount, by check or by wire transfer,
provided that if the Indemnified Party is (A) the Buyer, the Indemnifying Party
and the Indemnified Party shall deliver to the Escrow Agent, within three
business days following the delivery of the Response, a written notice executed
by both parties instructing the Escrow Agent to disburse the Claimed Amount to
the Buyer, or (B) the Company Stockholders, the Indemnifying Party shall pay the
Claimed Amount in accordance with a payment and distribution method reasonably
acceptable to the Buyer and the Stockholders' Representative), (ii) agree that
the Indemnified Party is entitled to receive part, but not all, of the Claimed
Amount (the "Agreed Amount") (in which case the Response shall be accompanied by
a payment by the Indemnifying Party to the Indemnified Party of the Agreed
Amount, by check or by wire transfer; provided that if the Indemnified Party is
(A) the Buyer, the Indemnifying Party and the Indemnified Party shall deliver to
the Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to disburse
the Agreed Amount to the Buyer, or (B) the Company Stockholders, the
Indemnifying Party shall pay the Agreed Amount in accordance with a payment and
distribution method reasonably acceptable to the Buyer and the Stockholders'
Representative), or (iii) dispute that the Indemnified Party is entitled to
receive any of the Claimed Amount.
(d) Notwithstanding the other provisions of this Section
6.4, if a third party asserts (other than by means of a lawsuit) that an
Indemnified Party is liable to such third party for a monetary or other
obligation which may constitute or result in Damages for which such Indemnified
Party may be entitled to indemnification pursuant to this Article VI, and such
Indemnified Party reasonably determines that it has a compelling business reason
to fulfill such obligation, then (i) such Indemnified Party shall be entitled to
satisfy such obligation, without
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prior notice to or consent from the Indemnifying Party, (ii) such Indemnified
Party may subsequently make a claim for indemnification in accordance with the
provisions of this Article VI, and (iii) such Indemnified Party shall be
reimbursed, in accordance with the provisions of this Article VI, for any such
Damages for which it is entitled to indemnification pursuant to this Article VI
(subject to the right of the Indemnifying Party to dispute the Indemnified
Party's entitlement to indemnification, or the amount for which it is entitled
to indemnification (including in respect of any failure or alleged failure to
mitigate damages or to minimize the amount paid in fulfillment of the
obligation), under the terms of this Article VI).
(e) For purposes of this Section 6.4 and the last two
sentences of Section 6.5, (i) if the Company Stockholders comprise the
Indemnifying Party, any references to the Indemnified Party or the Indemnifying
Party (except provisions relating to an obligation to make or a right to receive
any payments provided for in Section 6.4 or Section 6.5, and except with respect
to any Several Claim) shall be deemed to refer to the Stockholders'
Representative, and (ii) if the Company Stockholders comprise the Indemnified
Party, any references to the Indemnified Party (except provisions relating to an
obligation to make or a right to receive any payments provided for in Section
6.4 or Section 6.5) shall be deemed to refer to the Stockholders'
Representative. The Stockholders' Representative shall have full power and
authority on behalf of each Company Stockholder to take any and all actions on
behalf of, execute any and all instruments on behalf of, and execute or waive
any and all rights of, the Company Stockholders under this Article VI (other
than with respect to any Several Claim). The Stockholders' Representative shall
have no liability to any Company Stockholder for any action taken or omitted on
behalf of the Company Stockholders pursuant to this Article VI.
6.5 Survival of Representations and Warranties. Except in the case
of fraud or intent to deceive, all representations and warranties contained in
this Agreement, the Company Certificate or the Buyer Certificate, and all
obligations in respect of covenants to be performed at or before the Closing,
shall (a) survive the Closing and any investigation at any time made by or on
behalf of an Indemnified Party and (b) shall expire on the date 24 months
following the Closing Date, except that the representations and warranties set
forth in Sections 2.9 and 2.19 (and the portion of the Company Certificate
relating thereto) shall survive the Closing until 30 days following expiration
of all statutes of limitation applicable to the matters referred to therein and
the representations and warranties set forth in Sections 2.1, 2.2, 2.3, 3.1 and
3.2 and in each of the Investment Representation Letters shall survive the
Closing without limitation. If an Indemnified Party delivers to an Indemnifying
Party, before expiration of a representation, warranty or covenant, either a
Claim Notice based upon a breach of such representation, warranty or covenant,
or a notice that, as a result of a legal proceeding instituted by or claim made
by a third party, the Indemnified Party reasonably expects to incur Damages (an
"Expected Claim Notice"), then the applicable representation, warranty or
covenant shall survive until, but only for purposes of, the resolution of the
matter covered by such notice. If the legal proceeding or written claim with
respect to which an Expected Claim Notice has been given is definitively
withdrawn or resolved in favor of the Indemnified Party, the Indemnified Party
shall promptly so notify the Indemnifying Party; and if the Indemnified Party
has delivered a copy of the Expected
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Claim Notice to the Escrow Agent and funds have been retained in escrow after
the Termination Date (as defined in the Escrow Agreement) with respect to such
Expected Claim Notice, the Indemnifying Party and the Indemnified Party shall
promptly deliver to the Escrow Agent a written notice executed by both parties
instructing the Escrow Agent to disburse such retained funds to the Company
Stockholders in accordance with the terms of the Escrow Agreement.
