Exhibit 2.5
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
DATED AS OF
DECEMBER 14, 2005
BY AND AMONG
CORSOLUTIONS MEDICAL, INC.
MATRIA HEALTHCARE, INC.
AND
CORAL ACQUISITION CORP.
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS ................................................... 2
Section 1.1 Definitions ............................................. 2
ARTICLE II THE MERGER ................................................... 8
Section 2.1 The Merger; Closing ..................................... 9
Section 2.2 Conversion of Shares .................................... 9
Section 2.3 Surrender and Payment ................................... 9
Section 2.4 Stakeholder Representative .............................. 12
Section 2.5 Adjustments ............................................. 14
Section 2.6 Withholding Rights ...................................... 14
Section 2.7 Lost Certificates ....................................... 14
Section 2.8 Determination of Initial Merger Consideration ........... 14
Section 2.9 Post-Closing Adjustment of Initial Merger
Consideration ........................................... 15
Section 2.10 Dissenting Shares ....................................... 18
Section 2.11 Company Options and Company Warrants .................... 19
Section 2.12 Certificate of Incorporation; Bylaws .................... 19
Section 2.13 Directors and Officers .................................. 19
Section 2.14 Escrow Fund and Agent's Escrow Fund ..................... 20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY ............... 20
Section 3.1 Organization and Qualification; Charter Documents ....... 20
Section 3.2 Corporate Authorization; Enforceability; Board and
Stockholder Action ...................................... 21
Section 3.3 Consents and Approvals; No Violations ................... 22
Section 3.4 Capitalization .......................................... 22
Section 3.5 Financial Information ................................... 24
Section 3.6 Absence of Certain Changes .............................. 25
Section 3.7 Undisclosed Liabilities ................................. 25
Section 3.8 Litigation .............................................. 25
Section 3.9 Permits and Compliance with Laws ........................ 26
Section 3.10 Employee Benefit Plans .................................. 26
Section 3.11 Taxes ................................................... 27
Section 3.12 Contracts ............................................... 29
Section 3.13 Intellectual Property ................................... 31
Section 3.14 Real Property; Leases; Tangible Personal Property ....... 31
Section 3.15 Environmental Matters ................................... 32
Section 3.16 Insurance ............................................... 32
Section 3.17 Affiliate Transactions .................................. 33
Section 3.18 Finders' or Advisors' Fees .............................. 33
Section 3.19 Employee Matters ........................................ 33
Section 3.20 Customers ............................................... 34
Section 3.21 Certain Payments ........................................ 34
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUBSIDIARY................................................. 34
Section 4.1 Organization and Qualification; Charter Documents ....... 34
Section 4.2 Corporate Authorization; Enforceability; Board Action ... 35
Section 4.3 Consents and Approvals; No Violations ...................
Section 4.4 Litigation; Compliance with Law ......................... 36
Section 4.5 No Parent Vote Required ................................. 37
Section 4.6 Parent Ownership of Company Securities .................. 37
Section 4.7 Ownership and Operations of Merger Subsidiary ........... 37
Section 4.8 Financing ............................................... 37
Section 4.9 Finders' or Advisors' Fees .............................. 37
ARTICLE V COVENANTS 38
Section 5.1 Conduct of the Company's Business Pending the Merger .... 38
Section 5.2 Information Statement; Requisite Stockholder Approvals .. 40
Section 5.3 Access to Information; Confidentiality .................. 40
Section 5.4 No Solicitation ......................................... 41
Section 5.5 Regulatory Filings; Reasonable Best Efforts ............. 41
Section 5.6 Employee Benefits ....................................... 43
Section 5.7 Public Announcements .................................... 45
Section 5.8 Further Assurances ...................................... 45
Section 5.9 Updates to Disclosure Letters ........................... 45
Section 5.10 Indemnification; D&O Insurance .......................... 45
Section 5.11 Undertakings of Parent .................................. 48
Section 5.12 Tax Matters ............................................. 48
Section 5.13 Parent Financing ........................................ 51
ARTICLE VI CONDITIONS TO THE MERGER ..................................... 52
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger .................................................. 52
Section 6.2 Conditions to Obligations of Parent and Merger
Subsidiary .............................................. 52
Section 6.3 Conditions to Obligation of the Company ................. 53
Section 6.4 Frustration of Closing Conditions ....................... 54
ARTICLE VII CLAIMS ON ESCROW FUND ....................................... 54
Section 7.1 Claims Against Escrow Fund .............................. 54
Section 7.2 Notice of Loss; Claims Process .......................... 55
Section 7.3 Limitations on Claims ................................... 58
Section 7.4 Disputes ................................................ 61
Section 7.5 BIPA Claim .............................................. 62
Section 7.6 Release of Escrow Funds ................................. 64
ARTICLE VIII TERMINATION AND EXPENSES ................................... 65
Section 8.1 Termination ............................................. 65
Section 8.2 Effect of Termination ................................... 65
Section 8.3 Fees and Expenses ....................................... 66
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ARTICLE IX MISCELLANEOUS ................................................ 66
Section 9.1 Independent Investigation ............................... 66
Section 9.2 Non-survival of Parent Representations and Warranties ... 67
Section 9.3 Amendments; No Waivers .................................. 67
Section 9.4 Notices ................................................. 68
Section 9.5 Successors and Assigns .................................. 68
Section 9.6 Governing Law ........................................... 68
Section 9.7 Consent to Jurisdiction ................................. 69
Section 9.8 Counterparts; Effectiveness ............................. 69
Section 9.9 Entire Agreement ........................................ 69
Section 9.10 Third Party Beneficiaries ............................... 69
Section 9.11 Severability ............................................ 70
Section 9.12 Specific Performance .................................... 70
Section 9.13 No Setoff ............................................... 70
Section 9.14 Construction ............................................ 70
EXHIBITS
A- Escrow Agreement
B- Knowledge of Parent - list of executive officers
C- Knowledge of the Company - list of executive officers
D- Working Capital and Target Working Capital
E- Opinion of Counsel to the Company
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INDEX OF DEFINED TERMS
AAA....................................................................... 52
Acquisition Proposal...................................................... 41
Action.................................................................... 2
Additional Merger Consideration........................................... 2
Additional Per Share Merger Consideration................................. 2
Affiliate................................................................. 2
Affiliated Group.......................................................... 3
Agent's Escrow Account.................................................... 3
Agent's Escrow Agreement.................................................. 2
Agent's Escrow Amount..................................................... 3
Agent's Escrow Fund....................................................... 3
Aggregate Merger Consideration............................................ 3
Agreement................................................................. 1
Ancillary Agreements...................................................... 3
Antitrust Division........................................................ 42
Applicable Rate........................................................... 17
Article II/Section 7.5 Items.............................................. 59
Beneficially Own or Beneficially Owning................................... 3
BIPA Arbitrator........................................................... 64
BIPA Refund Amount........................................................ 63
BIPA Review Period........................................................ 63
BIPA Statement............................................................ 63
BIPA Statement of Objections.............................................. 63
Business Day.............................................................. 3
Cash Deficiency........................................................... 17
Certificate of Merger..................................................... 8
Certificates.............................................................. 11
Claim Notice.............................................................. 55
Claims.................................................................... 55
Closing................................................................... 9
Closing Date.............................................................. 9
Closing Date Balance Sheet................................................ 15
CMS....................................................................... 62
Code...................................................................... 3
Common Stock.............................................................. 3
Company................................................................... 1
Company Disclosure Letter................................................. 20
Company Employee Plans.................................................... 27
Company Employees......................................................... 44
Company Insurance Coverage................................................ 33
Company Intellectual Property............................................. 31
Company Option Plans...................................................... 3
Company Options........................................................... 3
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Company Organizational Documents.......................................... 21
Company Permit............................................................ 3
Company Stockholder....................................................... 4
Company Subsidiary Organizational Documents............................... 21
Company Transaction Expenses.............................................. 4
Company Warrants.......................................................... 4
Company's Statement....................................................... 15
Confidentiality Agreement................................................. 41
Contract.................................................................. 4
Customers................................................................. 34
D&O Policies.............................................................. 48
Damages................................................................... 55
Demonstration Agreement................................................... 62
Determination............................................................. 15
DGCL...................................................................... 1
Direct Claim.............................................................. 55
Dissenting Shares......................................................... 18
Dissenting Stockholder.................................................... 18
Effective Time............................................................ 8
End Date.................................................................. 65
Environmental Laws........................................................ 32
ERISA..................................................................... 26
ERISA Affiliate........................................................... 26
Escrow Account............................................................ 4
Escrow Agent.............................................................. 1
Escrow Agreement.......................................................... 1
Escrow Amount............................................................. 4
Escrow Fund............................................................... 4
Escrow Fund Dispute....................................................... 61
Excess Cash Amount........................................................ 17
Excess Indebtedness....................................................... 18
Excess Working Capital Amount............................................. 17
Exchange Fund............................................................. 10
Extended Claim............................................................ 47
Final BIPA Refund Amount.................................................. 63
Final Closing Date Balance Sheet.......................................... 16
Final Working Capital Amount.............................................. 16
Financial Statements...................................................... 25
Financing Agreements...................................................... 38
Financing Deadline........................................................ 37
FTC....................................................................... 42
Funding Obligations....................................................... 37
Funds..................................................................... 37
GAAP...................................................................... 4
Governmental Authority.................................................... 4
HIPAA..................................................................... 26
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HSR Act................................................................... 23
Indebtedness.............................................................. 4
Indebtedness Deficiency................................................... 18
Indemnified Parties....................................................... 46
Information Statement..................................................... 40
Initial Merger Consideration.............................................. 4
Initial Per Share Merger Consideration.................................... 5
Intellectual Property..................................................... 31
Interim Distribution Date................................................. 64
Interim Financial Statements.............................................. 25
IRS....................................................................... 5
JPMorgan.................................................................. 33
knowledge of Parent....................................................... 5
knowledge of the Company.................................................. 5
Law....................................................................... 5
Leases.................................................................... 5
Liability Basket.......................................................... 58
Lien...................................................................... 5
Litigation................................................................ 26
Material Adverse Effect................................................... 5
Material Contracts........................................................ 29
Maximum Premium........................................................... 48
Measurement Period........................................................ 63
Merger.................................................................... 1
Merger Subsidiary......................................................... 1
Option Certificate........................................................ 11
Outstanding Claim......................................................... 64
Parent.................................................................... 1
Parent Disclosure Letter.................................................. 34
Parent Permit............................................................. 6
Paying Agent.............................................................. 10
Permit.................................................................... 6
Person.................................................................... 6
Post-Closing Tax Period................................................... 6
Pre-Closing Tax Period.................................................... 6
Preferred Stock........................................................... 6
Preliminary BIPA Refund Amount............................................ 63
Preliminary Working Capital Amount........................................ 15
Reference Balance Sheet................................................... 6
Release Date.............................................................. 64
Representative............................................................ 6
Requisite Stockholder Approvals........................................... 6
Restraints................................................................ 52
Review Period............................................................. 15
Rules..................................................................... 62
September 30 Balance Sheet................................................ 25
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Series A Preferred Stock.................................................. 6
Series B Preferred Stock.................................................. 7
Series C Preferred Stock.................................................. 7
Series D Preferred Stock.................................................. 7
Series E Preferred Stock.................................................. 7
Series F Preferred Stock.................................................. 7
Series G Preferred Stock.................................................. 7
Series H Preferred Stock.................................................. 7
Settlement Accountant..................................................... 16
Severance Agreements...................................................... 44
Share Certificates........................................................ 10
Shares.................................................................... 7
Significant Stakeholder................................................... 7
Specified Claim........................................................... 57
Specified Claim Notice.................................................... 57
Stakeholder Representative................................................ 12
Stakeholders.............................................................. 7
Statement of Objections................................................... 16
Straddle Period........................................................... 7
Subsidiary................................................................ 7
Surviving Corporation..................................................... 8
Target Working Capital Amount............................................. 15
Tax Arbitrator............................................................ 51
Tax Benefit............................................................... 59
Tax Claim................................................................. 8
Tax Dispute Notice........................................................ 51
Tax Return................................................................ 8
Taxes..................................................................... 8
Taxing Authority.......................................................... 8
Third Party Claim......................................................... 55
Title IV Plan............................................................. 27
Warrant Certificate....................................................... 11
Warrant Shares............................................................ 19
Working Capital........................................................... 15
Working Capital Deficiency................................................ 17
vii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
December 14, 2005, is entered into by and among CORSOLUTIONS MEDICAL, INC., a
Delaware corporation (the "Company"), MATRIA HEALTHCARE, INC., a Delaware
corporation ("Parent"), and CORAL ACQUISITION CORP., a newly-formed Delaware
corporation and an indirect wholly-owned subsidiary of Parent ("Merger
Subsidiary").
WITNESSETH:
WHEREAS, the respective Boards of Directors of the Company, Parent and
Merger Subsidiary deem it advisable and in the best interests of their
respective shareholders that the parties consummate the transactions
contemplated herein, upon the terms and subject to the conditions provided for
herein;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
the Company, Parent (on its own behalf and as the sole shareholder of Merger
Subsidiary), and Merger Subsidiary have approved and adopted this Agreement and
resolved that the transactions contemplated hereby are advisable and in the best
interests of their respective shareholders, including the consummation of the
merger of Merger Subsidiary with and into the Company (the "Merger") upon the
terms and subject to the conditions set forth in this Agreement and in
accordance with the provisions of the General Corporation Law of the State of
Delaware (the "DGCL");
WHEREAS, the Board of Directors of the Company has resolved to
recommend to its shareholders approval and adoption of this Agreement and the
transactions contemplated hereby (including the Merger), upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, this Agreement is being adopted by the stockholders of the
Company in accordance with Section 251 and Section 228 of the DGCL and each of
the other Requisite Stockholder Approvals (as defined herein) is being obtained
as of the date of this Agreement;
WHEREAS, prior to the Effective Time (as defined herein), Parent, the
Stakeholder Representative (as defined herein) and a bank or trust company
reasonably acceptable to Parent and the Company to be agreed upon prior to the
Effective Time (as defined herein) (the "Escrow Agent") shall execute and
deliver an Escrow Agreement, substantially in the form attached hereto as
Exhibit A with such changes and additions to the terms and conditions thereof as
the Escrow Agent, Parent or the Stakeholder Representative may reasonably
request (the "Escrow Agreement"), and the Stakeholder Representative and the
Escrow Agent shall execute and deliver an Agent's Escrow Agreement on terms and
conditions to be mutually agreed upon by the Stakeholder Representative and the
Escrow Agent (the "Agent's Escrow Agreement"); and
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WHEREAS, the Stakeholder Representative has agreed to act as
representative for the Stakeholders (as defined herein) for all purposes under
this Agreement, the Escrow Agreement and the Agent's Escrow Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the receipt and adequacy
of which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. When used in this Agreement, the following
terms shall have the respective meanings set forth below (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
"Action" means any litigation, suit, arbitration, proceeding or
investigation by or before any Governmental Authority.
"Additional Merger Consideration" means, together, the amounts, if any
(i) contained in the Escrow Fund payable to Stakeholders in accordance with the
terms of the Escrow Agreement and (ii) contained in the Agent's Escrow Fund
payable to Stakeholders in accordance with the terms of the Agent's Escrow
Agreement.
"Additional Per Share Merger Consideration" means the quotient
obtained by dividing (i) the Additional Merger Consideration by (ii) the total
number of shares of Common Stock outstanding immediately prior to the Effective
Time, including, for purposes of this calculation, all Dissenting Shares, plus
(A) all shares of Common Stock for which Company Options and Company Warrants
outstanding immediately prior to the Effective Time are exercisable (whether or
not then vested), and (B) all shares of Common Stock into which shares of
Preferred Stock outstanding immediately prior to the Effective Time are
convertible.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with, such Person.
For the purposes of this definition, "control" (including, with correlative
meaning, the terms "controlling," "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of management and policies of such Person, whether through
the ownership of voting securities, or as trustee or executor, by contract or
otherwise.
"Affiliated Group" means any consolidated, affiliated, combined or
unitary group of corporations for federal, state, local or foreign Tax purposes
with respect to which the Company or any Subsidiary of the Company is or has
been a member.
2
"Agent's Escrow Account" means the account established, designated and
maintained by the Escrow Agent pursuant to the terms of the Agent's Escrow
Agreement.
"Agent's Escrow Amount" means the portion of the Initial Merger
Consideration directed by the Company to be deposited in the Agent's Escrow
Account at the Closing.
"Agent's Escrow Fund" means the amount contained from time to time in
the Agent's Escrow Account.
"Aggregate Merger Consideration" means together, the Initial Merger
Consideration and, if any, the Additional Merger Consideration.
"Ancillary Agreements" means the Escrow Agreement and the Agent's
Escrow Agreement.
"Beneficially Own" or "Beneficially Owning" shall have the meaning set
forth in Rule 13d-3 promulgated under the Exchange Act.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banks are required or authorized to be closed in Chicago, Illinois
or the location of the Escrow Agent.
"Code" means the Internal Revenue Code of 1986.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Company Option Plans" means, collectively, the Company 1991 Stock
Option Plan and the Company 2002 Stock Option Plan, in each case as amended
through the date of this Agreement.
"Company Options" means options to purchase Common Stock granted under
the Company Option Plans or otherwise.
"Company Permit" means all licenses, registrations,
franchises, permits, certificates and approvals granted by or obtained from any
Governmental Authority and required for the conduct of the business of the
Company or its Subsidiaries.
"Company Stockholder" means a holder of Shares.
"Company Transaction Expenses" means all out-of-pocket costs, fees and
expenses payable by the Company or any Subsidiary to (i) JPMorgan Securities,
Inc. and (ii) outside counsel, accountants and other advisors retained by the
Company in connection with this Agreement, the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby.
3
"Company Warrants" means warrants to purchase Common Stock or any
other rights to purchase any Shares or other securities of the Company, other
than Company Options (as defined herein).
"Contract" means any written agreement or contract, including any
amendment, extension, renewal, guarantee or other supplement with respect
thereto.
"Escrow Account" means the account established, designated and
maintained by the Escrow Agent pursuant to the terms of the Escrow Agreement.
"Escrow Amount" means $20,300,000.
"Escrow Fund" means the amount contained from time to time in the
Escrow Account.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Governmental Authority" means any federal, state, local or foreign,
governmental or regulatory authority, agency, department, commission or
administration or any court, tribunal or judicial or arbitrary body.
"Indebtedness" means, with respect to the Company or any Subsidiary of
the Company, whether or not contingent, (i) indebtedness for borrowed money,
(ii) obligations evidenced by bonds, notes, debentures or other similar
instruments or by letters of credit, including purchase money obligations (other
than trade payables incurred in the ordinary course of business), (iii)
obligations under derivative financial instruments, including interest rate
swaps and (iv) accrued interest, if any, on and all other amounts owed in
respect of any of the foregoing.
"Initial Merger Consideration" means Four Hundred Forty Five Million
Dollars ($445,000,000) (i) plus the amount of cash and cash equivalents of the
Company and the Subsidiaries as of the Closing Date estimated by the Company on
the Company's Statement as provided in Section 2.8, (ii) minus the amount of
Indebtedness as of the Closing Date estimated by the Company on the Company's
Statement as provided in Section 2.8, (iii) minus the amount of Company
Transaction Expenses as set forth in the notice of the Company delivered
pursuant to Section 8.3(b) to the extent the same remain unpaid immediately
prior to the Effective Time, (iv) minus the Escrow Amount and the Agent's Escrow
Amount, (v) minus any amounts described in paragraphs 4 and 5 of Section 3.7 of
the Company Disclosure Letter required to be paid to the persons set forth in
paragraphs 4 and 5 of Section 3.7 of the Company Disclosure Letter and (vi)
minus any amounts which the Company has agreed to pay to employees in lieu of
options granted or promised to employees prior to the Closing Date as described
in Section 3.4(d)(i) of the Company Disclosure Letter.
"Initial Per Share Merger Consideration" means the quotient obtained
by dividing (i) the sum of (A) the Initial Merger Consideration and (B) the
aggregate amount of the exercise prices with respect to all Company Options and
Company Warrants
4
outstanding immediately prior to the Effective Time by (ii) the total number of
shares of Common Stock outstanding immediately prior to the Effective Time,
including, for purposes of this calculation, all Dissenting Shares, plus (A) all
shares of Common Stock for which Company Options and Company Warrants
outstanding immediately prior to the Effective Time are exercisable (whether or
not then vested) and (B) all shares of Common Stock into which shares of
Preferred Stock outstanding immediately prior to the Effective Time are
convertible.
"IRS" means the Internal Revenue Service of the United States.
"knowledge of Parent" means the actual knowledge of the executive
officers of Parent set forth in Exhibit B.
"knowledge of the Company" means the actual knowledge of the executive
officers of the Company set forth in Exhibit C.
"Law" shall mean any law, ordinance, writ, statute, treaty, rule or
regulation.
"Leases" means all leases, subleases or licenses, including all
amendments with respect thereto, pursuant to which the Company or any of its
Subsidiaries use any material leased real property.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"Material Adverse Effect" on a Person means a material adverse effect
on the business, financial condition or results of operations of such Person and
its Subsidiaries, taken as a whole, other than any effect relating to (i) the
economy in general in the United States or any state or locality in which such
Person or any of its Subsidiaries conducts business, (ii) United States or
global financial or securities markets or conditions or any act of terrorism,
similar calamity or war, (iii) the health services industry generally, (iv)
changes in applicable Law or regulations or in GAAP or regulatory accounting
principles, (v) the execution and delivery of this Agreement or announcement of
the transactions contemplated hereby or the identity, business or operations of
Parent or its Subsidiaries or any facts or circumstances relating to Parent or
its Subsidiaries, including in each case the loss of customers, suppliers or
vendors, or (vi) any action taken by the Company or its Subsidiaries with
Parent's consent or from compliance by the Company with the terms of, or the
taking of any action contemplated or permitted by, this Agreement.
"Parent Permit" means a Permit required for the business operated by
Parent or its Subsidiaries.
"Permit" means any license, permit, franchise, certificate of
authority or order of any Governmental Authority.
5
"Person" means and includes an individual, a partnership, a joint
venture, a corporation, a limited liability company, a trust, an association and
any other entity or "group" (as such term is defined in Rule 13d-5(b)(1) of the
Exchange Act).
"Post-Closing Tax Period" means any taxable period beginning after the
Closing Date.
"Pre-Closing Tax Period" means any taxable period ending on or before
the Closing Date.
"Preferred Stock" means, collectively, the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock, Series G Preferred Stock and Series H Preferred Stock.
"Reference Balance Sheet" means the consolidated balance sheet of the
Company and the Subsidiaries, dated as of December 31, 2004, a copy of which is
set forth in Section 3.5(a) of the Company Disclosure Letter.
"Requisite Stockholder Approvals" means (i) the affirmative votes of
(A) the holders of at least a majority of the outstanding Common Stock and the
outstanding Preferred Stock, voting together on an as-converted basis and (B)
the holders of at least fifty percent (50%) of the outstanding Preferred Stock,
voting together on an as-converted basis, in favor of the adoption of this
Agreement and the approval of the Merger and the other transactions contemplated
hereby; and (ii) the acknowledgments of the holders of at least fifty percent
(50%) of the outstanding shares of each series of Preferred Stock that no
election has been made by such holders that would cause the Merger to be deemed
a liquidation pursuant to Section 2.1 of the Certificate of Designations for
such series.
"Representative" means, with respect to any Person, its officers,
directors, employees, financial advisors, attorneys, accountants, actuaries,
consultants and other agents, advisors and representatives.
"Series A Preferred Stock" means the Series A Convertible Preferred
Stock, $.01 par value per share, of the Company.
"Series B Preferred Stock" means the Series B Convertible Preferred
Stock, $.01 par value per share, of the Company.
"Series C Preferred Stock" means the Series C Convertible Preferred
Stock, $.01 par value per share, of the Company.
"Series D Preferred Stock" means the Series D Convertible Preferred
Stock, $.01 par value per share, of the Company.
"Series E Preferred Stock" means the Series E Convertible Preferred
Stock, $.01 par value per share, of the Company.
6
"Series F Preferred Stock" means the Series F Convertible Preferred
Stock, $.01 par value per share, of the Company.
"Series G Preferred Stock" means the Series G Convertible Preferred
Stock, $.01 par value per share, of the Company.
"Series H Preferred Stock" means the Series H Convertible Preferred
Stock, $.01 par value per share, of the Company.
"Shares" means shares of Common Stock and Preferred Stock.
"Significant Stakeholder" means any Stakeholder that owns at least
five percent (5%) of the voting power with respect to the Company, including for
purposes of this calculation, (i) all shares of Common Stock for which Company
Options and Company Warrants are exercisable and (ii) all shares of Common Stock
into which shares of Preferred Stock are convertible.
"Stakeholders" means, collectively, the holders of Common Stock, the
holders of Preferred Stock, the holders of Company Options and the holders of
Company Warrants, in each case that are entitled to receive any portion of
Aggregate Merger Consideration pursuant to Section 2.2 and 2.11.
"Straddle Period" means any taxable period beginning on or prior to
and ending after the date of the Closing.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company or other Person of which (or in which),
directly or indirectly, more than 50% of (i) the issued and outstanding capital
stock having ordinary voting power to elect a majority of the board of directors
of such corporation (irrespective of whether at the time capital stock of any
other class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency) or (ii) the interest in the capital or
profits of such partnership, joint venture, limited liability company or other
Person, is at the time owned by such first Person, or by such first Person and
one or more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Tax Claim" shall mean a notice of Tax deficiency, proposed Tax
adjustment, Tax assessment, Tax audit, Tax examination or other administrative
or court proceeding, suit, dispute or other claim with respect to Taxes.
"Tax Return" means any return, report or similar statement supplied to
or required to be supplied to any taxing authority, including, any information
return, claim for refund, amended return or declaration of estimated Tax.
"Taxes" means any and all federal, state, local, foreign or other
taxes of any kind (together with any and all interest, penalties, additions to
tax and additional amounts imposed with respect thereto) imposed by any taxing
authority, including taxes, fees, duties, customs, tariffs or assessments with
respect to income, franchises, premiums or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment,
7
social security, workers' compensation or unemployment compensation, and taxes
or other similar charges of any kind in the nature of excise, withholding, ad
valorem or value added.
"Taxing Authority" means the Internal Revenue Service and any other
domestic or foreign governmental authority responsible for the administration or
collection of any Taxes.
ARTICLE II
THE MERGER
Section 2.1 The Merger; Closing.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, as soon as reasonably practicable on the Closing Date, the Company
and Merger Subsidiary shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware, in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL (the date and time of such
filing of the Certificate of Merger (or such later time as may be agreed by each
of the parties hereto and specified in the Certificate of Merger) being the
"Effective Time").
(b) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time, Merger Subsidiary shall be merged with and
into the Company in accordance with the requirements of the DGCL, whereupon the
separate existence of Merger Subsidiary shall cease. The Company shall be the
surviving corporation in the Merger (the "Surviving Corporation").
(c) At the Effective Time, the effect of the Merger shall be as
provided in this Agreement, the Certificate of Merger and the applicable
provisions of the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the property, rights, privileges,
powers and franchises of the Company and Merger Subsidiary shall vest in the
Surviving Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of each of the Company and Merger Subsidiary shall
become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.
(d) The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Skadden, Arps, Slate, Xxxxxxx &
Xxxx LLP, Four Times Square, New York, New York, at 10:00 a.m. local time, as
soon as reasonably practicable, but in any event within two (2) Business Days
after the satisfaction or, to the extent permitted hereby, waiver of all of the
conditions to the Merger, other than those conditions that by their nature are
to be fulfilled at Closing, but subject to the satisfaction or waiver of such
conditions, unless this Agreement has been heretofore terminated pursuant to its
terms or another time or date as is agreed to in writing by the parties hereto,
provided that, notwithstanding any other provision of this
8
Section 2.1(d), the Closing shall not be required to occur prior to January 4,
2006 (the actual time and date of the Closing being referred to herein as the
"Closing Date").
Section 2.2 Conversion of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Subsidiary, the Company
or the holders of any of the following securities:
(a) subject to the provisions of Section 2.3, each share of Common
Stock issued and outstanding immediately prior to the Effective Time (other than
any shares of Common Stock to be canceled pursuant to Section 2.2(c) and any
Dissenting Shares (as defined herein)) shall be canceled and shall be converted
automatically into the right to receive (i) the Initial Per Share Merger
Consideration and (ii) the Additional Per Share Consideration, if any;
(b) subject to the provisions of Section 2.3, each share of Preferred
Stock issued and outstanding immediately prior to the Effective Time (other than
any shares of Preferred Stock to be canceled pursuant to Section 2.2(c) and any
Dissenting Shares (as defined herein)) shall be canceled and shall be converted
automatically into the right to receive (i) the Initial Per Share Merger
Consideration and (ii) the Additional Per Share Consideration, if any, in each
case multiplied by the number of shares of Common Stock into which such share of
Preferred Stock is convertible;
(c) each Share held in the treasury of the Company immediately prior
to the Effective Time shall be canceled without any conversion thereof and no
payment or distribution shall be made with respect thereto; and
(d) each share of common stock, par value $.01 per share, of Merger
Subsidiary issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
Section 2.3 Surrender and Payment.
(a) Not less than ten (10) Business Days prior to the Effective Time,
Parent shall appoint a paying agent reasonably satisfactory to the Company (the
"Paying Agent") and enter into a paying agent agreement with such Paying Agent
for the purpose of exchanging Share Certificates for the Initial Merger
Consideration in accordance with this Article II. On the same Business Day as,
and prior to, the Effective Time, Parent shall deposit, or cause to be
deposited, with the Paying Agent, for the benefit of the Stakeholders, by wire
transfer of immediately available funds, cash in an amount sufficient to pay the
Initial Merger Consideration (such cash being hereinafter referred to as the
"Exchange Fund"). The Exchange Fund shall not be used for any purpose other than
the Payment of the Initial Merger Consideration and shall not be subject to any
claim of Parent under Section 2.9 or Article VII. The Exchange Fund shall be
invested by the Paying Agent as directed by Parent; provided, however, that such
investments shall be in obligations of or guaranteed by the United States of
America or any agency or instrumentality thereof and backed by the full faith
and credit of the United States of
9
America, in commercial paper obligations rated A-1 or P-1 or better by Xxxxx'x
Investors Service, Inc. or Standard & Poor's Corporation, respectively, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $1 billion (based on the most recent
financial statements of such bank which are then publicly available). Any net
profit resulting from, or interest or income produced by, such investments shall
be payable to the Surviving Corporation. Any losses resulting from the
investment of the Exchange Fund shall not in any way diminish Parent's and
Merger Subsidiary's obligations to pay the full amount of the Initial Merger
Consideration.
(b) Share Exchange Procedures. As promptly as practicable after the
Effective Time, Parent shall cause the Paying Agent to mail to each person who
was, at the Effective Time, a holder of record of Shares: (i) a letter of
transmittal in a form reasonably acceptable to Parent and the Company and to be
agreed upon prior to the Effective Time, which specifies that delivery shall be
effected, and risk of loss and title to the certificates evidencing such Shares
(the "Share Certificates") shall pass, only upon proper delivery of the Share
Certificates to the Paying Agent; and (ii) instructions for use in effecting the
surrender of the Share Certificates in exchange for the Initial Merger
Consideration to which such holder is entitled pursuant to Section 2.2(a) or
2.2(b), as applicable. Upon surrender to the Paying Agent of a Share Certificate
for cancellation, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, and such other
documents as may be required pursuant to such instructions, Parent shall cause
the Paying Agent to pay to the holder of such Share Certificate, in exchange
therefore, the amount of cash in immediately available funds which such holder
has the right to receive in respect of the Shares formerly represented by such
Share Certificate pursuant to Section 2.2(a) or 2.2(b), as applicable, and the
Share Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Shares that is not registered in the transfer records
of the Company, payment of the relevant portion of the Initial Merger
Consideration may be made to a Person other than the Person in whose name the
Share Certificate so surrendered is registered if the Share Certificate
representing such Shares shall be properly endorsed or otherwise be in proper
form for transfer and the Person requesting such payment shall pay any transfer
or other taxes required by reason of the payment of the relevant portion of the
Initial Merger Consideration to a Person other than the registered holder of
such Share Certificate or establish to the reasonable satisfaction of Parent
that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.3, each Share Certificate shall be deemed at all
times after the Effective Time to represent only the right to receive upon such
surrender (or at such other applicable time) such portion of the Initial Merger
Consideration and any Additional Merger Consideration to which the holder of
such Share Certificate is entitled pursuant and subject to this Article II. No
interest shall be paid or will accrue on any cash payable to holders of Share
Certificates pursuant to the provisions of this Article II.
(c) Company Option Exchange Procedures. As promptly as practicable
after the Effective Time, Parent shall cause the Paying Agent to mail to each
person who was, at the Effective Time, a holder of Company Options: (i) a letter
of transmittal in a form reasonably acceptable to Parent and the Company and to
be agreed
10
upon prior to the Effective Time; and (ii) instructions for use in effecting the
surrender of such Company Options in exchange for the Initial Merger
Consideration to which such holder is entitled pursuant to Section 2.11(a). Upon
surrender to the Company of a copy of the agreement and/or instrument evidencing
a Company Option (an "Option Certificate"), together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, Parent shall cause the Paying Agent to pay to the holder of
such Company Option, in exchange therefor, subject to Section 2.6, the amount of
cash in immediately available funds which such holder has the right to receive
pursuant to Section 2.11(a). No interest shall be paid or will accrue on any
cash payable to holders of Company Options pursuant to the provisions of this
Article II.
(d) Company Warrant Exchange Procedures. As promptly as practicable
after the Effective Time, Parent shall cause the Paying Agent to mail to each
person who was, at the Effective Time, a holder of Company Warrants: (i) a
letter of transmittal in a form reasonably acceptable to Parent and the Company
and to be agreed upon prior to the Effective Time; and (ii) instructions for use
in effecting the surrender of such Company Warrants in exchange for the Initial
Merger Consideration to which such holder is entitled pursuant to Section
2.11(b). Upon surrender to the Paying Agent of a copy of the agreement and/or
instrument evidencing a Company Warrant (a "Warrant Certificate" and, together
with the Share Certificates and the Company Option Certificates, the
"Certificates"), together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, and such other
documents as may be required pursuant to such instructions, Parent shall cause
the Paying Agent to pay to the holder of such Company Warrant, in exchange
therefor, subject to Section 2.6, the amount of cash in immediately available
funds which such holder has the right to receive pursuant to Section 2.11(b). No
interest shall be paid or will accrue on any cash payable to holders of Company
Warrants pursuant to the provisions of this Article II.
(e) No Further Rights. From and after the Effective Time, holders of
Certificates shall cease to have any rights with respect to the Shares, Options
or Warrants represented by such Certificates, except the right to receive the
Aggregate Merger Consideration to which such holder is entitled or as provided
by Law.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
that remains unclaimed by the holders of Shares, Options or Warrants one (1)
year after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Shares Options or Warrants who have not theretofore complied with
this Article II shall thereafter look only to Parent for, and Parent shall
remain liable for, payment of their claim with respect to the Initial Merger
Consideration, without any interest thereon. Any portion of the Exchange Fund
remaining unclaimed by holders of Shares, Options or Warrants as of a date which
is immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Authority shall, to the extent permitted by
applicable Law, become the property of Parent free and clear of any claims or
interest of any person previously entitled thereto.
11
Section 2.4 Stakeholder Representative.
(a) Coral SR LLC is hereby constituted to act as the representative,
agent and attorney-in-fact for the Stakeholders and their successors and
assigns, effective immediately prior to the Effective Time, for all purposes
under this Agreement, the Escrow Agreement and the Agent's Escrow Agreement (the
"Stakeholder Representative"), and the Stakeholder Representative, by its
signature below, agrees to serve in such capacity.
(b) The Company authorizes Parent and Merger Subsidiary to rely on the
Stakeholder Representative having the power and authority, effective immediately
prior to the Effective Time, in its capacity as Stakeholder Representative, the
Stakeholder Representative shall have the power and authority to take such
actions on behalf of each Stakeholder as the Stakeholder Representative, in its
sole judgment, may deem to be in the best interests of the Stakeholders or
otherwise appropriate on all matters related to or arising from this Agreement,
the Escrow Agreement and the Agent's Escrow Agreement. Such powers shall
include, without limitation:
(i) executing and delivering the Escrow Agreement, the Agent's
Escrow Agreement and any and all supplements, amendments, waivers or
modifications thereto and all certificates, consents and other documents
contemplated by this Agreement, the Escrow Agreement or the Agent's Escrow
Agreement or as may be necessary or appropriate to effect the Merger and
other transactions contemplated hereby;
(ii) giving and receiving notices and other communications
relating to this Agreement, the Escrow Agreement and the Agent's Escrow
Agreement;
(iii) taking or refraining from taking any actions (whether by
negotiation, settlement, litigation or otherwise) to resolve or settle all
matters and disputes arising out of or related to this Agreement, the
Escrow Agreement and the Agent's Escrow Agreement and the performance or
enforcement of the obligations, duties and rights pursuant to this
Agreement, the Escrow Agreement and the Agent's Escrow Agreement;
(iv) authorizing or disputing the release to Parent of all or
some of the amount contained in the Escrow Fund in connection with any
claim by Parent pursuant to Article VII or Section 5.12 hereof;
(v) taking all actions necessary or appropriate in connection
with any Third Party Claims (as defined herein) pursuant to Article VII;
(vi) taking all actions necessary or appropriate in connection
with any disputes regarding the adjustment of the Initial Merger
Consideration pursuant to Section 2.9;
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(vii) engaging attorneys, accountants, financial and other
advisors, paying agents and other persons necessary or appropriate, in the
sole discretion of the Stakeholder Representative in the performance of its
duties under this Agreement, the Escrow Agreement and the Agent's Escrow
Agreement, and authorizing and directing the disbursement of funds from the
Agent's Escrow Agreement to pay the fees and expenses of such persons and
the compensation, fees and expenses of the Stakeholder Representative set
forth in the Agent's Escrow Agreement; and
(viii) taking all actions necessary or appropriate in the
judgment of the Stakeholder Representative for the accomplishment of the
foregoing.
(c) The power of attorney appointing the Stakeholder Representative as
attorney-in-fact is coupled with an interest and the death or incapacity of any
Stakeholder shall not terminate or diminish the authority and agency of the
Stakeholder Representative.