6.6 Limitations.
(a) Notwithstanding anything to the contrary herein, the
Company Stockholders shall not be liable under Section 6.1(a) unless and until
the aggregate Damages for which they would otherwise be liable under Section
6.1(a) exceed $300,000 (at which point, subject to the other limitations of this
Agreement, the Company Stockholders shall become liable for the aggregate
Damages, and not just amounts in excess of $300,000); provided that the
limitation set forth above shall not apply to a claim pursuant to Section 6.1(a)
relating to a breach of the representations and warranties set forth in Sections
2.1, 2.2, 2.3, 2.9 or 2.19 (or the portions of the Company Certificate relating
thereto).
(b) Notwithstanding anything to the contrary herein, the
Buyer and the Surviving Corporation shall not be liable under Section 6.3(a)
unless and until the aggregate Damages for which they would otherwise be liable
exceed $300,000 (at which point, subject to the other limitations of this
Agreement, the Buyer and the Surviving Corporation shall become liable for the
aggregate Damages, and not just amounts in excess of $300,000); provided that
the limitation set forth above shall not apply to (i) the Buyer's obligations to
pay the Merger Consideration and any Earn-out Consideration, (ii) the Buyer's
obligations to pay or cause to be paid all Closing Payments and Expenses, (iii)
claims pursuant to Section 6.3(a) relating to a breach of the representations
and warranties set forth in Sections 3.1 or 3.2 (or the portions of the Buyer
Certificate relating thereto), (iv) the Buyer's indemnification obligations
under Section 4.14 hereof, and (v) the Buyer's obligations under Section 7
hereof.
(c) Except in the case of fraud, a misrepresentation made
with intent to deceive or a claim pursuant to (x) Section 1.8, (y) Section
6.1(a) relating to a breach of the representations and warranties set forth in
Sections 2.1, 2.2, 2.3, 2.9 or 2.19 (or the portions of the Company Certificate
relating thereto) or (z) Section 6.1(b) or Section 6.2, the Holdback Amount, the
Escrow Agreement and the Earn-out Consideration shall be the exclusive means for
the Buyer to collect any Damages for which it is entitled to indemnification
under this Article VI; provided, however, that after the Earn-out Payment Date
the Escrow Agreement shall be the exclusive means for the Buyer to collect any
Damages for which it is entitled to indemnification under this Article VI.
Except in the case of fraud or intent to deceive, the aggregate liability of the
Buyer and the Surviving Corporation for all Damages shall not exceed $1,500,000
plus the amount of any Earn-out Consideration payable under Section 1.11;
provided, however, that after the Earn-out Payment Date the Buyer's liability
for indemnification under this Article VI shall not exceed $6,000,000; provided,
further, that the foregoing limitations shall not apply to (i) the Buyer's
obligations to pay the Merger Consideration and any Earn-out Consideration, (ii)
the
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Buyer's obligations to pay or cause to be paid all Closing Payments and
Expenses, (iii) claims relating to a breach of the representations and
warranties set forth in Sections 3.1 and 3.2 (or the portions of the Buyer
Certificate relating thereto), (iv) the Buyer's indemnification obligations
under Section 4.14 hereof, and (v) the Buyer's obligations under Section 7
hereof. The Buyer shall have the sole right to elect whether to satisfy any
claim for Damages from the Holdback Amount or the Escrow Fund, any Earn-out
Consideration, or any combination of the foregoing (except that if any claim is
made against the Initial Escrow Fund or the Holdback Amount, as the case may be,
a claim shall also be made against the Holdback Amount or the Initial Escrow
Fund, as the case may be, for the pro rata portion of such claim).