(d) Should the Stakeholder Representative resign or be unable to
serve, a replacement Stakeholder Representative shall be appointed upon prior
written notice to Parent and each Stakeholder. The decisions and actions of any
such replacement Stakeholder Representative shall be, for all purposes, those of
the Stakeholder Representative as if originally named herein. The Stakeholder
Representative shall not be liable for any act done or omitted as Stakeholder
Representative, except to the extent that the Stakeholder Representative was
grossly negligent or engaged in willful misconduct. All fees and expenses,
including for attorneys, accountants, financial and other advisors, paying
agents and other persons and insurance, in each case necessary or appropriate
and engaged by the Stakeholder Representative in the performance of its duties
under this Agreement, the Escrow Agreement and the Agent's Escrow Agreement
shall be paid from the Agent's Escrow Fund. The Stakeholder Representative shall
be compensated by the Stakeholders for acting in its capacity as Stakeholder
Representative on the terms and conditions set forth in the Agent's Escrow
Agreement.
(e) The Stakeholders shall, severally but not jointly, indemnify,
defend and hold harmless the Stakeholder Representative and his heirs,
representatives, successors and assigns, from and against any and all claims,
demands, suits, actions, causes of action, losses, damages, obligations,
liabilities, costs and expenses (including attorneys' fees and court costs)
arising as a result of or incurred in connection with any actions taken or
omitted to be taken by the Stakeholder Representative pursuant to the terms of
this Agreement or the Ancillary Agreements, except to the extent it is
demonstrated that the Stakeholder Representative was grossly negligent or
engaged in willful misconduct. In addition, each Stakeholder forever voluntarily
releases and discharges the Stakeholder Representative, his or her heirs,
representatives, successors and assigns, from any and all claims, demands,
suits, actions, causes of action, losses, damages, obligations, liabilities,
costs and expenses (including attorneys' fees and court costs), whether known or
unknown, anticipated or unanticipated, arising as a result of or incurred in
connection with any actions taken or omitted to be taken by the Stakeholder
13
Representative pursuant to the terms of this Agreement or the Ancillary
Agreements, except to the extent it can be demonstrated that the Stakeholder
Representative was grossly negligent or engaged in willful misconduct. Expenses
(including attorneys' fees and court costs) incurred by the Stakeholder
Representative in defending any claim, demand, suit, action or cause of action
may be paid out of the Agent's Escrow Fund in advance of the final disposition
of such claim, demand, suit, action or cause of action upon receipt of an
undertaking by the Stakeholder Representative to repay such amount if it shall
ultimately be determined that the Stakeholder Representative is not entitled to
be indemnified by the Stakeholders pursuant to this Section 2.4(e).
Section 2.5 Adjustments. If, at any time during the period between the
date of this Agreement and the Effective Time, any change in the outstanding
shares of Common Stock or Preferred Stock shall occur by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any similar transaction, or any stock dividend
thereon with a record date during such period, the Aggregate Merger
Consideration shall be appropriately adjusted to provide the holders of shares
of Common Stock, Preferred Stock, Options and Warrants the same economic effect
as contemplated by this Agreement prior to such event.
Section 2.6 Withholding Rights. Each of the Company, the Surviving
Corporation, Parent and Paying Agent shall be entitled to deduct and withhold
from the consideration otherwise payable to any Person pursuant to this Article
II such amounts as it is required to deduct and withhold with respect to the
making of such payment under any provision of federal, state, local or foreign
Tax Law, including any withholding from any payment that is treated as wages or
compensation for the performance of services. To the extent that amounts are so
withheld, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Person in respect of which such deduction
and withholding was made.
Section 2.7 Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming the Certificate to be lost, stolen or destroyed and, if
reasonably required by Parent or the Surviving Corporation, the posting by such
Person of a bond in such reasonable and customary amount as Parent may direct,
and the delivery of an agreement of indemnification in form reasonably
satisfactory to Parent, as indemnity against any claim that may be made against
it with respect to such Certificate, the Paying Agent shall issue in exchange
for such lost, stolen or destroyed Certificate the Aggregate Merger
Consideration to be paid in respect of the shares of Company Common Stock
represented by such Certificate as contemplated by this Article II.
Section 2.8 Determination of Initial Merger Consideration. Not less
than three (3) Business Days prior to the Closing Date, the Company shall
deliver to Parent an estimated unaudited balance sheet of the Company as of the
Closing Date, together with a statement (the "Company's Statement") of the
Company's estimation of each of the following items of the Company and its
Subsidiaries as of the Closing Date for purposes of calculating the Initial
Merger Consideration: (i) cash and cash equivalents and (ii) the amount of
Indebtedness.
14
Section 2.9 Post-Closing Adjustment of Initial Merger Consideration.
The Initial Merger Consideration shall be adjusted following the Closing as
provided in this Section 2.9:
(a) Within forty-five (45) days after the Closing Date, the Surviving
Corporation, under the supervision of Parent, shall prepare, in accordance with
GAAP applied on a basis consistent with the Statement of Adjustment Methods (as
defined below) and otherwise on a basis consistent with the Reference Balance
Sheet and the audited consolidated statements of income, stockholders' equity
and cash flows for the fiscal year ended December 31, 2004, and deliver to the
Stakeholder Representative (i) a balance sheet of the Company as of the Closing
Date (the "Closing Date Balance Sheet") and (ii) a written determination (the
"Determination") of the amount of Working Capital as of the Closing Date (the
"Preliminary Working Capital Amount"), including the basis for such Closing Date
Balance Sheet and Determination set forth in reasonable detail and all
supporting calculations. For the purposes of this Agreement, the term "Working
Capital" means the amount of working capital of the Company and its Subsidiaries
on a consolidated basis, calculated in accordance with the definitions,
procedures, methodologies, judgments, assumptions and estimates set forth on
Exhibit D. The term "Target Working Capital Amount" means $8,281,000, such
amount having been calculated using the definitions and procedures set forth in
calculations on Exhibit D.
(b) Upon receipt of the Closing Date Balance Sheet and the
Determination, the Stakeholder Representative shall have forty-five (45) days
(the "Review Period") to review such Closing Date Balance Sheet and
Determination and related computations of the Preliminary Working Capital
Amount. In connection with the review of the Closing Date Balance Sheet and the
Determination, Parent shall give, and shall cause the Surviving Corporation and
its and the Surviving Corporation's Affiliates and Representatives to give, to
the Stakeholder Representative and its Representatives full access to the books,
records and other materials of the Company and its Subsidiaries and the
personnel of, and work papers prepared by or for, Parent, the Company or its
Subsidiaries or their respective accountants and Representatives, including,
without limitation, to such historical financial information relating to the
Company and its Subsidiaries as the Stakeholder Representative or its
Representatives may request, in each case, in order to permit the timely and
complete review of the Closing Date Balance Sheet and the Determination in
accordance with this Section 2.9(b). If the Stakeholder Representative has
accepted such Closing Date Balance Sheet and Determination in writing or has not
given written notice to Parent setting forth any objection of the Stakeholder
Representative to such Closing Date Balance Sheet and Determination (a
"Statement of Objections") prior to the expiration of the Review Period, then
such Determination shall be final and binding upon the parties, and (i) the
Preliminary Working Capital Amount shall be deemed the Working Capital amount of
the Company as of the Closing Date (the "Final Working Capital Amount") and (ii)
the Closing Date Balance Sheet shall be deemed the final Closing Date Balance
Sheet of the Company (the "Final Closing Date Balance Sheet"). In the event that
the Stakeholder Representative delivers a Statement of Objections during the
Review Period, Parent and the Stakeholder Representative shall use their
reasonable efforts to agree on the amount of Working Capital of the Company as
of the Closing Date and appropriate adjustments
15
to the Closing Date Balance Sheet within thirty (30) days following the receipt
by Parent of the Statement of Objections. If the parties are unable to reach an
agreement as to such amounts and adjustments within such thirty (30) day period,
then the matter shall be submitted as promptly as practicable to Ernst & Young
LLP, or if Ernst & Young LLP is unwilling or unable to serve in such capacity,
to PricewaterhouseCoopers, or if PricewaterhouseCoopers is unwilling or unable
to serve in such capacity, to such other independent accounting firm agreed to
by the parties (such accountant, the "Settlement Accountant"), who shall resolve
the matters still in dispute and adjust the Determination to reflect such
resolution and establish the Final Working Capital Amount and the Final Closing
Date Balance Sheet; provided, however, that the Settlement Accountant may not
determine (i) an amount of Working Capital in excess of that claimed by the
Stakeholder Representative or less than that claimed by Parent; (ii) an amount
of cash or cash equivalents on the Final Closing Date Balance Sheet in excess of
that claimed by the Stakeholder Representative or less than that claimed by
Parent; or (iii) an amount of Indebtedness on the Final Closing Date Balance
Sheet in excess of that claimed by Parent or less than that claimed by the
Stakeholder Representative. The Settlement Accountant shall make such
determination within forty-five (45) days following the submission of the matter
to the Settlement Accountant for resolution, and such determination shall be
final and binding upon Parent, Merger Subsidiary and the Stakeholder
Representative and may be entered and enforced in any court having jurisdiction.
Each of Parent, Merger Subsidiary, the Company, the Surviving Corporation and
the Stakeholder Representative agrees that it will not have any right to, and
will not, institute any Action of any kind challenging such determination or
with respect to the matters that are the subject of this Section 2.9, except
that the foregoing shall not preclude an Action to enforce such determination.
(c) In the event any dispute is submitted to the Settlement Accountant
for resolution as provided in Section 2.9(b) of this Agreement, the fees,
charges and expenses of the Settlement Accountant shall be paid one-half by
Parent and one-half by the Stakeholders. All fees and disbursements allocated to
the Stakeholders pursuant to this Section 2.9(c) shall be paid out of the
Agent's Escrow Fund in accordance with the terms of the Escrow Agreement.
(d) In the event that the Final Working Capital Amount is greater than
the Target Working Capital Amount (such excess, the "Excess Working Capital
Amount"), the Initial Merger Consideration shall be increased by, and Parent
shall deposit, or cause to be deposited, within five (5) Business Days of the
determination of the Final Working Capital Amount and the Final Closing Date
Balance Sheet, into the Agent's Escrow Account (and such payment shall be deemed
part of the Agent's Escrow Fund) by wire transfer of immediately available
funds, an amount equal to such Excess Working Capital Amount, together with
interest thereon for the period from (and including) the Closing Date to (but
excluding) the date of payment, at the prime rate as quoted in the Money Rates
section of The Wall Street Journal on the Closing Date (the "Applicable Rate").
(e) In the event that the Final Working Capital Amount is less than
the Target Working Capital Amount (such deficiency, the "Working Capital
Deficiency"),
16
the Initial Merger Consideration shall be reduced by, and Parent shall be
entitled to payment from the Escrow Account in accordance with the terms and
conditions of the Escrow Agreement, by wire transfer of immediately available
funds, of an amount equal to such Working Capital Deficiency, together with
interest thereon for the period from (and including) the Closing Date to (but
excluding) the date of payment, at the Applicable Rate.
(f) In the event that the amount of cash and cash equivalents of the
Company and its Subsidiaries as of the Closing Date set forth on the Final
Closing Date Balance Sheet is greater than the amount of cash and cash
equivalents of the Company and its Subsidiaries as of the Closing Date set forth
on the Company's Statement delivered pursuant to Section 2.8 (such excess, the
"Excess Cash Amount"), the Initial Merger Consideration shall be increased by,
and Parent shall deposit, or cause to be deposited, within five (5) Business
Days of the determination of the Final Working Capital Amount and the Final
Closing Date Balance Sheet, into the Agent's Escrow Account (and such payment
shall be deemed part of the Agent's Escrow Fund) by wire transfer of immediately
available funds, an amount equal to such Excess Cash Amount, together with
interest thereon for the period from (and including) the Closing Date to (but
excluding) the date of payment, at the Applicable Rate.
(g) In the event that the amount of cash and cash equivalents of the
Company and its Subsidiaries as of the Closing Date set forth on the Final
Closing Date Balance Sheet is less than the amount of cash and cash equivalents
of the Company and its Subsidiaries as of the Closing Date set forth on the
Company's Statement delivered pursuant to Section 2.8 (such deficiency, the
"Cash Deficiency"), the Initial Merger Consideration shall be reduced by, and
Parent shall be entitled to payment from the Escrow Account in accordance with
the terms and conditions of the Escrow Agreement by wire transfer of immediately
available funds, of an amount equal to such Cash Deficiency, together with
interest thereon for the period from (and including) the Closing Date to (but
excluding) the date of payment, at the Applicable Rate.
(h) In the event that the amount of Indebtedness of the Company and
its Subsidiaries as of the Closing Date set forth on the Final Closing Date
Balance Sheet is greater than the amount of Indebtedness of the Company and its
Subsidiaries as of the Closing Date set forth on the Company's Statement
delivered pursuant to Section 2.8 (such excess, the "Excess Indebtedness"), the
Initial Merger Consideration shall be reduced by, and Parent shall be entitled
to payment from the Escrow Account in accordance with the terms and conditions
of the Escrow Agreement by wire transfer of immediately available funds, of an
amount equal to such Excess Indebtedness, together with interest thereon for the
period from (and including) the Closing Date to (but excluding) the date of
payment, at the Applicable Rate.
(i) In the event that the amount of Indebtedness of the Company and
its Subsidiaries as of the Closing Date set forth on the Final Closing Date
Balance Sheet is less than the amount of Indebtedness of the Company and its
Subsidiaries as of the Closing Date set forth on the Company's Statement
delivered pursuant to Section 2.8 (such deficiency, the "Indebtedness
Deficiency"), the Initial Merger Consideration shall
17
be increased by, and Parent shall deposit, or cause to be deposited, within five
(5) Business Days of the determination of the Final Working Capital Amount and
the Final Closing Date Balance Sheet, into the Agent's Escrow Account (and such
payment shall be deemed part of the Agent's Escrow Fund) by wire transfer of
immediately available funds, an amount equal to such Indebtedness Deficiency,
together with interest thereon for the period from (and including) the Closing
Date to (but excluding) the date of payment, at the Applicable Rate.
(j) If any amount is required to be paid pursuant to Section 2.9 and
is paid later than five (5) Business Days following the determination of the
final amounts pursuant to Section 2.9(b), interest at a rate of the Applicable
Rate plus 5% per annum (e.g., if the Applicable Rate is 3.0%, the interest rate
applied to such amount, pursuant to this Section 2.9(j) shall be 8.0% per annum)
shall be added to such amount, for the period from (and including) such fifth
(5th) Business Day following the determination of the final amounts to (but
excluding) the date of payment.
(k) In acting under this Agreement, the Settlement Accountant shall be
entitled to the privileges and immunities of arbitrators.
Section 2.10 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary
and to the extent available under the DGCL, Shares that are outstanding
immediately prior to the Effective Time and that are held by Company
Stockholders who shall have neither voted in favor of the Merger nor consented
thereto in writing and who shall have demanded properly in writing appraisal for
such Shares in accordance with Section 262 of the DGCL (collectively, the
"Dissenting Shares" and each holder of Dissenting Shares, a "Dissenting
Stockholder") shall not be converted into, or represent the right to receive, a
portion of the Aggregate Merger Consideration. Such Dissenting Stockholders
shall be entitled to receive payment of the appraised value of such Shares held
by them in accordance with the provisions of such Section 262 of the DGCL,
except that all Dissenting Shares held by Dissenting Stockholders who shall have
failed to perfect or who effectively shall have withdrawn or lost their rights
to appraisal of such Dissenting Shares under such Section 262 shall thereupon be
deemed to have been converted into, and to have become exchangeable for, as of
the Effective Time, the right to receive a portion of the Aggregate Merger
Consideration in the manner provided in this Article II, without interest.
(b) The Company shall provide Parent and the Stakeholder
Representative with prompt notice after receipt by the Company of any demands
for appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to the DGCL and received by the Company, and
the Company and Parent shall cooperate with respect to all negotiations and
proceedings with respect to demands for appraisal under the DGCL. The Company
shall not, except with the prior written consent of Parent (which consent shall
not be unreasonably withheld, delayed or conditioned), make any payments with
respect to any demands for appraisal or offer to settle or settle any such
demands.
18
Section 2.11 Company Options and Company Warrants.
(a) The Company shall take all actions necessary or desirable
(including obtaining Company Option holder consents where necessary) to cause
each Company Option that is outstanding and unexercised as of the Effective Time
to be terminated immediately prior to the Effective Time and to represent
thereafter only the right to receive, subject to the provisions of Section 2.3,
(i) an amount in cash equal to the product of (A) the excess, if any, of the
Initial Per Share Merger Consideration over the exercise price per share for
such Company Option and (B) the number of shares of Common Stock subject to such
Company Option; and (ii) a portion of the Additional Merger Consideration, if
any, equal to the product of (A) the Additional Per Share Merger Consideration
and (B) the number of shares of Common Stock subject to such Company Option. The
Company shall take all actions necessary to terminate the Company Option Plans
as of the Effective Time.
(b) The Company shall take all actions necessary or desirable
(including obtaining Company Warrant holder consents where necessary) to cause
each Company Warrant that is outstanding and unexercised as of the Effective
Time to represent thereafter only the right to receive, subject to the
provisions of Section 2.3, (i) an amount in cash equal to the product of (A) the
difference between the Initial Per Share Merger Consideration and the exercise
price for such Company Warrant and (B) the number of shares of Common Stock
underlying such Company Warrant (the "Warrant Shares"); and (ii) a portion of
the Additional Merger Consideration, if any, equal to the product of (A) the
Additional Per Share Merger Consideration and (B) the Warrant Shares.
Section 2.12 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Subsidiary shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by Law and such Certificate of
Incorporation, provided that the Certificate of Incorporation of the Surviving
Corporation shall be amended as of the Effective Time to contain provisions
relating to the indemnification of directors, officers and employees identical
to such provisions contained in the Certificate of Incorporation of the Company
as in effect as of the date hereof.
(b) At the Effective Time, the Bylaws of Merger Subsidiary shall be
the Bylaws of the Surviving Corporation until thereafter amended as provided by
Law, the Certificate of Incorporation of the Surviving Corporation and such
Bylaws, provided that the Bylaws of the Surviving Corporation shall be amended
as of the Effective Time to contain provisions relating to the indemnification
of directors, officers and employees identical to such provisions contained in
the Bylaws of the Company as in effect as of the date hereof.
Section 2.13 Directors and Officers. Except as otherwise determined by
Parent, the directors of Merger Subsidiary immediately prior to the Effective
Time shall be the initial directors of the Surviving Corporation, each to hold
office in accordance
19
with the Certificate of Incorporation and Bylaws of the Surviving Corporation,
and the officers of the Company immediately prior to the Effective Time shall be
the initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified or until the
earlier of their death, resignation or removal.