(d) No Company Stockholder shall have any right of
contribution against the Company or the Surviving Corporation with respect to
any breach by the Company of any of its representations, warranties, covenants
or agreements, provided, that the foregoing shall not affect the right of any
person who is or was an officer, director, employee, or other representative of
the Company to indemnification by the Company to the extent such person is
entitled thereto under the Company's certificate of incorporation or by-laws as
in effect on the date of this Agreement, it being agreed that no claim against
any Company Stockholder under this Article VI shall constitute a claim for which
such Company Stockholder is entitled to indemnification by the Company.
(e) The amount of any and all Damages for which
indemnification is provided pursuant to this Article VI shall be computed net of
any amounts actually received by the Indemnified Party under insurance policies
with respect to such Damages.
(f) Except in the case of fraud or a misrepresentation
made with intent to deceive, the provisions of this Article VI are the sole and
exclusive basis for the assertion of claims against, and/or the imposition of
liability on, any party to this Agreement or any Company Stockholder in
connection with this Agreement, whether based on contract, tort, statute, or
otherwise.
(g) In no event shall any Indemnifying Party be
responsible or liable for any Damages or other amounts under this Article VI
that are consequential, in the nature of lost profits, diminution in the value
of property, special, incidental or punitive or otherwise not actual direct
damages; provided, however, that any such Damages which any Indemnified Party is
required to pay a third party shall be deemed actual damages for purposes of
this Agreement.
(h) In no event shall any Company Stockholder be
responsible or liable for any Damages or other amounts under this Article VI in
excess of the aggregate amount of Merger Consideration and Earn-out
Consideration actually received by such Company Stockholder hereunder.
(i) Any Company Stockholder may surrender to the Buyer
Earn-out Shares in satisfaction of a claim for indemnification under this
Article VI. Each Earn-out Share shall be
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deemed to have a value equal to (A) in the case of a surrender made prior to the
date on which such Company Stockholder has had 60 days to sell such Earn-out
Shares using a Stockholder Registration Statement (as defined in Section 7.1),
the "Value" of such share, as defined in Section 1.11(f)(xi) hereof (subject to
proportionate adjustment in the event of any stock split, stock dividend,
reverse stock split or similar event affecting the Earn-out Shares since the
delivery of such Earn-out Shares to such Company Stockholder ) and (B) in the
case of a surrender made on or after the date on which such Company Stockholder
has had 60 days to sell such Earn-out Shares using a Stockholder Registration
Statement, the average of the last reported sale price per share of the Buyer
Common Stock on the Nasdaq National Market over the 5 consecutive trading days
ending on the trading day prior to the surrender of such Earn-out Shares
(subject to proportionate adjustment in the event of any stock split, stock
dividend, reverse stock split or similar event affecting the Earn-out Shares
during such 5 consecutive trading day period).
(j) A claim for Damages under this Article VI shall be
considered timely made under Sections 6.4 and 6.5 with respect to amounts that
are contingent, unknown or to become due, but such Damages may not be recovered
until actually incurred or suffered by the Indemnified Party.
6.7 Treatment of Indemnity Payments. Any payments made to an
Indemnified Party pursuant to this Article VI or pursuant to the Escrow
Agreement shall be treated as an adjustment to the Merger Consideration for Tax
purposes.
ARTICLE VII
REGISTRATION RIGHTS
7.1 Registration of Shares. The Buyer shall file with the SEC,
within 20 days following the issuance of any Earn-out Shares, a registration
statement on Form S-3 covering the resale to the public by the Company
Stockholders (a "Stockholder Registration Statement") of the Earn-out Shares.
The Buyer shall use its Reasonable Best Efforts to cause such Stockholder
Registration Statement to be declared effective by the SEC as soon as
practicable. The Buyer shall cause the Stockholder Registration Statement filed
with respect to the Earn-out Shares to remain effective until the date one year
after the issuance of the Earn-out Shares or such earlier time as all of the
Earn-out Shares covered by such Stockholder Registration Statement have been
sold pursuant thereto.