Section 2.14 Escrow Fund and Agent's Escrow Fund. On the Closing Date,
at the Closing, Parent shall transfer, by wire transfer of immediately available
funds the Escrow Amount and the Agent's Escrow Amount to the Stakeholder
Representative, on behalf of the Stakeholders, to an account or accounts
established by the Stakeholder Representative designated in writing to Parent
not later than three (3) Business Days prior to the Closing Date. Immediately
upon receipt of the Escrow Amount and the Agent's Escrow Amount from Parent, at
the Closing, the Stakeholder Representative shall cause the Escrow Amount to be
deposited to the Escrow Account and (ii) the Agent's Escrow Amount to the
Agent's Escrow Account, by wire transfer of immediately available funds. The
Escrow Fund shall be managed and paid out by the Escrow Agent in accordance with
the terms of the Escrow Agreement. The Agent's Escrow Fund shall be managed and
paid out by the Escrow Agent in accordance with the terms of the Agent's Escrow
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the written disclosure letter delivered by the
Company to Parent and Merger Subsidiary in connection with the execution and
delivery of this Agreement (the "Company Disclosure Letter"), it being
acknowledged and agreed by Parent and Merger Subsidiary that any matter set
forth in any section or subsection of the Company Disclosure Letter shall be
deemed to be a disclosure for all purposes of this Agreement and all other
sections or subsections of the Company Disclosure Letter to which such matter
could reasonably be expected to be pertinent, but shall expressly not be deemed
to constitute an admission by the Company or any of its Subsidiaries, or
otherwise imply, that any such matter rises to the level of a Material Adverse
Effect on the Company or is otherwise material for purposes of this Agreement or
the Company Disclosure Letter, the Company represents and warrants to Parent and
Merger Subsidiary as follows:
Section 3.1 Organization and Qualification; Charter Documents.
(a) Each of the Company and its Subsidiaries is duly organized,
validly existing and in good standing (with respect to jurisdictions that
recognize such concept) under the laws of its jurisdiction of incorporation or
organization and has the requisite corporate power and corporate authority and
any necessary Company Permit to own, operate and lease the properties that it
purports to own, operate or lease and to carry on its business as it is being
conducted as of the date of this Agreement, except for such failures to be in
good standing or to have corporate power, corporate authority or a Company
Permit that, individually or in the aggregate, would not reasonably be likely to
20
have a Material Adverse Effect on the Company. Each of the Company and its
Subsidiaries is duly qualified or licensed to do business, and is in good
standing (with respect to jurisdictions that recognize such concept), in each
jurisdiction where the character of its properties owned, operated or leased or
the nature of its activities makes such qualification or licensure necessary,
except for such failures to be so qualified or licensed and in good standing
that, individually or in the aggregate, would not reasonably be likely to have a
Material Adverse Effect on the Company. Section 3.1(a) of the Company Disclosure
Letter sets forth a complete list of the Company's Subsidiaries, together with
the jurisdiction of organization of each Subsidiary, as of the date of this
Agreement.
(b) The Company has made available to Parent prior to the execution of
this Agreement complete and correct copies of (i) the certificate of
incorporation of the Company (including any certificates of designation), as
amended and currently in effect and the bylaws of the Company, as amended and
currently in effect (collectively, the "Company Organizational Documents"), and
(ii) the articles or certificate of incorporation and bylaws or similar
organizational documents of each of its Subsidiaries, as amended and currently
in effect (collectively, the "Company Subsidiary Organizational Documents").
Section 3.2 Corporate Authorization; Enforceability; Board and
Stockholder Action.
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and, subject to the satisfaction or, if permitted,
waiver of the conditions set forth in Section 6.1, 6.2 and 6.3 hereof, to
consummate the transactions contemplated hereby (including the Merger). The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize the execution and delivery
of this Agreement or to consummate the Merger and the other transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, assuming due authorization, execution and delivery of this
Agreement by each of Parent and Merger Subsidiary, constitutes a valid and
binding agreement of the Company enforceable against the Company in accordance
with its terms, except to the extent that such enforcement may be subject to (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
Laws, now or hereafter in effect, affecting creditors' rights generally and (ii)
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity). Each Ancillary Agreement when executed and
delivered, will be duly executed and delivered by the Stakeholder Representative
and, assuming due authorization, execution and delivery of each Ancillary
Agreement by each party thereto other than the Stakeholder Representative, will
constitute a valid and binding agreement of the Stakeholder Representative
enforceable against the Stakeholder Representative in accordance with its terms,
except to the extent that such enforcement may be subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar Laws, now or
hereafter in effect, affecting creditors' rights generally and (ii) general
principles
21
of equity (regardless of whether enforcement is considered in a proceeding at
law or in equity).
(b) The Board of Directors of the Company, at a meeting duly called
and held, unanimously has (i) determined that this Agreement and the
transactions contemplated hereby (including the Merger) are advisable and in the
best interests of the Company and the Company Stockholders, (ii) approved and
adopted this Agreement and the transactions contemplated hereby (including the
Merger), and (iii) resolved to recommend that the Company Stockholders vote for
the approval and adoption of this Agreement and the transactions contemplated
hereby (including the Merger). Concurrently with the execution and delivery of
this Agreement, Company Stockholders have executed and delivered written
consents in accordance with Section 228 of the DGCL which contain the Requisite
Stockholder Approvals.
Section 3.3 Consents and Approvals; No Violations.
(a) Except as set forth in Section 3.3(a) of the Company Disclosure
Letter, the execution and delivery of this Agreement does not, and the
consummation of the Merger and the other transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not,
conflict with or result in any violation or breach of, or default (with or
without notice or lapse of time, or both) under, (i) the certificate of
incorporation or bylaws of the Company or the similar organizational documents
of any of its Subsidiaries, (ii) assuming compliance with the matters referred
to in Section 3.3(b) below, any Material Contract to which the Company or any of
its Subsidiaries is a party or any of their respective properties or other
assets is subject or (iii) assuming compliance with the matters referred to in
Section 3.3(b) below, any Law applicable to the Company or any of its
Subsidiaries, other than, in the case of clauses (ii) and (iii), any such
conflicts, violations, breaches or defaults that, individually or in the
aggregate, would not be reasonably likely to (A) have a Material Adverse Effect
on the Company or (B) prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement.
(b) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby (including the Merger) require no action by or filing with, any
Governmental Authority other than (i) the filing of a certificate of merger in
connection with the Merger in accordance with the DGCL, (ii) compliance with any
applicable requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (iii) those set forth in Section 3.3(b) of the
Company Disclosure Letter and (iv) such other filings, consents and/or approvals
that, individually or in the aggregate, would not reasonably be likely to have a
Material Adverse Effect on the Company.
Section 3.4 Capitalization.
(a) The authorized capital stock of the Company consists of (i)
55,000,000 shares of Common Stock and (ii) 15,000,000 shares of Preferred Stock,
of which (A) 5,365,473 shares are designated Series A Preferred Stock, (B)
2,500,000
22
shares are designated Series B Preferred Stock, (C) 1,451,799 shares are
designated Series C Preferred Stock, (D) 3,500,000 shares are designated Series
E Preferred Stock, (E) 893,953 shares are designated Series F Preferred Stock,
(F) 302,000 shares are designated Series G Preferred Stock, and (G) 311,629
shares are designated Series H Preferred Stock.
(b) As of December 12, 2005, (i) 15,364,294 shares of Common Stock are
issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) 9,640,200 shares of Common Stock are reserved for issuance
pursuant to Company Options, (iii) 1,979,137 shares of Common Stock are reserved
for issuance pursuant to Company Warrants, (iv) 24,149,786 shares of Common
Stock are reserved for issuance upon conversion of Preferred Stock, of which (A)
5,365,473 shares are reserved for issuance upon conversion of the Series A
Preferred Stock, (B) 2,500,000 shares are reserved for issuance upon conversion
of the Series B Preferred Stock, (C) 4,355,397 shares are reserved for issuance
upon conversion of the Series C Preferred Stock, (D) 3,405,190 shares are
reserved for issuance upon conversion of the Series E Preferred Stock, (E)
2,577,486 shares are reserved for issuance upon conversion of the Series F
Preferred Stock, (F) 2,829,950 shares are reserved for issuance upon conversion
of the Series G Preferred Stock, and (G) 3,116,290 shares are reserved for
issuance upon conversion of the Series H Preferred Stock, and (v) no shares of
Common Stock are held in the treasury of the Company.
(c) As of December 12, 2005, (i) 5,365,473 shares of Series A
Preferred Stock are issued and outstanding, all of which are validly issued,
fully paid and nonassessable, (ii) 2,500,000 shares of Series B Preferred Stock
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (iii) 1,451,799 shares of Series C Preferred Stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (iv)
no shares of Series D Preferred Stock are issued and outstanding, (v) 3,405,190
shares of Series E Preferred Stock are issued and outstanding, all of which are
validly issued, fully paid and nonassessable, (vi) 859,162 shares of Series F
Preferred Stock are issued and outstanding, all of which are validly issued,
fully paid and nonassessable, (vii) 282,995 shares of Series G Preferred Stock
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable, and (viii) 311,629 shares of Series H Preferred Stock are issued
and outstanding, all of which are validly issued, fully paid and nonassessable.
(d) None of the issued and outstanding Shares was or, upon issuance in
connection with Company Options or Company Warrants, will be issued in violation
of any preemptive rights. Except as set forth in Section 3.4(d)(i) of the
Company Disclosure Letter, there are no options, warrants, convertible
securities or other rights, agreements, arrangements or commitments of any
character relating to the Shares or obligating the Company to issue or sell any
Shares, or any other interest in, the Company. Except as set forth in Section
3.4(d)(ii) of the Company Disclosure Letter, there are no outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any Shares. The Shares described in Sections 3.4(b)(i) and 3.4(c)
constitute all of the issued and outstanding capital stock of the Company.
Except as set forth in Section 3.4(d)(iii) of the Company Disclosure Letter and
except for this Agreement, there are no
23
voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any of the
issued and outstanding Shares.
(e) Each share of Series A Preferred Stock, Series B Preferred Stock
and Series E Preferred Stock is convertible, pursuant to its Certificate of
Designation, into one (1) share of Common Stock. Each share of Series C
Preferred Stock and Series F Preferred Stock is convertible, pursuant to its
Certificate of Designation, into three (3) shares of Common Stock. Each share of
Series G Preferred Stock and Series H Preferred Stock is convertible, pursuant
to its Certificate of Designation, into ten (10) shares of Common Stock.
(f) All the issued and outstanding shares of capital stock of each
Subsidiary that is a corporation are validly issued, fully paid, nonassessable
and, except with respect to wholly-owned Subsidiaries, free of preemptive rights
and are owned by the Company, whether directly or indirectly, free and clear of
all Liens (other than federal and state securities Law restrictions). Except as
set forth in Section 3.4(f) of the Company Disclosure Letter and except for this
Agreement, there are no voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect with respect to the voting or transfer of
any shares of capital stock of or any other interests in any Subsidiary.
(g) The Company is not, nor has it ever been as of the end of any
fiscal year, required to register any class of equity security under Section 12
of the Securities Exchange Act of 1934 or any rule or regulation promulgated
thereunder.
Section 3.5 Financial Information.
(a) True and complete copies of (i) the Reference Balance Sheet, (ii)
the audited consolidated balance sheet of the Company and the Subsidiaries for
each of the two fiscal years ended as of December 31, 2004 and December 31, 2003
and the related audited consolidated statements of income, stockholders' equity
and cash flows of the Company and the Subsidiaries, together with all related
notes and schedules thereto, accompanied by the reports thereon of the Company's
Accountants ((i) and (ii) collectively referred to herein as the "Financial
Statements") and (iii) the unaudited consolidated balance sheet of the Company
and the Subsidiaries as of September 30, 2005, and the related consolidated
statements of income, stockholders' equity and cash flows of the Company and the
Subsidiaries for the nine months then ended, together with all related notes and
schedules thereto (collectively referred to herein as the "Interim Financial
Statements") are set forth in Section 3.5(a) of the Company Disclosure Letter.
(b) The Financial Statements and the Interim Financial Statements (i)
present fairly in all material respects the consolidated financial condition and
results of operations of the Company and its Subsidiaries as of the dates
thereof or for the periods covered thereby and (ii) have been prepared in
accordance with GAAP applied on a basis consistent with the past practices of
the Company and the Subsidiaries, except, with respect to clauses (i) and (ii)
above, in the case of the Interim Financial Statements, for
24
normal and recurring year-end adjustments which will not be material in amount
and for the absence of footnote disclosure.
Section 3.6 Absence of Certain Changes. Except for the matters
contemplated by this Agreement or as set forth in Section 3.6(a) of the Company
Disclosure Letter, since September 30, 2005 through the date of this Agreement,
the Company and its Subsidiaries have conducted their respective businesses in
the ordinary course of business and there has not occurred (a) any change or
event that, individually or in the aggregate, has had a Material Adverse Effect
on the Company, (b) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to the
equity interests of the Company or of any of its Subsidiaries other than
dividends paid to the Company or any of its Subsidiaries by a wholly-owned
Subsidiary or (c) any change by the Company or any of its Subsidiaries in
accounting principles or methods materially affecting the consolidated financial
position or results of operations of the Company, except insofar as may have
been required by a change in GAAP or applicable Law.
Section 3.7 Undisclosed Liabilities. Except as set forth in Section
3.7 of the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries has incurred any liabilities required by GAAP, applied on a basis
consistent with the Reference Balance Sheet and the audited consolidated
statements of income, stockholders' equity and cash flows for the fiscal year
ended December 31, 2004, to be set forth on a consolidated balance sheet or
notes thereto of the Company and its Subsidiaries, except for liabilities (a)
set forth or reflected on the Company's Balance Sheet as of September 30, 2005
(the "September 30 Balance Sheet") included in the Interim Financial Statements
or that would be required to be set forth in footnote disclosure to the
September 30, 2005 Balance Sheet if such footnote disclosure was required to be
included in financial statements of the Company that are not audited by GAAP,
applied on a basis consistent with the Reference Balance Sheet and the audited
consolidated statements of income, stockholders' equity and cash flows for the
fiscal year ended December 31, 2004, (b) that, individually or in the aggregate,
would not reasonably be likely to have a Material Adverse Effect on the Company
or (c) in connection with this Agreement or the transactions contemplated
hereby.
Section 3.8 Litigation.
(a) Except as set forth in Section 3.8(a) of the Company Disclosure
Letter, as of the date of this Agreement, there is no litigation, investigation
or other proceeding (each, a "Litigation") by or before any Governmental
Authority pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries, except for such Litigations
that, individually or in the aggregate, would not reasonably be likely to have a
Material Adverse Effect on the Company.
(b) Except as set forth in Section 3.8(b) of the Company Disclosure
Letter, as of the date of this Agreement, (i) there are no judgments,
injunctions, writs, orders or decrees to which the Company or any of its
Subsidiaries is a party and (ii) there are no judgments, injunctions, writs,
orders or decrees otherwise binding on the Company
25
or any of its Subsidiaries that, individually or in the aggregate, would
reasonably be likely to have a Material Adverse Effect on the Company.
Section 3.9 Permits and Compliance with Laws.
(a) As of immediately prior to the Effective Time, all Company Permits
shall be in full force and effect in all material respects. Except as set forth
in Section 3.9(a) of the Company Disclosure Letter, there has been no material
default on the part of the Company or any Subsidiary with respect to any
material Company Permit.(b) Except as set forth in Section 3.9 of the Company
Disclosure Letter, since January 1, 2003, neither the Company nor any Subsidiary
of the Company has received any notice of any claimed material violation of any
Laws, including the Health Insurance Portability and Accountability Act of 1996
and the rules and regulations promulgated thereunder (collectively, "HIPAA"), by
the Company or any Subsidiary of the Company. Except for matters covered by
Sections 3.10, 3.11 and 3.15, the Company and each Subsidiary of the Company has
been operated since January 1, 2003 in compliance with all Laws, including
HIPAA, except for such non-compliance as would not reasonably be likely to have,
individually or in the aggregate, a Material Adverse Effect.
Section 3.10 Employee Benefit Plans.
(a) Section 3.10(a) of the Company Disclosure Letter contains a true
and complete list of each material incentive compensation, equity compensation
plan, "welfare" plan, fund or program (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")); deferred
compensation or "pension" plan, fund or program (within the meaning of Section
3(2) of ERISA); each employment, termination or severance agreement; and each
other material employee benefit plan, fund, program, agreement or arrangement,
in each case, that is sponsored, maintained or contributed to or required to be
contributed to by the Company or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that together with the Company would be
deemed a "single employer" within the meaning of Section 4001(b) of ERISA, or to
which the Company or an ERISA Affiliate is party, for the benefit of any
employee or director of the Company or any Subsidiary (the "Company Employee
Plans"). No Company Employee Plan is subject to Title IV of ERISA (a "Title IV
Plan").
(b) Except as would not, individually or in the aggregate, reasonably
be likely to have a Material Adverse Effect on the Company, no liability under
Title IV or Section 302 of ERISA has been incurred by the Company or by any
ERISA Affiliate that has not been satisfied in full, and neither the Company nor
any ERISA Affiliate made, or was required to make, contributions to any Title IV
Plan during the five (5) year period ending on the last day of the most recent
Title IV Plan year ended prior to the Closing Date.
(c) Except as would not, individually or in the aggregate, reasonably
be likely to have a Material Adverse Effect on the Company, each Company
Employee
26
Plan has been operated and administered in accordance with its terms and
applicable Law, including ERISA and the Code.
(d) Each Company Employee Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code is the subject of a letter from the
Internal Revenue Service stating that it is so qualified and the trusts
maintained thereunder are exempt from taxation under Section 501(a) of the Code.
(e) Except as set forth in Section 3.10(e) of the Company Disclosure
Letter or as would not, individually or in the aggregate, reasonably be likely
to have a Material Adverse Effect on the Company, there are no pending or, to
the knowledge of the Company, threatened or anticipated material claims by or on
behalf of any Company Employee Plan, by any Person or beneficiary covered under
any such Company Employee Plan, or otherwise involving any such Company Employee
Plan (other than routine claims for benefits).
(f) From and after the Effective Time, holders of Company Options and
Company Warrants shall cease to have any rights to receive Shares upon exercise
of such Company Option or Company Warrants and shall only have the right to
receive the Aggregate Merger Consideration to which such holder is entitled or
as provided by Law.
(g) Except as set forth in Section 3.10 of the Company Disclosure
Letter, the Company is not a party to any agreement, contract, arrangement or
plan that has resulted or could result, separately or in the aggregate, in the
payment of any "excess parachute payment" within the meaning of Section 280G of
the Code (or any corresponding provision of state, local or foreign Tax law).
Section 3.11 Taxes.
(a) All Tax Returns required to be filed by or on behalf of the
Company and each of its Subsidiaries have been timely filed or requests for
extensions have been timely filed and any such extension shall have been granted
and shall not have expired, and all such filed Tax Returns are true, complete
and accurate except to the extent any failure to file or any inaccuracies in
filed Tax Returns would not reasonably be likely to have, individually or in the
aggregate, a Material Adverse Effect on the Company. All Taxes due and owing by
the Company and any Subsidiary of the Company (whether or not shown on any Tax
Return) have been paid, or adequately reserved for, except to the extent any
failure to pay or reserve would not reasonably be likely to have, individually
or in the aggregate, a Material Adverse Effect on the Company. There is no Tax
Claim in writing with respect to any Taxes due and owing by the Company or any
Subsidiary of the Company, which, if determined adversely, would reasonably be
likely to have, individually or in the aggregate, a Material Adverse Effect on
the Company. The Company and each of its Subsidiaries have complied with all
rules and regulations relating to the withholding of Taxes and have withheld and
paid all Taxes required to have been withheld and paid in connection with any
amount paid or owing to any employee, independent contractor, creditor,
stockholder or other third party, except to the extent any such failure to
comply or withhold would not reasonably be likely to
27
have, individually or in the aggregate, a Material Adverse Effect on the
Company. Neither the Company nor any of its Subsidiaries has been a member of an
affiliated group (or similar state, local or foreign filing group) filing a
consolidated income Tax Return (other than the group the common parent of which
is the Company) or has any liability for the Taxes of any Person (other than the
Company or any of its Subsidiaries) under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local or foreign law), as a transferee or
successor, by contract, or otherwise.
(b) Neither the Company nor any Subsidiary of the Company has (i)
entered into a closing agreement or other similar agreement with a Taxing
Authority relating to Taxes of the Company or any Subsidiary of the Company with
respect to a taxable period for which the statute of limitations is still open
or (ii) granted any consent to extend any statute of limitations with respect
to, or any extension of a period for the assessment of, any Tax, in either case,
that is still outstanding. There are no Liens relating to Taxes upon the assets
of the Company or any Subsidiary of the Company other than Liens relating to
current Taxes not yet due and payable.
(c) No Tax Claim has been made by a Taxing Authority in a jurisdiction
where the Company or any Subsidiary of the Company does not file Tax Returns
that the Company or such Subsidiary is or may be subject to taxation by such
jurisdiction. No power of attorney has been granted with respect to any matter
relating to Taxes that could affect the Company or any Subsidiary of the Company
in any taxable period ending after the Closing Date.
(d) Neither the Company nor any Subsidiary was, at any time during the
applicable period set forth in Section 897(c)(1) of the Code, a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code. Neither the Company nor any Subsidiary of the Company has been required to
recognize income as a result of any adjustment pursuant to Section 481 of the
Code by reason of a change in accounting method initiated by the Company or such
Subsidiary, and the IRS has not initiated or proposed any such adjustment or
change in accounting method.
(e) The Company has made available to Parent copies of all income Tax
Returns of Company and each of its Subsidiaries for the taxable years ended
December 31, 2000, 2001, 2002, 2003 and 2004.
(f) 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; (ii) "closing agreement" as described in Section 7121 of the Code (or any
corresponding or similar provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date; or (iii) installment sale or open
transaction disposition made on or prior to the Closing Date.
(g) Neither the Company nor any of its Subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" in a
distribution of stock
28
to any person that is not a member of the affiliated group of corporations of
which the Company is the common parent qualifying for tax-free treatment under
Section 355 of the Code (i) in the two years prior to the date of this Agreement
or (ii) in a distribution which could otherwise constitute part of a "plan" or
"series of related transactions" (within the meaning of Section 355(e) of the
Code) in conjunction with the Merger.
(h) Neither the Company nor any of its Subsidiaries have engaged in
any transactions that are the same as or substantially similar to the
transactions listed in IRS Notice 2004-67, 2004-41 I.R.B. 600, otherwise known
as "listed transactions" for purposes of Treasury Regulations Sections
1.6011-4(b)(2), 301.6111-2(b)(2) or 301.6112-1(b)(2)(i)(A).
Section 3.12 Contracts.
(a) Sections 3.12(a)(i) through (xii) of the Company Disclosure Letter
contains lists of each of the following types of Contracts to which the Company
or any Subsidiary is a party or by which their respective assets or properties
are bound, as of the date hereof (such Contracts, "Material Contracts"):
(i) (A) each Contract that the Company reasonably anticipates
may, in accordance with its express terms, involve aggregate payments by
the Company or any Subsidiary of more than $500,000 during 2005, (B) each
Contract that, in accordance with its express terms, obligates the Company
to make aggregate payments of more than $500,000 in 2006 or (C) each
Contract that the Company reasonably anticipates may, in accordance with
its express terms, involve aggregate payments to the Company or any
Subsidiary of more than $500,000 during 2005, and that in the case of (A),
(B) and (C) is not cancelable by the Company or a Subsidiary without
liability on thirty (30) or less days' notice to the other party thereto;
(ii) each Contract for the lease of personal property by or from
the Company or any Subsidiary that the Company reasonably anticipates may,
in accordance with its express terms, involve payments in excess of
$500,000 during 2005 and that is not cancelable by the Company or a
Subsidiary without liability on thirty (30) or less days' notice to the
other party thereto;
(iii) each Contract with independent distributors or sales agents
that the Company reasonably anticipates may, in accordance with its express
terms, involve aggregate payments by or to the Company or any Subsidiary of
more than $500,000 during 2005 and that is not cancelable by Company or a
Subsidiary without liability on thirty (30) or less days' notice to the
other party thereto;
(iv) each Contract that by its express terms limits the ability
of Company or any Subsidiary to engage in any line of business or compete
with any Person or otherwise conduct its business in any geographic area or
during any period of time;
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(v) all Contracts evidencing Indebtedness;
(vi) all Contracts under which any Person has directly or
indirectly guaranteed the Indebtedness, liabilities or obligations of the
Company or any Subsidiary, or the Company or any Subsidiary has directly or
indirectly guaranteed the indebtedness, liabilities or obligations of any
Person;
(vii) all Contracts which are joint venture, partnership or
limited liability company operating agreements;
(viii) all Contracts granting or obtaining Intellectual Property
rights that are material to the Company and its Subsidiaries (other than
Contracts relating to "shrink wrap," "off-the-shelf" or otherwise readily
commercially available computer software;
(ix) all Contracts that require the payment of consideration by
the Company or any Subsidiary upon, are terminable upon or prohibit a
change of ownership or control of the Company or a Subsidiary (whether such
Contracts contained "single trigger" or "double trigger change of control
provisions);
(x) all Contracts between the Company or any Subsidiary and its
officers or directors;
(xi) all Contracts with any Governmental Authority; and
(xii) all Contracts that require the Company or any Subsidiary to
obtain or maintain a security clearance with any Governmental Authority.
(b) A true copy of each Material Contract has been made available to
Parent. Each Material Contract is a legal, valid and binding obligation on the
Company or a Subsidiary, as the case may be, and, to the knowledge of the
Company, the other parties thereto, and is in full force and effect and
enforceable against each Person who is a party to such Material Contract in
accordance with its terms, except to the extent that such enforcement may be
subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws, now or hereafter in effect, affecting creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforcement is considered in a proceeding at law or in equity). Neither the
Company nor any Subsidiary is in breach of or default under any Material
Contract and, to the knowledge of the Company, no other party to any Material
Contract is in breach thereof or default thereunder, except for breaches that,
individually or in the aggregate, would not reasonably be likely to have a
Material Adverse Effect on the Company. No event has occurred, is pending or, to
the knowledge of the Company, threatened, which, after the giving of notice,
lapse of time or otherwise, would constitute a breach or default by the Company
or any Subsidiary under any Material Contract or, to the knowledge of the
Company, any other party to any Material Contract, except for breaches that,
individually or in the aggregate, would not reasonably be likely to have a
Material Adverse Effect on the Company.
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Section 3.13 Intellectual Property.
(a) As used herein: (i) "Intellectual Property" means all U.S. and
foreign (A) trademarks, service marks, trade names, Internet domain names,
together with goodwill, registrations and applications related to the foregoing,
(B) patents and pending patent applications (C) copyrights and all registrations
and applications to register the same, (D) software (other than "shrink-wrap,"
"off-the-shelf" or otherwise readily commercially available software) and (E)
trade secrets, know-how, and other confidential information and (ii) "Company
Intellectual Property" means the Intellectual Property currently used in or
necessary to conduct the business of the Company or its Subsidiaries.
(b) Section 3.13(b) of the Company Disclosure Letter sets forth a
complete and accurate list of all registrations and applications owned by the
Company and its Subsidiaries for Company Intellectual Property described in
Section 3.13(a)(i)(A)-(C). To the knowledge of the Company, the foregoing
registrations are in effect and subsisting.
(c) Except as set forth in Section 3.13(c) of the Company Disclosure
Letter:
(i) To the knowledge of the Company, the conduct of the
businesses of the Company and its Subsidiaries does not infringe any
material Intellectual Property of any Third Party and there is no such
claim pending or to the knowledge of the Company within the last two (2)
years threatened in writing against the Company or its Subsidiaries.
(ii) To the knowledge of the Company, no Third Party is
materially infringing any Intellectual Property owned by the Company or its
Subsidiaries and no such claims are pending or threatened against any
Person by the Company or its Subsidiaries.
(iii) The Company and its Subsidiaries take commercially
reasonable measures to protect the confidentiality of their trade secrets
and other confidential information, including that relating to its disease
management programs, in all material respects.
(d) Except as would not be reasonably likely to have a Material
Adverse Effect on the Company, the Company and its Subsidiaries have such
rights, title and interest to, or have such other right to use, all Company
Intellectual Property necessary for the operation of the business of the Company
and its Subsidiaries as presently conducted.
Section 3.14 Real Property; Leases; Tangible Personal Property.
(a) As of the date of this Agreement, neither the Company nor any
Subsidiary of the Company owns any real property in fee.
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(b) Section 3.14(b) of the Company Disclosure Letter lists, as of the
date of this Agreement, all Leases. A true and correct copy of each Lease has
been made available to Parent. Each Lease is a legal, valid and binding
obligation of the Company or a Subsidiary, as the case may be, and, to the
knowledge of the Company, the other parties thereto, is in full force and effect
and enforceable against each Person who is a party to such Lease in accordance
with its terms, except to the extent that such enforcement may be subject to (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
Laws, now or hereafter in effect, affecting creditors' rights generally and (ii)
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity). Neither the Company nor any Subsidiary is in
material breach of or default under any Lease and, to the knowledge of the
Company, no other party to any Lease is in material breach thereof or default
thereunder.
(c) Except as set forth in Section 3.14(c) of the Company Disclosure
Letter, the Company and its Subsidiaries, own or have a valid leasehold interest
in, all of the tangible personal property shown on the September 30, 2005
Balance Sheet or acquired by any of them after September 30, 2005, free and
clear of any Liens, except (i) for assets which have been disposed of since
September 30, 2005, and (ii) where the failure to have such ownership or
leasehold interest would not be material to the Company and its Subsidiaries
taken as a whole.
Section 3.15 Environmental Matters.
(a) The Company and its Subsidiaries are, and have been since January
1, 2003, in compliance with all applicable federal, state and local Laws
relating to protection of the environment (collectively, "Environmental Laws"),
except for non-compliance that, individually or in the aggregate, would not
reasonably be likely to have a Material Adverse Effect on the Company.
(b) Neither the Company nor any of its Subsidiaries has since January
1, 2003 received written notice of, and, to the knowledge of the Company, is not
the subject of, any actions, claims, investigations, demands, or notices by any
person alleging liability under or non-compliance with any Environmental Law
that would reasonably be likely to have a Material Adverse Effect on the
Company.
Section 3.16 Insurance. Section 3.16 of the Company Disclosure Letter
sets forth a complete and accurate list of all existing and valid policies of
fire, liability, title, worker's compensation, product liability and other forms
of insurance maintained by the Company or any Subsidiary on its business, assets
or employees ("Company Insurance Coverage"). True and correct copies of the
Company Insurance Coverage have been furnished or made available to Parent or
its Representatives. All Company Insurance Coverage is in full force and effect,
and provides coverage as may be required by applicable Laws and by Material
Contracts to which the Company or any Company Subsidiary is a party. Neither the
Company nor any Subsidiary is in material default under any Company Insurance
Coverage nor, to the knowledge of the Company, has the Company or any Subsidiary
failed to give notice or present any claim under any such coverage in a due and
timely fashion.
32
Section 3.17 Affiliate Transactions. Except as set forth in Section
3.17 of the Company Disclosure Letter, no Significant Stakeholder, officer or
director of the Company or any Subsidiary and, to the knowledge of the Company,
no relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such Significant Stakeholder, officer or director:
(a) has any direct or indirect financial interest in (i) any supplier
of the Company, any Subsidiary or their respective businesses, (ii) any customer
of the Company, any Subsidiary or their respective businesses, or (iii) any
other Person that has had a material financial interest in any transaction with
the Company, any Subsidiary or their respective businesses during the last three
(3) years; provided, however, that the ownership of securities representing no
more than one percent (1%) of the outstanding voting power of any competitor,
supplier or customer, and which are listed on any national securities exchange
or quoted on any automated quotation system, shall not be deemed to be a
"financial interest" so long as the Person owning such securities has no other
connection or relationship with such competitor, supplier or customer;
(b) owns, directly or indirectly, in whole or in part, or has any
other interest in any tangible or intangible property which the Company or any
Subsidiary uses or has used on the conduct of its business or otherwise; or
(c) has outstanding any Indebtedness to or from the Company or any
Subsidiary.
Section 3.18 Finders' or Advisors' Fees. Except for X.X. Xxxxxx
Securities Inc. ("JPMorgan"), there is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on behalf
of the Company or any of its Subsidiaries who is entitled to any fee or
commission in connection with the transactions contemplated by this Agreement.
Section 3.19 Employee Matters.
(a) Except as set forth in Section 3.19 of the Company Disclosure
Letter, there are no claims, grievances or arbitration proceedings, workers'
compensation proceedings, labor disputes, governmental investigations or
administrative proceedings of any kind pending or, to the Company's knowledge,
threatened against or relating to the Company or any Subsidiary, its employees
or employment practices, or operations as they pertain to conditions of
employment, nor is the Company or any Subsidiary subject to any order, judgment,
decree, award or administrative ruling arising from any such matter, except for
any of the foregoing matters in this Section 3.19(a) that would not,
individually or in the aggregate, reasonably be likely to have a Material
Adverse Effect on the Company.
(b) As of the date hereof, neither the Company nor any Subsidiary is a
party to any labor, union or collective bargaining agreement or other similar
agreement and no union or labor organization has been certified or recognized as
the representative of any employees of the Company or any Subsidiary, or to the
33
knowledge of the Company, is seeking such certification or recognition or is
attempting to organize any of the employees of the Company or any Subsidiary.
Section 3.20 Customers. Section 3.20 of the Company Disclosure Letter
contains a true and complete list of the Company's and the Subsidiaries' twenty
(20) largest customers ("Customers") based on revenues for year-to-date 2005.
Except as set forth in Section 3.20 of the Company Disclosure Letter, during the
period from January 1, 2005 until immediately prior to execution of this
Agreement, no such Customer has provided written notice of cancellation or
termination of its Contract with the Company or a Subsidiary, as the case may
be, or of a material portion of any such Contract.
Section 3.21 Certain Payments. Except as set forth on Section 3.21 of
the Company Disclosure Letter, the Company and its Subsidiaries and, to the
Company's knowledge, each director, officer, employee and agent of the Company
and each Subsidiary acting on behalf of the Company or its Subsidiaries is in
compliance in all material respects with (a) applicable Laws relating to illegal
payments and bribes, (b) federal and state "fraud and abuse" or anti-referral or
anti-kickback statutes; (c) applicable Laws relating to illegal political
contributions, and (d) the Foreign Corrupt Practices Act of 1977.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Except as set forth in the written disclosure letter delivered by
Parent and Merger Subsidiary to the Company in connection with the execution and
delivery of this Agreement (the "Parent Disclosure Letter"), it being
acknowledged and agreed by the Company that any matter set forth in any section
or subsection of the Parent Disclosure Letter shall be deemed to be a disclosure
for all purposes of this Agreement and all other sections or subsections of the
Parent Disclosure Letter to which such matter could reasonably be expected to be
pertinent, but shall expressly not be deemed to constitute an admission by
Parent or any of its Subsidiaries, or otherwise imply, that any such matter
rises to the level of a Material Adverse Effect on Parent or is otherwise
material for purposes of this Agreement or the Parent Disclosure Letter, Parent
and Merger Subsidiary jointly and severally represent and warrant to the Company
as follows:
Section 4.1 Organization and Qualification; Charter Documents.
(a) Each of Parent and Merger Subsidiary is duly organized, validly
existing and in good standing (with respect to jurisdictions that recognize such
concept) under the laws of its jurisdiction of incorporation or organization and
has the requisite corporate power and corporate authority and any necessary
Parent Permit to own, operate and lease the properties that it purports to own,
operate or lease and to carry on its business as it is being conducted as of the
date of this Agreement, except for such failures to be in good standing or to
have corporate power, corporate authority or a Parent Permit that, individually
or in the aggregate, would not reasonably be likely to have a Material
34
Adverse Effect on Parent. Each of Parent and Merger Subsidiary is duly qualified
or licensed to do business, and is in good standing (with respect to
jurisdictions that recognize such concept), in each jurisdiction where the
character of its properties owned, operated or leased or the nature of its
activities makes such qualification or licensure necessary, except for such
failures to be so qualified or licensed and in good standing that, individually
or in the aggregate, would not reasonably be likely to have a Material Adverse
Effect on Parent.
(b) Parent and Merger Subsidiary have made available to the Company
prior to the execution of this Agreement complete and correct copies of (i) the
certificate of incorporation of Parent (including any certificates of
designation), as amended and currently in effect and the bylaws of Parent, as
amended and currently in effect and (ii) the certificate of incorporation and
bylaws of Merger Subsidiary, as amended and currently in effect.
Section 4.2 Corporate Authorization; Enforceability; Board Action.
(a) Each of Parent and Merger Subsidiary has the requisite corporate
power and authority to enter into this Agreement and, subject to the
satisfaction or, if permitted, waiver of the conditions set forth in Section
6.1, 6.2 and 6.3 hereof, to consummate the transactions contemplated hereby
(including the Merger). The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of each of Parent and Merger
Subsidiary and no other corporate proceedings on the part of either Parent or
Merger Subsidiary are necessary to authorize the execution and delivery of this
Agreement or to consummate the Merger and the other transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of Parent
and Merger Subsidiary and, assuming due authorization, execution and delivery of
this Agreement by the Company, constitutes a valid and binding agreement of each
of Parent and Merger Subsidiary enforceable against each such party in
accordance with its terms, except to the extent that such enforcement may be
subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws, now or hereafter in effect, affecting creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforcement is considered in a proceeding at law or in equity).
(b) The Board of Directors of Parent, at a meeting duly called and
held has (i) determined that this Agreement and the transactions contemplated
hereby (including the Merger) are advisable and in the best interests of Parent
and Parent's shareholders and (ii) approved and adopted this Agreement and the
transactions contemplated hereby (including the Merger). A wholly-owned
Subsidiary of Parent, in its capacity as the sole shareholder of Merger
Subsidiary, has consented in writing to the approval and adoption of this
Agreement and the transactions contemplated hereby (including the Merger).
(c) The Board of Directors of Merger Subsidiary, by a validly adopted
unanimous written consent, has (i) determined that this Agreement and the
transactions contemplated hereby (including the Merger) are advisable and in the
best interests of
35
Merger Subsidiary and Merger Subsidiary's sole shareholder, (ii) approved and
adopted this Agreement and the transactions contemplated hereby (including the
Merger), and (iii) recommended that Merger Subsidiary's sole shareholder approve
and adopt this Agreement and the transactions contemplated hereby (including the
Merger).