7.2 Limitations on Registration Rights.
(a) The Buyer may, by written notice to the Company
Stockholders receiving any Earn-out Shares, suspend the Company Stockholders'
right to use the Stockholder Registration Statement after effectiveness and
require that the Company Stockholders immediately cease sales of shares pursuant
to such Stockholder Registration Statement, in the event that the Buyer is
engaged in any activity or transaction or preparations or negotiations for
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any activity or transaction that the Buyer desires to keep confidential for
business reasons, if the Buyer's Board of Directors determines in good faith
after consultation with legal counsel that the public disclosure requirements
imposed on the Buyer under the Securities Act in connection with the Stockholder
Registration Statement would require disclosure of such activity, transaction,
preparations or negotiations; provided that any such suspension may occur for no
more than 45 days at a time nor for more than 90 days in the aggregate.
(b) If the Buyer suspends use of the Stockholder
Registration Statement or requires the Company Stockholders receiving any
Earn-out Shares to cease sales of shares pursuant to paragraph (a) above, the
Buyer shall, as promptly as practicable following the termination of the
circumstance which entitled the Buyer to do so (and in any event within 45 days
after the commencement of such suspension), take such actions as may be
necessary to file or reinstate the effectiveness of the Stockholder Registration
Statement and/or give written notice to all Company Stockholders receiving any
Earn-out Shares authorizing them to resume sales pursuant to the Stockholder
Registration Statement. If as a result thereof the prospectus included in the
Stockholder Registration Statement has been amended to comply with the
requirements of the Securities Act, the Buyer shall enclose such revised
prospectus with the notice to Company Stockholders given pursuant to this
paragraph (b), and the Company Stockholders shall make no offers or sales of
shares pursuant to the Stockholder Registration Statement other than by means of
such revised prospectus.
7.3 Registration Procedures.
(a) In connection with the filing by the Buyer of the
Stockholder Registration Statement pursuant to Section 7.1, the Buyer shall
furnish to each Company Stockholder receiving any Earn-out Shares a copy of the
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act.
(b) The Buyer shall use its Reasonable Best Efforts to
register or qualify the Earn-out Shares covered by the Stockholder Registration
Statement under the securities laws of each state of the United States
reasonably requested by the Stockholders' Representative; provided, however,
that the Buyer shall not be required in connection with this paragraph (b) to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
(c) If the Buyer has delivered preliminary or final
prospectuses to the Company Stockholders receiving any Earn-out Shares and after
having done so the applicable prospectus is amended or supplemented to comply
with the requirements of the Securities Act, the Buyer shall promptly notify the
Company Stockholders receiving any Earn-out Shares and, if requested by the
Buyer, such Company Stockholders shall immediately cease making offers or sales
of shares under the Stockholder Registration Statement and return all
prospectuses to the Buyer. The Buyer shall promptly provide the Company
Stockholders receiving any Earn-out Shares with revised or supplemented
prospectuses and, following receipt of the revised or
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supplemented prospectuses, such Company Stockholders shall be free to resume
making offers and sales under the Stockholder Registration Statement.
(d) The Buyer shall pay the expenses incurred by it in
complying with its obligations under this Article VII, including all
registration and filing fees, exchange listing fees, fees and expenses of
counsel for the Buyer, and fees and expenses of accountants for the Buyer, but
excluding (i) any brokerage fees, selling commissions or underwriting discounts
incurred by the Company Stockholders receiving any Earn-out Shares in connection
with sales under the Stockholder Registration Statement and (ii) the fees and
expenses of any counsel retained by Company Stockholders.
7.4 Requirements of Company Stockholders. The Buyer shall not be
required to include any Earn-out Shares in a Stockholder Registration Statement
unless:
(a) the Company Stockholder owning such shares furnishes
to the Buyer in writing such information regarding such Company Stockholder and
the proposed sale of Earn-out Shares by such Company Stockholder as the Buyer
may reasonably request in writing in connection with the Stockholder
Registration Statement or as shall be required in connection therewith by the
SEC or any state securities law authorities;
(b) such Company Stockholder shall have provided to the
Buyer its written agreement in form and substance reasonably acceptable to the
Buyer:
(i) to indemnify the Buyer and each of its
directors and officers against, and hold the Buyer and each of its directors and
officers harmless from, any losses, claims, damages, expenses or liabilities
(including reasonable attorneys fees) to which the Buyer or such directors and
officers may become subject by reason of any statement or omission in the
Stockholder Registration Statement made in reliance upon, or in conformity with,
a written statement by such Company Stockholder furnished pursuant to this
Section 7.4; and
(ii) to report to the Buyer sales made pursuant
to the Stockholder Registration Statement.
7.5 Indemnification. The Buyer agrees to indemnify and hold
harmless each Company Stockholder whose shares are included in any Stockholder
Registration Statement, each underwriter of such shares, and each other person,
if any, who controls such Company Stockholder or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages,
expenses or liabilities to which such Company Stockholder, underwriter or other
person may become subject by reason of (a) any untrue statement of a material
fact contained in such Stockholder Registration Statement or any omission to
state therein a fact required to be stated therein or necessary to make the
statements therein not misleading or (b) any violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange
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Act or any state securities law, except insofar as such losses, claims, damages,
expenses or liabilities arise out of or are based upon information furnished to
the Buyer in writing by or on behalf of a Company Stockholder, any such
underwriter or other person for use in the Stockholder Registration Statement.
Any claim for indemnification brought by any such Company Stockholder,
underwriter or other person against Buyer under this Section 7.5 shall be
conducted in accordance with the provisions of Section 6.4 of this Agreement and
for that purpose the Buyer will be deemed to be an "Indemnifying Party" and each
such indemnified person will be deemed to be an "Indemnified Party."
7.6 Assignment of Rights. A Company Stockholder receiving any
Earn-out Shares may not assign any of its rights under this Article VII except
in connection with the transfer of some or all of his, her or its Earn-out
Shares to a child or spouse, or trust for their benefit or, in the case of a
partnership, limited liability company or corporation, to its partners, members
or stockholders, respectively, pursuant to a pro rata distribution of its
Earn-out Shares, provided each such transferee agrees in a written instrument
delivered to the Buyer to be bound by the provisions of this Article VII.
7.7 Resales under Rule 144. In the event the Buyer elects to issue
any Earn-out Shares then from and after the issuance of any such Earn-out Shares
until the second anniversary of the Closing Date, the Buyer shall use its
Reasonable Best Efforts (i) such that at all times "there shall be available
adequate current public information" with respect to the Buyer within the
meaning of that phrase as used in SEC Rule 144(c) and (ii) to file with the SEC
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act.
ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. The Parties may terminate this
Agreement prior to the Effective Time (whether before or after Requisite
Stockholder Approval), as provided below:
(a) the Parties may terminate this Agreement by mutual
written consent;
(b) the Buyer may terminate this Agreement by giving
written notice to the Company in the event the Company is in breach of any
representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in clauses (c) or (d) of Section 5.2 not to be
satisfied and (ii) is not cured within 20 days following delivery by the Buyer
to the Company of written notice of such breach;
(c) the Company may terminate this Agreement by giving
written notice to the Buyer in the event the Buyer or the Transitory Subsidiary
is in breach of any representation, warranty or covenant contained in this
Agreement, and such breach, individually or in
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combination with any other such breach, (i) would cause the conditions set forth
in clauses (a) or (b) of Section 5.3 not to be satisfied and (ii) is not cured
within 20 days following delivery by the Company to the Buyer of written notice
of such breach;
(d) any Party may terminate this Agreement by giving
written notice to the other Parties at any time after the Company Stockholders
have voted on whether to approve this Agreement and the Merger in the event this
Agreement and the Merger failed to receive the Requisite Stockholder Approval;
(e) the Buyer may terminate this Agreement by giving
written notice to the Company if the Closing shall not have occurred on or
before December 31, 2003 by reason of the failure of any condition precedent
under Section 5.1 or 5.2 hereof (unless the failure results directly from a
breach by the Buyer or the Transitory Subsidiary of any representation, warranty
or covenant contained in this Agreement); or
(f) the Company may terminate this Agreement by giving
written notice to the Buyer and the Transitory Subsidiary if the Closing shall
not have occurred on or before December 31, 2003 by reason of the failure of any
condition precedent under Section 5.1 or 5.3 hereof (unless the failure results
directly from a breach by the Company of any representation, warranty or
covenant contained in this Agreement).
8.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party for breaches of this Agreement).