(a) Except as set forth in Section 4.3(a) of the Parent Disclosure
Letter, the execution and delivery by Parent and Merger Subsidiary of this
Agreement does not, and the consummation by Parent and Merger Subsidiary of the
Merger and the other transactions contemplated by this Agreement and compliance
by Parent and Merger Subsidiary with any of the provisions hereof will not,
conflict with or result in any violation or breach of, or default (with or
without notice or lapse of time, or both) under (i) the certificate of
incorporation or bylaws of Parent and Merger Subsidiary or the similar
organizational documents of any other Subsidiary of Parent, (ii) assuming
compliance with the matters referred to in Section 4.3(b) below, any Contract to
which Parent, Merger Subsidiary or any other Subsidiary of Parent is a party or
any of their respective properties or other assets is subject or (iii) assuming
compliance with the matters referred to in Section 4.3(b) below, any Law
applicable to Parent, Merger Subsidiary or any other Subsidiary of Parent, other
than, in the case of clauses (ii) and (iii), any such conflicts, violations,
breaches or defaults that, individually or in the aggregate, would not be
reasonably likely to (A) have a Material Adverse Effect on Parent or (B) prevent
or materially delay the consummation of any of the transactions contemplated by
this Agreement.
(b) The execution, delivery and performance by Parent and Merger
Subsidiary of this Agreement and the consummation by Parent and Merger
Subsidiary of the transactions contemplated hereby (including the Merger)
require no action by or filing with, any Governmental Authority other than (i)
the filing of articles of merger in connection with the Merger in accordance
with the DGCL, (ii) compliance with any applicable requirements of the HSR Act,
(iii) those set forth in Section 4.3(b) of the Parent Disclosure Letter and (iv)
such other filings, consents and/or approvals that, individually or in the
aggregate, would not reasonably be likely to have a Material Adverse Effect on
Parent.
Section 4.4 Litigation; Compliance with Law. As of the date of this
Agreement, there is no Litigation by or before any Governmental Authority
pending or, to the knowledge of Parent, threatened against or affecting Parent,
Merger Subsidiary or any other Subsidiary of Parent, except for such Litigation
that, individually or in the aggregate would not materially impair the ability
of Parent or Merger Subsidiary to perform its obligations under this Agreement.
(a) Parent, Merger Subsidiary and each other Subsidiary of Parent is
in compliance with all Laws, except for such noncompliance that, individually or
in the aggregate would not materially impair the ability of Parent or Merger
Subsidiary to perform its obligations under this Agreement.
36
Section 4.5 No Parent Vote Required. No vote or other action of the
shareholders of Parent is required by applicable Law, the certificate of
incorporation of Parent, the bylaws of Parent or otherwise in order for Parent
and Merger Subsidiary to consummate the Merger and the transactions contemplated
hereby.
Section 4.6 Parent Ownership of Company Securities. Parent and its
Subsidiaries do not Beneficially Own any shares of Company Common Stock or any
options, warrants or other rights to acquire Company Common Stock. Neither
Parent nor Merger Subsidiary is, or will become prior to the Effective Time, a
"significant shareholder" or an "interested stockholder" with respect to the
Company within the meaning of Section 203 of the DGCL.
Section 4.7 Ownership and Operations of Merger Subsidiary. Parent owns
of record and Beneficially Owns all outstanding shares of capital stock of
Merger Subsidiary. Merger Subsidiary was formed solely for the purpose of
engaging in the transactions contemplated hereby, and has engaged in no other
business or other activities or incurred any liabilities, other than in
connection with or as contemplated in this Agreement.
Section 4.8 Financing. Parent has available cash and credit capacity,
either through binding and enforceable credit arrangements or borrowing
facilities, or executed financing commitments, and will have sufficient cash on
or prior to the date which is the later of (a) January 4, 2006 and (b) two (2)
Business Days after all conditions to effect the Merger set forth in Sections
6.1 and 6.2 of this Agreement (other than conditions set forth in Section 6.1
and 6.2 that by their nature are to be fulfilled at the Closing and assuming
those conditions are satisfied on such date) have been satisfied or, to the
extent permitted hereby, waived (such date, the "Financing Deadline") to (a) pay
the Aggregate Merger Consideration and any other amounts payable pursuant to
Article II of this Agreement, (b) perform all of its other obligations hereunder
including, without limitation, its obligations under Section 5.10 and Section
8.3 hereof, and (c) provide sufficient working capital after the Closing for
Parent and its Subsidiaries, including the Company (such matters under (a), (b)
and (c), collectively, the "Funding Obligations" and such sufficient cash, the
"Funds"). Neither the Company nor any of its Subsidiaries will be required to
assume or have any obligation or liability under the financing agreements to be
entered into by Parent or Merger Subsidiary to provide the Funds (the "Financing
Agreements") prior to the time immediately following the Closing. A description
of the Financing Agreements is set forth on Section 4.8 of the Parent Disclosure
Letter and a true and complete copy of the Commitment Letter, dated as of
December 14, 2005 by and among Parent, Bank of America, N.A. and Banc of America
Securities LLC, and all exhibits, annexes and attachments thereto is attached as
part of said Section 4.8 of the Parent Disclosure Letter. To the extent that
this Agreement must be in a form acceptable to any lender providing Funds, such
lender or lenders have approved this Agreement.
Section 4.9 Finders' or Advisors' Fees. Except for FTN Midwest
Securities Corp., there is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of
Parent or Merger Subsidiary who
37
is entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
ARTICLE V
COVENANTS
Section 5.1 Conduct of the Company's Business Pending the Merger.
(a) Except for matters set forth in Section 5.1(a) of the Company
Disclosure Letter or otherwise contemplated by this Agreement or with the prior
written consent of Parent (which consent shall not be unreasonably withheld,
delayed or conditioned), from and after the date hereof and prior to the
Effective Time or such earlier date as this Agreement may be terminated in
accordance with its terms, the Company covenants and agrees that the Company
shall (i) conduct its business and that of its Subsidiaries in the ordinary
course of business, (ii) use commercially reasonable efforts to preserve intact
the business organization of the Company and its Subsidiaries, taken as a whole
and (iii) promptly notify Parent of any event or occurrence that the Company
receives knowledge of and which would reasonably be likely to result in a
Material Adverse Effect on the Company.
(b) Without limiting the provisions of paragraph (a), the Company
covenants and agrees that, except as set forth in Section 5.1(b) of the Company
Disclosure Letter or as expressly permitted in this Agreement, or with the prior
written consent of Parent (which consent shall not be unreasonably withheld,
delayed or conditioned), from and after the date hereof and prior to the
Effective Time or such earlier date as this Agreement may be terminated in
accordance with its terms, neither the Company nor any of its Subsidiaries will:
(i) amend or propose to amend its certificate of incorporation or
bylaws or similar organizational documents;
(ii) issue or sell any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls or rights
of any kind to acquire, any shares of capital stock of any class of the
Company or its Subsidiaries, other than issuances pursuant to the exercise
of Company Options outstanding on the date hereof or Company Options or
Company Warrants that prior to the date hereof, the Company has agreed in
writing to issue;
(iii) (A) directly or indirectly, split, combine or reclassify
the outstanding shares of capital stock of the Company, or any outstanding
capital stock of any of the Subsidiaries; or (B) redeem, purchase or
otherwise acquire directly or indirectly any of its capital stock;
(iv) declare, set aside or pay any dividend or other distribution
payable in stock or property with respect to its capital stock other than
(A) dividends paid to the Company or any of its Subsidiaries by a
wholly-owned
38
Subsidiary or (B) cash dividends declared, set aside or paid by the Company
to the Company Stockholders;
(v) (A) materially increase the compensation or benefits payable
to any director or officer of the Company or any of its Subsidiaries, or,
other than in the ordinary course of business, any employee of the Company
or any of its Subsidiaries; (B) enter into any employment, severance or
deferred compensation or other similar agreement (or amend any such
existing agreement to materially increase benefits thereunder) with any
director, officer or employee of the Company or any of its Subsidiaries or
amend any generally applicable employment, severance or termination policy
to materially increase benefits thereunder; or (C) permit any director,
officer or employee of the Company or any of its Subsidiaries who is not
already a party to an agreement or a participant in a plan providing
benefits upon or following a "change in control" to become a party to any
such agreement or a participant in any such plan, other than in the case of
clauses (A) to (C), pursuant to a pre-existing Contract or as required by
applicable Law;
(vi) adopt any new benefit plan, terminate any Company Employee
Plan or modify any Company Employee Plan in a way that would result in a
material additional cost to Parent, the Company or any of their respective
Subsidiaries, except for any amendments to a Company Employee Plan required
to maintain its qualified plan status under Section 401(a) of the Code;
(vii) materially modify, materially amend or terminate any
Material Contract, except in the ordinary course of business;
(viii) (A) incur any Indebtedness or assume or guarantee the
obligations of any Person (other than a wholly-owned Subsidiary of the
Company) for borrowed money, except for Indebtedness incurred under the
Company's existing credit facilities in the ordinary course of business;
(B) make any material loans, advances or capital contributions to, or
investments in, any other Person (other than to wholly-owned Subsidiaries
of the Company), except in the ordinary course of business; or (C) enter
into any material commitment or transaction requiring a capital expenditure
by the Company or its Subsidiaries, other than capital expenditures
incurred or committed to (I) in 2005, pursuant to the Company's capital
expenditures budget for 2005, a true and correct copy of which has been
made available to Parent, and (II) in 2006, pursuant to the Company's
preliminary capital expenditures budget for 2006, a true and correct copy
of, which by aggregate amount has been made available to Parent (capital
expenditures for 2006 will be determined on a pro rata basis through
Closing for purposes of this clause (II), based on the number of days that
elapse in 2006 prior to the Closing Date), in each case as such budgets
were previously made available to Parent;
(ix) make any Tax election except in the ordinary course of
business and consistent with past practice;
39
(x) settle any Tax Claim, except (A) settlements in the ordinary
course of business consistent with past practice, or (B) settlements to the
extent subject to reserves existing as of the date hereof in accordance
with GAAP;
(xi) change any of the accounting principles used by it, unless
required by GAAP or applicable Law;
(xii) sell, transfer, lease, license, pledge or encumber any
assets of the Company or any of its Subsidiaries, except (A) pursuant to
Contracts in existence as of the date of this Agreement or (B) in the
ordinary course of business, which may include the disposal of obsolete or
surplus equipment; and
(xiii) enter into a Contract to do any of the foregoing, or to
authorize, recommend or announce an intention to do any of the foregoing.
(c) Nothing contained in this Agreement shall give to Parent or Merger
Subsidiary, directly or indirectly, rights to control or direct the Company's
operations prior to the Effective Time. Prior to the Effective Time, the Company
shall exercise, consistent with the terms and conditions of this Agreement,
complete control and supervision of its operations.
Section 5.2 Information Statement; Requisite Stockholder Approvals.
Promptly after the date hereof, the Company shall prepare and distribute to the
Company Stockholders an information statement (together with any amendments
thereof or supplements thereto, the "Information Statement") relating to the
adoption of this Agreement and the approval of the Merger by the Company
Stockholders. Parent shall be provided with a reasonable opportunity to review
and comment on the Information Statement and shall cooperate with the Company in
the preparation of the Information Statement and shall promptly provide all
information regarding Parent and Merger Subsidiary reasonably requested by the
Company. Other than with respect to such information provided by Parent, the
Company shall be solely responsible for the preparation, form and substance of
the Information Statement.
Section 5.3 Access to Information; Confidentiality.
(a) Subject to compliance with applicable Law and Section 5.3(b), the
Company shall, and shall cause its Subsidiaries to, give Parent and its
Representatives reasonable access to the personnel, properties, books and
records of the Company and its Subsidiaries during normal business hours,
furnish to Parent and its Representatives such financial and operating data and
all other information as such Persons may reasonably request and shall instruct
its Representatives to cooperate with Parent in its investigation of the
business of the Company; provided, however, that no investigation of the
Company's business shall affect any representation or warranty made by the
Company hereunder. Parent will, and will cause each of its Representatives to,
use its reasonable best efforts to minimize any disruption to the businesses of
the Company and its Subsidiaries that may result from requests for access, data
and information hereunder.
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(b) All information provided or obtained in connection with the
transactions contemplated by this Agreement will be kept confidential by Parent
in accordance with the Confidentiality Agreement, dated January 5, 2005, between
Parent and the Company (the "Confidentiality Agreement"). In the event of a
conflict or inconsistency between the terms of this Agreement and the
Confidentiality Agreement, the terms of this Agreement will govern.
Notwithstanding the foregoing, the Company shall not be required to provide any
information that it reasonably believes it may not provide to Parent by reason
of contractual or legal restrictions, including applicable Laws, or which it
believes is competitively sensitive information. In addition, the Company may
designate any competitively sensitive information provided to Parent under this
Agreement as "outside counsel only" and such information shall be given only to
the outside counsel of Parent and may not be shared with Parent or any of its
Subsidiaries or any of their respective Representatives (other than such outside
counsel).
Section 5.4 No Solicitation. From the date of this Agreement through
the Closing or the earlier termination of this Agreement, the Company will not
(and will cause its Subsidiaries not to and will use its reasonable best efforts
to cause its and their Representatives not to), directly or indirectly, (i)
solicit, initiate, or encourage any inquiries, offers or proposals from any
Person which constitute, or would reasonably be expected to lead to, the sale of
more than 50% of the Company's securities or assets, whether such transaction
would take the form of a sale of Shares, merger, liquidation, dissolution,
reorganization, recapitalization, consolidation, sale of assets or otherwise (an
"Acquisition Proposal"), (ii) negotiate with, or afford access to the
properties, books or records or employees of the Company or any of its
Subsidiaries to, any other Person in connection with an Acquisition Proposal,
(iii) accept an Acquisition Proposal or (iv) enter into any letter of intent or
other agreement relating to or contemplating an Acquisition Proposal or enter
into any agreement by its terms requiring the Company to abandon, terminate or
fail to consummate the Merger. The Company will not (and will cause its
Subsidiaries not to and will use its reasonable best efforts to cause its and
their Representatives not to) provide any information concerning the Company to
any other Person who the Company reasonably believes will utilize such
information to make or consider making an Acquisition Proposal, and will
promptly notify (and in any event within two (2) Business Days) Parent in
writing upon receipt by the Company (or any of its Representatives acting on its
behalf) of any Acquisition Proposal, which notice shall indicate the identity of
the offeror and the principal terms and conditions of any such proposal, inquiry
or contact. The Company shall, and shall cause its Subsidiaries and the
Company's and such Subsidiaries' respective Representatives to, immediately
cease and terminate any existing solicitation, activity, substantive discussion
or negotiation with any Person heretofore conducted by the Company, its
Subsidiaries or their respective Representatives with respect to an Acquisition
Proposal.
Section 5.5 Regulatory Filings; Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties shall use its reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make
41
effective, as promptly as practicable, but in no event later than the End Date,
the Merger and the other transactions contemplated hereby in accordance with the
terms of this Agreement, including (i) the obtaining of all necessary approvals
under any applicable Laws required in connection with this Agreement, the Merger
and the other transactions contemplated hereby, (ii) the obtaining of all
necessary actions or nonactions, waivers, consents, approvals and authorizations
from Governmental Authorities and the making of all necessary registrations and
filings (including filings with Governmental Authorities) and the taking of all
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Authority, (iii) the obtaining of all
necessary waivers, consents, approvals and authorizations from Third Parties and
(iv) the execution and delivery of any additional instruments necessary to
consummate the Merger and other transactions contemplated hereby in accordance
with the terms of this Agreement and fully to carry out the purposes of this
Agreement. For the avoidance of doubt, Parent and its Subsidiaries shall, except
to the extent as would be reasonably likely to have a Material Adverse Effect on
either the Company or Parent, agree or commit to any and all divestitures,
licenses or hold separate or similar arrangements with respect to its
businesses, properties or assets and agree or commit to any restrictions or
limitations on the conduct of its businesses, in each case as a condition to
obtaining any and all approvals from any Governmental Authority for any reason
in order to consummate and make effective, as promptly as practicable, but in no
event later than the End Date, the Merger and the other transactions
contemplated hereby, including taking any and all actions necessary in order to
ensure that (x) no requirement for non-action, a waiver, consent, approval or
authorization of the United States Federal Trade Commission ("FTC"), the
Antitrust Division of the United States Department of Justice ("Antitrust
Division"), any authority enforcing applicable Law, any State Attorney General
or any other Governmental Authority, (y) no decree, judgment, injunction,
temporary restraining order or any other order in any suit or proceeding and (z)
no other matter relating to any antitrust or competition Law or relating to any
applicable Laws, would preclude consummation of the Merger by the End Date. The
Company shall agree if, but solely if, requested by Parent in writing to divest,
hold separate or otherwise take or commit to take any action with respect to the
businesses, services, or assets of the Company or any of its Subsidiaries in
furtherance of this Section 5.5; provided, however, that any such action may be
conditioned upon the consummation of the Merger and other transactions
contemplated hereby. In addition, upon the terms and subject to the conditions
herein provided and subject to the parties' obligations under applicable Law,
none of the parties hereto shall knowingly take or cause to be taken any action
that would reasonably be expected to materially delay or prevent the
satisfaction by the End Date of the condition set forth in Section 6.1(d). Each
of Parent and the Company undertakes and agrees to file as soon as practicable,
but in no event later than ten (10) days after the date of this Agreement, a
Notification and Report Form under the HSR Act with the FTC and the Antitrust
Division and to make as soon as practicable such filings and apply as soon as
practicable for such approvals and consents as are required under any other
applicable Laws. Parent and Company shall seek early termination of the waiting
period under the HSR Act.
(b) Each of Parent and the Company shall (i) respond as promptly as
practicable to all inquiries and requests received from the FTC, the Antitrust
Division,
42
any State Attorney General or other Governmental Authority in connection with
antitrust matters or applicable Laws and (ii) not extend any waiting period
under the HSR Act or enter into any agreement with the FTC, the Antitrust
Division, any State Attorney General or other Governmental Authority not to
consummate the transactions contemplated by this Agreement, except with the
prior written consent of the other parties hereto.
(c) In connection with and without limiting the foregoing, if any
anti-takeover or similar statute or regulation is or may become applicable to
the transactions contemplated hereby, each of the parties and its Board of
Directors shall use their respective reasonable best efforts to grant or secure
any required approvals or consents and take all such actions as are reasonable
and legally permissible so that the transactions contemplated hereby may be
consummated as promptly as practicable upon and subject to the terms
contemplated hereby and otherwise act to eliminate or minimize the effects
(including any resulting delays) of any such statute or regulation on the
transactions contemplated hereby.
(d) In addition, each party shall, subject to applicable Law (i)
promptly notify the other party of any written communication to that party from
the FTC, the Antitrust Division, any State Attorney General or any other
Governmental Authority, including insurance, health or other regulatory
authorities, and, permit the other party to review in advance any proposed
communication to any of the foregoing, (ii) consult with the other party prior
to participating in any meeting, telephone call or discussion with any
Governmental Authority in respect of any filings, investigation or inquiry
concerning this Agreement or the Merger and provide the other party the
opportunity to attend and participate in any such meeting, telephone call or
discussion, and (iii) furnish the other party with copies of all correspondence,
filings, and written communications (or a reasonably detailed summary of any
oral communications) between them and their respective representatives on the
one hand, and any Governmental Authority, including insurance, health or other
regulatory authorities, or members of their respective staffs on the other hand,
with respect to this Agreement and the Merger.
Section 5.6 Employee Benefits.