ARTICLE IX
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
Additional Escrow Fund 1.12(e)
Adjusted Merger Consideration 1.8(e)
Affiliate 2.14(f)
Aggregate Participation Amount 1.5(a)(i)
Agreed Amount 6.4(c)
Agreement Introduction
AIP 2.21(a)
Applicable Share Consideration 1.5(a)(ii)
Arbitrator 1.8(c)
Balance Sheet Date 2.6(a)
Xxxxxxx 10.14
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Business Entity 2.5
Business Unit 1.11(f)(i)
Buyer Introduction
Buyer Certificate 5.3(d)
Buyer Common Stock 1.11(f)(ii)
Buyer Reports 3.4
Buyer's Oversight Rights 1.11(i)
Cause 1.11(f)(iii)
CERCLA 2.20(a)
Certificate of Merger 1.1
Certificates 1.7(a)
Change in Control Event 1.11(g)
Claim Notice 6.4(b)
Claimed Amount 6.4(b)
Closing 1.2
Closing Date 1.2
Closing Payments 1.5(a)(iii)
Code 2.9(a)(iii)
Committee Member 1.10(a)
Company Introduction
Company Certificate 5.2(f)
Company Intellectual Property 2.12(j)(i)
Customer Offerings 2.12(j)(ii)
Company Common Shares 1.5(a)(iv)
Company Option 1.5(a)(v)
Company Preferred Shares 1.5(a)(vi)
Company Series A Shares 1.5(a)(vii)
Company Series B Shares 1.5(a)(viii)
Company Series C Shares 1.5(a)(ix)
Company Shares 1.5(a)(x)
Company Source Code 2.12(f)
Company Stockholders 1.6(a)
Company's Auditor 1.8(a)
Controlling Party 6.4(a)
Damages 6.1
Direct Expenses 1.11(f)(iv)
Disclosure Schedule Article II
Discretionary Items 1.11(f)(v)
Dispute Notice 1.8(c)
Dissent Proceedings 1.6(b)
Dissenting Shares 1.6(a)
Documentation 2.12(j)(iii)
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Earn-out Consideration 1.11(b)
Earn-out Determination Date 1.11(e)
Earn-out Dispute Notice 1.11(e)
Earn-out Payment Date 1.11(e)
Earn-out Period 1.11(a)
Earn-out Shares 1.11(e)
Earn-out Statement 1.11(d)
Earn-out Termination Event 1.11(j)
[**] Arbitrator 1.11(i)(iv)
[**] Determination 1.11(i)(iv)
[**] of the Business Unit 1.11(f)(vi)
Effective Time 1.1
Employee Benefit Plan 2.19(a)
Environmental Law 2.20(a)
ERISA 2.19(a)
ERISA Affiliate 2.19(e)
Escrow Agreement 1.3(e)
Escrow Agent 1.3(e)
Escrow Fund 1.12(a)
Exchange Act 3.4
Exchange Agent 1.3(d)
Exchange Agreement 1.7(a)
Exchange Fund 1.7(a)
Expected Claim Notice 6.5
Expenses 4.8
FDA 2.21(a)
FD&C Act 2.21(b)
Fiduciary Exercise 1.11(i)
Fiduciary Exercise Amount 1.11(i)(iv)
Financial Model 1.11(f)(vii)
Financial Statements 2.6(a)
GAAP 1.8(a)
Governmental Entity 2.4
HIPAA 2.19(o)
Holdback Amount 1.12(b)
Holdback Recipients 1.12(b)
Imputed Interest 1.11(l)
Indemnified Party 6.4(a)
Indemnifying Party 6.4(a)
Information Practices 2.34
Information Statement 4.3(a)
Initial Escrow Fund 1.12(a)
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Investment Representation Letter 1.11(f)(viii)
Intellectual Property 2.12(j)(iv)
Internal Systems 2.12(j)(v)
Laws and Regulations 2.21(a)
Managers 1.11(f)(ix)
Materials of Environmental Concern 2.20(b)
Merger Introduction
Merger Consideration 1.5(a)(xi)
Minimum Working Capital 1.8(b)
Most Recent Balance Sheet 2.6(a)
NDA 4.2(b)
Net Merger Consideration 1.5(a)(xii)
Net Participation Amount 1.5(a)(xviii)
Non-controlling Party 6.4(a)
Non-Violation Fiduciary Exercise 1.11(i)(iv)
October Balance Sheet 1.8(a)
October Working Capital 1.8(b)
Option Plan 2.2
Options 2.2
Ordinary Course of Business 2.4
Outstanding Company Shares 1.5(a)(xv)
PACS 1.11(h)(v)
PACS Revenue 1.11(f)(x)
Parties Introduction
Patent Rights 2.12(j)(iv)(A)
Permits 2.22
Per Share Escrow Amount 1.5(a)(xvi)
Per Share Net Participation Amount 1.5(a)(xvii)
Personal Property 2.10(c)
Preliminary Allocation Schedule 1.5(f)
Products 2.21(b)
Raw Additional Earn-out Consideration 1.11(b)
Raw Initial Earn-out Consideration 1.11(a)
Reasonable Best Efforts 4.1
Registered Intellectual Property 2.12(a)
Related Party Transactions 2.23
Required Funding 1.11(h)(iii)
Response 6.4(c)
Requisite Stockholder Approval 2.3
SEC 2.6(b)
Securities Act 2.2
Security Interest 2.4
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Series A Preference 1.5(a)(xviii
Series B Preference 1.5(a)(xix)
Series C Preference 1.5(a)(xx)
Several Claim 6.2
Software 2.12(j)(vi)
Stockholder Registration Statement 7.1(a)
Stockholders' Representative 1.10(a)
Surviving Corporation 1.1
Tax 2.9(a)(i)
Taxable 2.9(a)(i)
Taxes 2.9(a)(i)
Tax Returns 2.9(a)(ii)
Trademark Rights 2.12(j)(iv)(B)
Transactions 2.4
Transitory Subsidiary Introduction
Treasury Regulations 2.9(a)(iv)
Value 1.11(f)(xi)
Warrants 2.2
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. No Party shall issue any
press release or public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Parties; provided,
however, that any Party may make any public disclosure of (i) any publicly
available information or (ii) any other information that it believes in good
faith is required by applicable law, regulation or stock market rule (in which
case of disclosure pursuant to this clause (ii), the disclosing Party shall use
reasonable efforts to advise the other Parties and provide them with a copy of
the proposed disclosure prior to making the disclosure).
10.2 No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns; provided, however, that from and
after the Effective Time, the provisions in this Agreement that benefit the
Company or the Company Stockholders are intended for the benefit of the Company
Stockholders; the provisions of Section 4.14 are intended for the benefit of the
Company's current and former directors and officers referred to in that Section;
and the provisions of this Agreement relating to the Stockholders'
Representative are intended for the benefit of the Stockholders' Representative.
From and after the Effective Time, each of the intended third-party
beneficiaries referred to in this Section 10.2 shall be entitled to enforce the
provisions hereof that are specified above as being for his benefit, except that
only the Stockholders' Representative, and no any individual Company
Stockholder, shall be entitled to enforce the provisions hereof that are
specified above as being for the benefit of the Company Stockholders.
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10.3 Entire Agreement. This Agreement and the exhibits and
schedules attached thereto constitute the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations by or among
the Parties, written or oral, with respect to the subject matter hereof;
provided, however, that the NDA shall remain in effect in accordance with its
terms.
10.4 Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns (including, in the case of the Transitory
Subsidiary, the Surviving Corporation). No Party may assign either this
Agreement or any of its rights, interests or obligations hereunder without the
prior written approval of the other Parties; provided that the Transitory
Subsidiary may assign its rights, interests and obligations hereunder to an
Affiliate of the Buyer; provided that no such assignment shall relieve Buyer
from any of its obligations hereunder. Any attempted or purported assignment in
violation of this Section 10.4 will be void.
10.5 Counterparts and Facsimile Signature. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same agreement. This
Agreement may be executed by facsimile signature.
10.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be sent by next business day delivery via
a reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
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If to the Company:
Amicas, Inc.
000 Xxxxx Xxxxxx Copy to: Xxxxxxx XxXxxxxxx LLP
Suite 200 000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000 Xxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxxx, CEO Attention: Xxxxx Xxxxxx, Esq.
If to the Stockholders'
Representative: Copies to: Xxxxxxx XxXxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxxxxx Xxxxxx, XX 00000
00 Xxxxxxxxx Xxxx Xxxxxxxxx: Xxxxx
Xxxxxx, XX 00000 Keeler, Esq.
and
Xxxx Xxxxxxx LeBoeuf, Lamb, Xxxxxx & XxxXxx, L.L.P.
Canaan Partners 000 Xxxxxx Xxxxxx
000 Xxxxxxxx Xxxxxx Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000 Xxxxxxxx, XX 00000
Attention: J. Xxxxxx Xxxxxxx, Esq.
and
Xxxxxxxxx Xxxxx
Beringea, LLC
00000 X. 00 Xxxx Xxxx
Xxxxxxxxxx Xxxxx, Xxxxxxxx 00000
If to the Buyer or the Transitory
Subsidiary:
VitalWorks Inc. Copies to: VitalWorks Inc.
239 Ethan Xxxxx Highway 000 Xxxxx Xxxxx Xxxxxxx
Xxxxxxxxxx, XX 00000 Xxxxxxxxxx, XX 00000
Attention: CFO Attention: General Counsel
and
Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxx X. Xxxxxxxxx, Esq.