(a) Notwithstanding anything to the contrary contained in this
Agreement, from and after the Effective Time, Parent shall honor or cause the
Surviving Corporation to honor, in accordance with their terms (without giving
effect to any amendments thereto after the Effective Time except if consented to
by the affected party), all benefits and obligations under the employment and
severance agreements listed in Section 5.6(a) of the Company Disclosure Letter
and the Company's Severance Benefit Plan (such agreements and plan,
collectively, the "Severance Agreements"). Parent, Merger Subsidiary and the
Company agree that the consummation of the Merger shall constitute a "change in
control," "change of control" or "triggering event" or similar transaction for
purposes of the Severance Agreements, notwithstanding anything to the contrary
set forth in any such agreements or plan.
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(b) For the one year period following the Effective Time, Parent shall
provide employees of the Company and its Subsidiaries ("Company Employees") with
(i) base salaries equal to or greater than the base salaries of such Company
Employees immediately prior to the Effective Time; and (ii) health and welfare
benefits that, with respect to each class of similarly situated employees, are
substantially comparable in the aggregate to the health and welfare benefits
provided to such classes of employees under the Company Employee Plans
immediately prior to the Effective Time.
(c) Notwithstanding the generality of the covenant set forth in
Section 5.6(b), Parent shall provide each Company Employee who is terminated by
Parent or the Surviving Corporation during the one-year period following the
Effective Time with severance payments and severance benefits that are no less
favorable than the greater of the severance payments and severance benefits (i)
to which such employee would have been entitled with respect to such termination
under the severance policies of the Company as set forth in Section 5.6(c) of
the Company Disclosure Letter or (ii) provided by the severance policy
maintained by Parent for similarly situated employees; provided that nothing in
this Section 5.6(c) shall modify or limit the provisions of the Severance
Agreements.
(d) Parent will or, to the extent a plan is insured, will cause the
insurance carrier to, give Company Employees full credit for purposes of
eligibility, vesting, and determination of benefits (including, for purposes of
vacation and severance) under any benefit plans maintained by Parent for such
Company Employees' service with the Company and its Subsidiaries to the same
extent recognized by the Company immediately prior to the Effective Time;
provided, however, that such service shall not be recognized to the extent that
such recognition would result in a duplication of benefits with respect to the
same period of service. In the event that Parent chooses to terminate any
Company Employee Plans and substitute any benefit plans maintained by Parent
that provide substantially comparable health and welfare benefits to such
Company Employee Plans and that otherwise are in compliance with this Section
5.6, such substitution shall be in lieu of Parent's obligations pursuant to
Section 5.6(b)(ii) above.
(e) Parent will, or to the extent a plan is insured, will cause the
insurance carrier to (i) waive any preexisting condition limitations otherwise
applicable to Company Employees and their eligible dependents under any plan
that provides health benefits in which Company Employees may be eligible to
participate following the Closing to the extent such conditions are covered
under the analogous Company Employee Plan in which such Company Employees
participated immediately prior to the Effective Time, (ii) honor any deductible,
co-payment and out-of-pocket maximums incurred by the Company Employees and
their eligible dependents under the health plans in which they participated
immediately prior to the Effective Time during the portion of the calendar year
prior to the Effective Time and (iii) waive any waiting period limitation or
evidence of insurability requirement that would otherwise be applicable to a
Company Employee and his or her eligible dependents on or after the Effective
Time, in each case to the extent such Company Employee or eligible dependent had
satisfied any similar limitation or requirement under an analogous Company
Employee Plan prior to the Effective Time.
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Section 5.7 Public Announcements. The initial press release issued by
either Parent or the Company with respect to the Merger shall be agreed upon by
Parent and the Company. Thereafter, Parent and Merger Subsidiary, on the one
hand, and the Company, on the other hand, shall, to the extent feasible, consult
with each other before issuing, and provide each other reasonable opportunity to
review and comment upon, any press release or other public statements with
respect to the Merger and the other transactions contemplated hereby and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable Law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or automated inter-dealer quotation system.
Section 5.8 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, as the case may be, any documents or instruments, and to take any
other actions and do any other things, in the name and on behalf of the Company
or Merger Subsidiary, reasonably necessary to vest, perfect or confirm of record
or otherwise in the Surviving Corporation any and all right, title and interest
in, to and under any of the rights, properties or assets of the Company acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger and to otherwise accomplish the purpose and intent of this
Agreement and the transactions contemplated hereby.
Section 5.9 Updates to Disclosure Letters. From the date hereof
through the Closing, the Company shall give written notice to Parent of the
occurrence, or failure to occur, after the date hereof, of any event which
occurrence or failure has caused or would be reasonably likely to cause any
representation or warranty contained in this Agreement or in any section of the
Company Disclosure Letter to be untrue or inaccurate in any material respect. In
such event, (i) unless such event would be reasonably likely to have,
individually or in the aggregate with the events described in other written
notices previously received by Parent, a Material Adverse Effect, such written
notice shall be deemed to have amended the applicable Disclosure Letter and to
have qualified the representations and warranties contained in Article III for
the purposes of determining whether the condition specified in Section 6.3(a)
has been satisfied, but (ii) such written notice shall not be deemed to have
amended any section of the Company Disclosure Letter or modified any
representation or warranty for purposes of determining the Parent's right to
make a claim on the Escrow Fund pursuant to Article VII.
Section 5.10 Indemnification; D&O Insurance.
(a) Parent shall cause the Surviving Corporation to indemnify, defend
and hold harmless each person who is now, or has been at any time prior to the
date hereof or who becomes prior to the Effective Time, a director or officer of
the Company or any of its Subsidiaries (the "Indemnified Parties") from and
against all losses, claims, damages, costs and expenses (including attorneys'
fees and expenses), liabilities, judgments and settlement amounts that are paid
or incurred in connection with any pending, threatened or completed claim,
action, suit, formal or informal proceeding, formal or informal investigation or
formal or informal inquiry (whether civil, criminal,
45
administrative or investigative and whether asserted or claimed prior to, at or
after the Effective Time), that is (i) based on, or arises out of, the fact that
such Indemnified Party is or was a director or officer of the Company or any of
its Subsidiaries at any time prior to the Effective Time or (ii) based on, or
arising out of, or pertaining to this Agreement or the transactions contemplated
hereby, in each case under clause (i) or (ii) above, to the fullest extent a
corporation is permitted under applicable Law to indemnify its own directors or
officers, as the case may be. Without limiting the foregoing, in the event that
any such claim, action, suit, proceeding, investigation or inquiry is brought
against any Indemnified Party (whether prior to or after the Effective Time),
(i) the Surviving Corporation shall be entitled to participate therein, and to
the extent it shall wish, to assume the defense thereof, with legal counsel
reasonably satisfactory to such Indemnified Party, and, after notice from the
Surviving Corporation to such Indemnified Party of Surviving Corporation's
election to assume the defense thereof, the Surviving Corporation shall not be
liable to such Indemnified Party under this provision for any legal expenses of
other counsel or other expenses subsequently incurred by such Indemnified Party,
(ii) the Surviving Corporation shall not be liable for any settlement of any
claim effected without its written consent (which consent shall not be
unreasonably withheld, delayed or conditioned), and (iii) the Surviving
Corporation shall not enter into any settlement of any claim unless such
settlement provides for a full and final release of all claims asserted against
such Indemnified Party. Any Indemnified Party wishing to obtain indemnification
under this Section 5.10(a), shall, within ten (10) Business Days of learning of
any claim, action, suit, proceeding, investigation or inquiry, notify Parent
thereof; provided, however, the failure of any Indemnified Party to give such
notice shall not waive any rights of the Indemnified Party under this Section
5.10 except to the extent that the rights of the Surviving Corporation or Parent
are materially prejudiced thereby). In the event the Surviving Corporation does
not assume the defense of an action in accordance with this Section 5.10(a), (i)
the Indemnified Party shall assume the defense thereof with legal counsel
reasonably satisfactory to the Surviving Corporation at the cost and expense of
the Surviving Corporation; (ii) the Indemnified Parties as a group seeking
indemnification with respect to the same or a substantially related matter may
retain only one law firm with respect to such matter except to the extent that
under applicable standards of professional conduct, such counsel would have a
conflict representing such Indemnified Party and any other Indemnified Party or
Indemnified Parties, (iii) Parent shall cause the Surviving Corporation to pay
all reasonable expenses of the disposition of any such claim, action, suit,
proceeding, investigation or inquiry to each Indemnified Party to the full
extent permitted by applicable Law promptly after statements therefor are
received and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred, in either case to the
extent not prohibited by the DGCL, (iv) Parent shall cause the Surviving
Corporation to pay all reasonable fees and expenses of such counsel for the
Indemnified Parties and all costs and expenses of the Indemnified Parties in
connection with seeking and obtaining indemnification from the Surviving
Corporation, from time to time, in each case within twenty (20) Business Days of
the receipt by Parent of a statement from such counsel for the Indemnified
Parties and (v) Parent shall cause the Surviving Corporation to use reasonable
best efforts to assist in the defense of any such matter. In the event of any
dispute as to whether an Indemnified Party's conduct complies with the standards
set
46
forth under applicable Law and as applicable, the Company Organizational
Documents and the Company Subsidiary Organizational Documents, a determination
shall be made by independent counsel reasonably acceptable to the Surviving
Corporation and the Indemnified Party. Without limiting the foregoing, to the
extent that any Indemnified Party is, by reason of the fact that such
Indemnified Party is or was a director or officer of the Company or any of its
Subsidiaries, a witness in any claim, action, suit, proceeding, investigation or
inquiry to which such Indemnified Party is not a party, such Indemnified Party
shall be indemnified and held harmless against all costs and expenses in
connection therewith.
(b) Parent's obligations under Section 5.6(a) shall survive until the
sixth (6th) anniversary of the Effective Time, provided, that, Parent's
obligations pursuant to Section 5.6(a) shall survive such sixth (6th)
anniversary, and Parent shall continue to indemnify, defend and hold harmless
each Indemnified Party, in accordance with this Section 5.10 with respect to any
claim, action, suit, proceeding or investigation or inquiry of which such
Indemnified Party shall have delivered notice to Parent pursuant to Section
5.6(a) prior to the (6th) anniversary of the Effective Time until such time as
such claim is finally resolved (such matter that is not so resolved until after
such sixth (6th) anniversary, an "Extended Claim").
(c) Except to the extent required by applicable Law, for a period of
six (6) years from the Effective Time (or, with respect to an Extended Claim,
until the date of final resolution of such matters), neither Parent nor the
Surviving Corporation shall take any action so as to amend, modify, limit or
repeal the provisions for indemnification of Indemnified Parties contained in
the certificates or articles of incorporation or bylaws (or other comparable
organizational documents) of the Surviving Corporation and its Subsidiaries
(which as of the Effective Time shall be no less favorable to such individuals
than those maintained by the Company and its Subsidiaries on the date hereof) in
such a manner as would adversely affect the rights of any Indemnified Party to
be indemnified by such corporations in respect of their serving in such
capacities prior to the Effective Time. The Surviving Corporation shall honor
all of its indemnification obligations existing as of the Effective Time.
(d) For a period of six (6) years after the Effective Time, Parent
shall cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (the "D&O Policies");
(provided that Parent may substitute therefor policies with reputable and
financially sound carriers of at least the same coverage and amounts containing
terms and conditions that are no less advantageous in any material respect to
the Indemnified Parties) with respect to claims arising from or related to facts
or events that occurred at or before the Effective Time; provided, however, that
Parent shall not be obligated to make annual premium payments for such insurance
to the extent such premiums exceed 300% of the annual premiums paid as of the
date hereof by the Company for such insurance (such 300% amount, the "Maximum
Premium"). If such insurance coverage can only be obtained at an annual premium
in excess of the Maximum Premium, Parent shall obtain and maintain one or more
policies with the greatest coverage available for an annual premium equal to the
Maximum Premium. Notwithstanding anything to the contrary in this Agreement,
Parent
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or the Surviving Corporation may, at Parent's option, purchase, six-year "tail"
prepaid policies on the D&O Policies on terms and conditions no less
advantageous to the Indemnified Parties in any material respect to the
Indemnified Parties than the D&O Policies (such "tail" policies to continue to
provide coverage for any Extended Claim following the sixth (6th) anniversary of
the Effective Time until final resolution of such Extended Claim). In the event
that Parent or the Surviving Corporation purchases such a "tail" policy, Parent
and the Surviving Corporation shall maintain such "tail" policy in full force
and effect and continue to honor their respective obligations thereunder, in
lieu of all other obligations of Parent and the Surviving Corporation under the
first sentence of this Section 5.10(d) for so long as such "tail" policy shall
be maintained in full force and effect.
(e) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and each party entitled
to insurance coverage under Section 5.10(d), respectively, and his or her heirs
and legal representatives, and shall be in addition to, and shall not impair,
any other rights an Indemnified Party may have under the Company Organizational
Documents or the Company Subsidiary Organizational Documents, as applicable, or
the comparable organization documents of the Surviving Corporation or any of its
Subsidiaries, under applicable Law or otherwise. Parent shall ensure that the
Surviving Corporation complies with all of its obligations under this Section
5.10.
(f) In the event that Parent or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into any
other Person and is not the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers or conveys all or substantially
all its properties and assets to any Person, then, and in each such case, Parent
shall cause proper provisions to be made so that the successors and assigns of
Parent or the Surviving Corporation, as the case may be, assume the obligations
set forth in this Section 5.10. The obligations of Parent and the Surviving
Corporation under this Section 5.10 shall not be terminated or modified in such
a manner as to adversely affect any indemnitee to whom this Section 5.10 applies
without the express written consent of such affected indemnitee (it being
expressly agreed that the indemnitees to whom this Section 5.10 applies shall be
third party beneficiaries of this Section 5.10).
Section 5.11 Undertakings of Parent. Parent shall perform, or cause to
be performed, when due all obligations of Merger Subsidiary under this
Agreement.
Section 5.12 Tax Matters. The following provisions shall govern the
allocation of responsibility as among Parent, the Company and the Stakeholder
Representative for certain Tax matters:
(a) Claims Against Escrow Fund. For a period of twenty-four (24)
months after the Closing Date, Parent shall be entitled to make a written claim
against the Escrow Fund in accordance with the terms of the Escrow Agreement
for, without duplication: (i) Taxes imposed on or payable by the Company or any
Subsidiary for any Pre-Closing Tax Period, except to the extent such Taxes have
been accrued or reflected in
48
the Final Working Capital Amount; (ii) Taxes imposed on the Company or any
Subsidiary as a result of the Company or any Subsidiary being included in an
Affiliated Group that files consolidated or combined returns by reason of U.S.
Treasury Regulation Section 1.1502-6 or any comparable provision of state, local
or foreign law, except to the extent such Taxes have been accrued or reflected
in the Final Working Capital Amount; (iii) with respect to Straddle Periods,
Taxes imposed on or payable by the Company or any Subsidiary which are allocable
to the Pre-Closing Tax Period, except to the extent such Taxes have been accrued
or reflected in the Final Working Capital Amount; and (iv) Taxes imposed on or
payable by the Company or any Subsidiary as a result of a breach of any
representation or warranty set forth in Section 3.11 or this Section 5.12. Any
such claim against the Escrow Fund shall be reduced by the amount of any Tax
Benefit (as defined in Section 7.3(c)) realized with respect to such Taxes for
which a claim against the Escrow Fund is being sought. In no event shall any
matter, facts or circumstances pertaining to any item (or the amount thereof)
set forth on or reflected in the Company's Statement, the Closing Balance Sheet,
the Determination, the Final Closing Balance Sheet, the Preliminary Working
Capital Amount or the Final Working Capital Amount which resulted in a
post-closing adjustment to the Initial Merger Consideration pursuant to Section
2.9 hereof give rise to any claim by Parent on the Escrow Fund under this
Section 5.12 or Article VII.
(b) Pre-Closing Tax Periods and Straddle Periods.
(i) Parent shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company and its Subsidiaries for
Pre-Closing Tax Periods that are due (including extensions) after the
Closing Date and for any Straddle Period. Except as otherwise required by
applicable Law, Parent shall treat items on such Tax Returns in a manner
consistent with the prior practices and positions of the Company or the
relevant Subsidiary. Parent shall submit such Tax Returns to the
Stakeholder Representative for approval, which approval shall not be
unreasonably withheld, at least thirty (30) days prior to their filing.
Parent shall receive a disbursement from the Escrow Fund, at least five (5)
Business Days before the due date of the applicable Tax Return, in an
amount equal to the Taxes shown as due and payable on such Tax Return to
the extent such Taxes are due with respect to the Tax liability of the
Company for taxable periods ending on or before the Closing Date and the
portion of any Straddle Period ending on the Closing date; provided,
however, Parent shall not receive any disbursement for such Taxes to the
extent they have been accrued or reflected in the Final Working Capital
Amount.
(ii) In the case of any Straddle Period, (A) Property Taxes shall
be apportioned between the Pre-Closing Tax Period and the Post-Closing Tax
Period on a daily pro-rata basis, and (B) all Taxes other than Property
Taxes shall be apportioned between the Pre-Closing Tax Period and the
Post-Closing Tax Period on a closing of the books basis; provided, however,
that any transaction occurring on the Closing Date or after the Closing
that is not in the ordinary course of business, including a deemed asset
sale under Section 338 of the Code, shall be deemed to occur in the
Post-Closing Tax Period.
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(c) Post-Closing Taxes. Parent shall be responsible for all Taxes of
the Company and its Subsidiaries relating to Post-Closing Tax Periods (including
any Taxes relating to the post-closing portion of any Straddle Period).
(d) Post-Closing Actions. Except as otherwise required by applicable
Law, neither Parent nor any of its Affiliates (i) shall file, nor allow to be
filed, any amended Tax Return of Company or its Subsidiaries for a Pre-Closing
Tax Period and (ii) shall carry back for federal, state, local or foreign tax
purposes to any taxable period, or portion thereof, of the Company or any of its
Subsidiaries ending on or before the Closing Date any operating losses, net
operating losses, capital losses, tax credits or similar items arising in,
resulting from, or generated in connection with a taxable year of the Parent or
any affiliate, or portion thereof, ending after the Closing Date.
(e) Tax Contests. After the Closing Date, Parent shall notify the
Stakeholder Representative in writing within thirty (30) days of the
commencement of any Tax Claim, of or with respect to the Company or any of its
Subsidiaries that, if determined adversely to the taxpayer or after the lapse of
time would be grounds for a claim against the Escrow Fund under Article VII.
Such notice shall contain factual information describing any asserted Tax Claim
in reasonable detail and shall include copies of any notice or other document
received from any Taxing Authority in respect of any such asserted Tax Claim.
Thereafter, Parent shall deliver to the Stakeholder Representative, as promptly
as possible but in no event later than thirty (30) days after the Parent's
receipt thereof, copies of all relevant notices and documents (including court
papers) received by the Parent. In the case of any Tax Claim relating to any Tax
period ending on or before the Closing Date, that, if determined adversely to
the taxpayer or after the lapse of time would be grounds for a claim against the
Escrow Fund under Article VII, the Stakeholder Representative shall have the
right to control the conduct of such Tax Claim and shall have the right to
settle such Tax Claim without the consent of any other party; provided, however,
that any settlement would not have, individually or in the aggregate, a Material
Adverse Effect on the Company and its Subsidiaries after the Closing Date and
the portion of any Straddle Period ending after the Closing Date. In the case of
any Tax Claim relating to the Taxes of any Straddle Period, Parent and
Stakeholder Representative may each participate in the audit or proceeding at
their own expense, and the audit or proceeding shall be controlled by the Parent
or the Stakeholder, whichever would bear the burden of the greatest portion of
the adjustment; provided, however, that the party controlling the Straddle
Period Tax Claim shall not settle such audit or proceeding without the consent
of the other party, which consent shall not be unreasonably withheld. In the
case of any Tax Claim relating to the Taxes of any Post-Closing Period, Parent
shall have the right to control the conduct of such Tax Claim and shall have the
right to settle such Tax Claim without the consent of any other party; provided,
however, that any settlement would not have a Material Adverse Effect on the
Company and its Subsidiaries for a Pre-Closing Period pursuant to which Parent
is entitled to make a claim on the Escrow Fund under Section 5.12(a).