Any Party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger
- 82 -
service, telecopy, telex, ordinary mail or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the party for whom it is
intended. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
laws of any jurisdictions other than those of the State of Delaware.
10.9 Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time (other than
to the extent that such amendment would adversely affect the rights, remedies,
or obligations of the Stockholder's Representative, in which case the prior
written consent of the Stockholders' Representative shall also be required);
provided, however, that any amendment effected subsequent to the Requisite
Stockholder Approval shall be subject to any restrictions contained in the
Delaware General Corporation Law, and provided, further, that from and after the
Effective Time, this Agreement (i) may not be amended or terminated without the
prior written consent of the Stockholders' Representative, and (ii) may not be
terminated, nor amended in any way that adversely affects the rights, remedies,
or obligations of any intended third-party beneficiary of this Agreement (as
provided for in Section 10.2 hereof) without the prior written consent of such
intended third-party beneficiary. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the persons required to be bound. No waiver of any right or remedy hereunder
shall be valid unless the same shall be in writing and signed by the person
giving such waiver. No waiver by any person with respect to any default,
misrepresentation or breach of warranty or covenant hereunder shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
10.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
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10.11 Submission to Jurisdiction. Each of the Parties (a) submits to
the jurisdiction of any state or federal court sitting in Boston, Massachusetts
in any action or proceeding arising out of or relating to this Agreement, (b)
agrees that all claims in respect of such action or proceeding may be heard and
determined in any such court, and (c) agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto. Any
Party may make service on another Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 10.7. Nothing in this Section 10.11, however,
shall affect the right of any Party to serve legal process in any other manner
permitted by law.
10.12 Construction.
(a) The language used in this Agreement shall be deemed
to be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise.
10.13 Specific Performance. Each of the Parties acknowledges and
agrees that one or more of the other Parties would be damaged irreparably in the
event any of the provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached. Accordingly, each of the
Parties agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
10.14 Conflict Waiver. Each of the Parties to this Agreement hereby
agrees that both before and after the Closing, Xxxxxxx XxXxxxxxx LLP and its
partners and employees (collectively, "Xxxxxxx") may provide legal counsel and
representation to the Company Stockholders or any of them in connection with any
matter arising under this Agreement, including any claims for indemnification
under this Agreement and any related litigation or other proceedings (regardless
of whether the Surviving Corporation is an adverse party), and hereby
irrevocably waives, relinquishes, and agrees not to assert any rights to object
to or to prevent Xxxxxxx from doing so on the grounds of conflict of interest;
provided, however, that (i) prior to the Closing, Xxxxxxx may not represent any
Company Stockholder in any action adverse to the Company and (ii) after the
Closing, the privilege and all privileged information held by Xxxxxxx with
respect to its representation of the Company shall remain with the Company and
the Surviving Corporation and the Company and the
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Surviving Corporation shall not be obligated to waive any privilege with respect
thereto.
[Remainder of page intentionally left blank.]
- 85 -
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
VITALWORKS INC.
By: /s/ Xxxxxx X. Xxxxx
------------------------
Title: CEO & President
PACS ACQUISITION CORP.
By: /s/ Xxxxxxx Xxxxxx
------------------------
Title: President
AMICAS, INC.
By: /s/ Xxxxx Xxxxxxxxxx
------------------------
Title: CEO
STOCKHOLDERS' REPRESENTATIVE
/s/ Xxxx Xxxxxxx
----------------------------
Xxxx Xxxxxxx
/s/ Xxxxx Xxxxxxxxxx
----------------------------
Xxxxx Xxxxxxxxxx
/s/ Xxxxxxxxx Xxxxx
----------------------------
Xxxxxxxxx Xxxxx
The undersigned, being the duly elected Secretary of the Transitory Subsidiary,
hereby certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding shares of capital stock of the Transitory
Subsidiary entitled to vote on this Agreement.
/s/ Xxxxxxx Xxxxxx
----------------------------
Secretary
The undersigned, being the duly elected Secretary of the Company, hereby
certifies that this Agreement has been adopted by (i) a majority of the votes
represented by the outstanding Company Shares entitled to vote on this Agreement
and the Merger, voting as a single class and (ii) a majority of the votes
represented by the outstanding Series C Preferred Stock entitled to vote on this
Agreement and the Merger, voting as a single class.
/s/ Xxxxx Xxxxxx
--------------------------
Secretary