(f) Tax Refunds. Any Tax refund or overpayment (including any interest
in respect thereof) relating to any Pre-Closing Tax Period or the portion of any
Straddle Period ending on the Closing Date, except for any such Tax refunds
reflected or
50
accrued as a receivable in the Final Working Capital Amount, shall be for the
account of Stakeholder Representative; provided, however, that any such Tax
refund would not have, individually or in the aggregate, a Material Adverse
Effect on the amount of any Tax liability of the Company and its Subsidiaries
after the Closing Date and the portion of any Straddle Period ending after the
Closing Date. Any such Tax refund, if received by the Parent or its Affiliates,
shall be payable to Stakeholder Representative within fifteen (15) business days
of the Parent's receipt.
(g) Cooperation. Parent, the Company, the Subsidiaries and the
Stakeholder Representative shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of Tax
Returns and any audit, examination, litigation or other proceeding with respect
to Taxes. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information which are reasonably
relevant to any such audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Each of Parent, the Company and
the Stakeholder Representative agrees, upon request, to use its reasonable best
efforts to obtain any certificate or other document from any Taxing Authority as
may be necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereunder).
(h) Dispute Resolution. Any dispute, controversy, or claim between
Parent on the one hand and the Company or the Stakeholder Representative on the
other hand arising out of or relating to the provisions of this Agreement that
relates to Taxes (including the determination of the Tax Benefit) that cannot be
resolved by negotiations between Parent and the Stakeholder Representative
within ninety (90) days of receipt by a party of written notice of such dispute
("Tax Dispute Notice") shall be submitted to a senior tax partner in a mutually
agreeable nationally recognized accounting firm for resolution ("Tax
Arbitrator"). If Parent and the Stakeholder Representative cannot agree on an
accounting firm within one hundred (100) days of receipt by a party of a Tax
Dispute Notice, then the American Arbitration Association ("AAA") shall appoint
the Tax Arbitrator. The resolution reached by the Tax Arbitrator shall be
binding on the Company, the Stakeholder Representative, the Parent and their
respective affiliates, and may be entered and enforced in any court having
jurisdiction. Each of Parent, Merger Subsidiary, the Company, the Surviving
Corporation and the Stakeholder Representative agrees that it will not have any
right to, and will not, institute any other Action of any kind challenging such
resolution or with respect to the matters that are the subject of this Section
5.12, except that the foregoing shall not preclude an Action to enforce such
resolution. The expenses of the accounting firm shall be born equally by the
Stakeholder Representative and the Parent.
Section 5.13 Parent Financing. Notwithstanding anything contained in
this Agreement to the contrary, Parent and Merger Subsidiary acknowledge and
agree that Parent's and Merger Subsidiary's obligations hereunder are not
conditioned in any manner whatsoever upon Parent or Merger Subsidiary obtaining
the Funds to satisfy the Funding Obligations. Parent shall obtain the Funds, and
be in a position to immediately
51
satisfy the Funding Obligations, in each case as promptly as reasonably
practicable and in any event on or prior to the Financing Deadline. Parent shall
keep the Company apprised of all material developments or changes relating to
the Financing Agreements and the financing contemplated thereby. In the event
that the Financing Agreements terminate or the lenders parties thereto shall
advise Parent that they will not or may not be able to provide the financing
contemplated thereby, then Parent shall promptly notify the Company and obtain
replacement financing arrangements as soon as reasonably practicable to obtain
the Funds and satisfy the Funding Obligations.
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Ancillary Agreements. Each of the Ancillary Agreements shall have
been executed and delivered by each party thereto.
(b) Antitrust. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act or any other applicable competition,
merger control, antitrust or similar Law shall have been terminated or shall
have expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other judgment, order or decree issued by
any court of competent jurisdiction or other statute or Law (collectively,
"Restraints") shall be in effect preventing the consummation of the Merger;
provided, however, that prior to asserting this condition, each of the parties
shall have used its reasonable best efforts to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any such
injunction or other order that may be entered.
Section 6.2 Conditions to Obligations of Parent and Merger Subsidiary.
The obligations of Parent and Merger Subsidiary to effect the Merger are further
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement (other than Section 3.10(f) as to
which no representation or warranty is being made for purposes of this Article
VI) shall be true and correct as of the date of this Agreement and as of the
Closing Date as though made on the Closing Date (without regard to materiality
or Material Adverse Effect qualifiers contained therein), except (i) to the
extent such representations and warranties expressly relate to an earlier date,
in which case only as of such earlier date and (ii) where the failure of the
representations and warranties to be true and correct individually or in the
aggregate, has not had a Material Adverse Effect on the Company. Parent shall
have received a certificate signed on behalf of the Company by the chief
executive officer or chief financial officer of the Company to such effect.
52
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date. Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer or chief financial officer of the Company to such effect.
(c) No Litigation. There shall not be pending any suit or formal
proceeding by any Governmental Authority (i) challenging the acquisition by
Parent or Merger Subsidiary of any Shares, Options or Warrants, seeking to
restrain or prohibit the consummation of the Merger, seeking to place
limitations on the ownership of shares of Common Stock or Preferred Stock (or
shares of capital stock of the Surviving Corporation) by Parent or Merger
Subsidiary, (ii) seeking to prohibit or limit the ownership or operation by the
Company or any of its Subsidiaries or by Parent or any of its Subsidiaries of
any portion of any business or of any assets of the Company and its Subsidiaries
or Parent and its Subsidiaries and (iii) seeking to obtain from the Company,
Parent or Merger Subsidiary any damages with respect to the transactions
contemplated hereby (including the Merger), which in the case of clauses (i),
(ii) and (iii) above would have, individually or in the aggregate, a Material
Adverse Effect on either the Company or Parent.
(d) Restraint. No Restraint that would result, directly or indirectly,
in any of the effects referred to in Section 6.2(c) shall be in effect.
(e) No Material Adverse Effect. Except as disclosed in the Company
Disclosure Letter, since September 30, 2005, there shall not have occurred and
be continuing a Material Adverse Effect on the Company.
(f) Dissenting Shares. Dissenting Stockholders holding Shares
otherwise exchangeable for no more than seven and one-half percent (7.5%) of the
Initial Merger Consideration shall have demanded or perfected the right to an
appraisal in accordance with Section 262 of the DGCL.
(g) Legal Opinion. Parent shall have received an opinion of counsel to
the Company, dated as of the Closing Date, to the effect of the matters set
forth in Exhibit E attached hereto.
Section 6.3 Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger is further subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties
of each of Parent and Merger Subsidiary contained in this Agreement shall be
true and correct as of the date of this Agreement and as of the Closing Date as
though made on the Closing Date (without regard to materiality or Material
Adverse Effect qualifiers contained therein), except (i) to the extent such
representations and warranties expressly relate to an earlier date, in which
case only as of such earlier date and (ii) where the failure of the
representations and warranties to be true and correct individually or in
53
the aggregate, has not had a Material Adverse Effect on Parent. The Company
shall have received a certificate signed on behalf of each of Parent and Merger
Subsidiary by the chief executive officer or chief financial officer of Parent
and Merger Subsidiary to such effect.
(b) Performance of Obligations of Parent and Merger Subsidiary. Parent
and Merger Subsidiary shall have each performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date. The Company shall have received a certificate signed on behalf
of each of Parent and Merger Subsidiary by the chief executive officer or chief
financial officer of Parent and Merger Subsidiary to such effect.
Section 6.4 Frustration of Closing Conditions. None of the Company,
Parent or Merger Subsidiary may rely, either as a basis for not consummating the
Merger or terminating this Agreement and abandoning the Merger, on the failure
of any condition set forth in Sections 6.1, 6.2 or 6.3, as the case may be, to
be satisfied if such failure was caused by such party's breach of any provision
of this Agreement or failure to use its reasonable best efforts to consummate
the Merger and the other transactions contemplated by this Agreement, as
required by and subject to Section 5.5.
ARTICLE VII
CLAIMS ON ESCROW FUND
Section 7.1 Claims Against Escrow Fund. From and after the Closing
Date and subject to the provisions of this Article VII, Parent shall be entitled
to make a written claim against the Escrow Fund in accordance with the terms of
the Escrow Agreement for, without duplication:
(a) subject to the limitations in Section 7.3, liabilities, demands,
claims, suits, actions, or causes of action and out-of-pocket costs, expenses,
losses, damages and judgments, whether or not resulting from third party claims,
(including reasonable fees and expenses of attorneys and accountants)
(collectively, "Damages") arising out of or relating to any inaccuracy or breach
as of the Effective Time of any representation or warranty of the Company
contained in Article III (except to the extent such representations and
warranties expressly relate to an earlier date, in which case only any
inaccuracy or breach as of such earlier date);
(b) Damages arising out of or relating to any non-compliance with or
breach of any covenant or agreement of the Company contained in this Agreement;
(c) Damages arising out of the inquiry of the United States Attorney's
Office for the Northern District of Illinois described in paragraph 2 of Section
3.9 of the Company Disclosure Letter, to the extent such Damages relate to such
inquiry described therein and to the extent such Damages arise out of acts or
omissions of the Company, its officers, directors or employees prior to the
Closing Date; and
54
(d) Damages arising out of the matters set forth in paragraphs 6 and 7
of Section 3.8(a) of the Company Disclosure Letter.
Notwithstanding the foregoing, claims against the Escrow Fund for any inaccuracy
or breach of any representation, warranty, covenant or agreement of the Company
set forth in Section 3.11 or 5.12 shall be governed exclusively by Section 5.12
of this Agreement.
Section 7.2 Notice of Loss; Claims Process. Subject to Section 5.12
(with respect to Tax Claims), all claims by Parent under this Article VII shall
be asserted and resolved as follows:
(a) In the event that (i) any Action is asserted or instituted by any
Person (other than the parties to this Agreement or their Affiliates) which
could give rise to Damages for which Parent may have a claim against the Escrow
Fund under this Agreement (such Action, together with the matters set forth in
Section 7.1(d), but excluding the matter set forth in Section 7.1(c) (which
shall be subject to Section 7.2(d) hereof), a "Third Party Claim") or (ii)
Parent shall be entitled to make a claim for Damages pursuant to Section 7.1
which does not involve a Third Party Claim (such claim, a "Direct Claim" and,
together with Third Party Claims, "Claims"), Parent shall, within ten (10)
Business Days after it becomes aware of a Third Party Claim, or facts supporting
a Direct Claim, send to the Stakeholder Representative and the Escrow Agent a
written notice specifying the nature of such Action and the amount or estimated
amount thereof (which amount or estimated amount shall not be conclusive of the
final amount, if any, of such Action) (a "Claim Notice") together with copies of
all notices and documents (including court papers) served on or received by
Parent, the Surviving Corporation or any of its or their Subsidiaries in the
case of a Third Party Claim; provided that a delay in notifying the Stakeholder
Representative and the Escrow Agent shall not constitute a waiver of the rights
of Parent under this Article VII except to the extent that the Stakeholder
Representative shall have been materially prejudiced by such failure to give
such notice, in which case such failure shall constitute a waiver of the rights
of Parent under this Article VII to the extent of such material prejudice.
Notwithstanding the foregoing, the parties hereby agree that no Claim Notice is
required with respect to the matter set forth in paragraph 6 of Section 3.8(a)
of the Company Disclosure Letter and the parties shall have their respective
rights, obligations, remedies pursuant to this Article VII with respect to such
matter as if such Claim Notice had been timely made.
(b) In the event of a Third Party Claim, the Stakeholder
Representative shall have the right, upon written notice to Parent, to
investigate, contest, defend or settle any Third Party Claim that may result in
Damages with respect to which Parent is entitled to make a claim on the Escrow
Fund pursuant to this Article VII and select legal counsel of its choosing in
connection therewith; provided that Parent may, at its option and at its own
expense, participate in the investigation, contesting, defense or settlement of
any such Third Party Claim through Representatives and legal counsel of its own
choosing; and, provided, further, that Stakeholder Representative shall not
settle or compromise any Third Party Claim unless (i) the terms of such
settlement or compromise call only for a payment to Parent out of the Escrow
Fund or (ii) Parent shall have consented in writing to
55
the terms of such settlement, which consent shall not unreasonably be withheld,
delayed or conditioned. If requested by the Stakeholder Representative, Parent
and the Surviving Corporation will cooperate with the Stakeholder Representative
and its counsel in contesting any Third Party Claim or, if appropriate and
related to the Third Party Claim in question, in making any reasonable
counterclaim against the Person making such Third Party Claim, or any cross
complaint against any Person (other than Parent or its Affiliates) or similar
action. If the Stakeholder Representative shall not have elected to assume the
defense of such Third Party Claim within ten (10) Business Days of receipt of
the Claim Notice, Parent shall have the right, at its option and at the expense
of the Escrow Fund, to do so in such manner as it deems appropriate; provided,
however, the Stakeholder Representative shall have the right to assume the
defense of such Third Party Claim at any time thereafter; and provided, further,
that Parent shall not settle or compromise any Third Party Claim for which it
seeks to make a claim on the Escrow Fund hereunder without the prior written
consent of the Stakeholder Representative, which shall not be unreasonably
withheld, delayed or conditioned. In the event Parent, the Company or its or
their Subsidiaries settles or compromises or consents to the entry of any
judgment with respect to any Third Party Claim without the prior written consent
of the Stakeholder Representative, which failure to obtain consent was not the
result of the Stakeholder Representative unreasonably withholding, delaying or
conditioning such consent, Parent shall be deemed to have irrevocably waived all
rights to make a claim against the Escrow Fund pursuant to this Agreement and
the Escrow Agreement and pursuant to Section 7.3(d)(iv) with respect to such
Third Party Claim. The Stakeholder Representative shall be entitled to
participate in (but not to control) the defense of any Third Party Claim which
it has not elected to defend with its own counsel and at the expense of the
Agent's Escrow Fund.
(c) In the event of a Direct Claim, the Stakeholder Representative
shall notify Parent and the Escrow Agent within thirty (30) days of receipt of a
Claim Notice whether or not the Stakeholder Representative disputes such claim.
(d) In the event that (i) any Action is asserted or instituted by the
United States Attorney's Office for the Northern District of Illinois which
could give rise to Damages for which Parent may have a claim against the Escrow
Fund under this Agreement pursuant to Section 7.1(c) (such Action, a "Specified
Claim"), Parent shall, within ten (10) Business Days after it becomes aware of a
Specified Claim, send to the Stakeholder Representative and the Escrow Agent a
written notice specifying the nature of such Action and the amount or estimated
amount thereof (which amount or estimated amount shall not be conclusive of the
final amount, if any, of such Action) (a "Specified Claim Notice") together with
copies of all notices and documents (including court papers) served on or
received by Parent, the Surviving Corporation or any of its or their
Subsidiaries; provided that a delay in notifying the Stakeholder Representative
and the Escrow Agent shall not constitute a waiver of the rights of Parent under
this Article VII except to the extent that the Stakeholder Representative shall
have been materially prejudiced by such failure to give such notice, in which
case such failure shall constitute a waiver of the rights of Parent under this
Article VII to the extent of such material prejudice.
56
(e) In the event Parent shall deliver a Specified Claim Notice, the
Stakeholder Representative shall have the right, upon written notice to Parent,
to jointly with Parent and the Surviving Corporation, investigate, contest,
defend and settle any Specified Claim that may result in Damages with respect to
which Parent or Merger Sub is entitled to make a claim on the Escrow Fund
pursuant to this Article VII or pursuant to Section 7.3(d)(iv) and jointly
select legal counsel in connection therewith reasonably acceptable to Parent and
the Stakeholder Representative. Neither Parent nor the Stakeholder
Representative shall settle or compromise any Specified Claim without the prior
written consent of the other party, provided that the Stakeholder Representative
shall be permitted to settle any Specified Claim without the prior consent of
Parent if the terms of such settlement or compromise call only for a payment to
Parent out of the Escrow Fund and do not require the payment of any amounts by
Parent pursuant to Section 7.3(c)(vii). If requested by the other party, each of
Parent and the Surviving Corporation, on the one hand, and the Stakeholder
Representative, on the other hand, will cooperate with one another and their
jointly selected counsel in contesting any Specified Claim or, if appropriate
and related to the Specified Claim in question, in making any reasonable
counterclaim against the Person making such Specified Claim, or any cross
complaint against any Person (other than Parent or its Affiliates) or similar
action. If the Stakeholder Representative shall not have elected to assume the
joint investigation, contest and defense of such Specified Claim within ten (10)
Business Days of receipt of the Specified Claim Notice, Parent shall have the
right, at its option and at the expense of the Escrow Fund, to do so in such
manner as it deems appropriate; provided, however, the Stakeholder
Representative shall have the right to assume the joint investigation, contest
and defense of such Specified Claim at any time thereafter; and provided,
further, that neither Parent, the Company or its or their Subsidiaries, on the
one hand, or the Stakeholder Respresentative, on the other hand, shall settle or
compromise any Specified Claim without the prior written consent of the other
party, which shall not be unreasonably withheld, delayed or conditioned. In the
event Parent, the Company or its or their Subsidiaries settles or compromises or
consents to the entry of any judgment with respect to any Specified Claim
without the prior written consent of the Stakeholder Representative, which
failure to obtain consent was not the result of the Stakeholder Representative
unreasonably withholding, delaying or conditioning such consent, Parent shall be
deemed to have irrevocably waived all rights to make a claim against the Escrow
Fund pursuant to this Agreement and the Escrow Agreement or pursuant to Section
7.3(d)(iv) with respect to such Specified Claim.
(f) From and after the delivery of a Claim Notice or a Specified Claim
Notice under this Agreement, at the reasonable request of the Stakeholder
Representative, Parent, the Company and its and their Subsidiaries and its and
their Representatives shall grant the Stakeholder Representative and its
Representatives reasonable access to the books, records and properties of
Parent, the Company and their Subsidiaries and their Representatives to the
extent reasonably related to the matters to which the Claim Notice or the
Specified Claim Notice relates. All such access shall be granted during normal
business hours and shall be granted under conditions designed to minimize the
disruption to the businesses of Parent, the Company and their Subsidiaries and
their Representatives, as the case may be. The Stakeholder Representative will
not, and shall use its commercially reasonable efforts to cause its
Representatives not to, use (except in
57
connection with such Claim Notice or Specified Claim Notice) or disclose to any
third person other than the Stakeholder's Representative (except as may be
required by applicable Law) any confidential information obtained pursuant to
this Section 7.2(f).
Section 7.3 Limitations on Claims.
(a) Liability Basket. Notwithstanding anything in this Article VII to
the contrary, (A) Parent shall not be entitled to make a claim on the Escrow
Fund pursuant to Section 7.1(a), unless and until the aggregate amount of
Damages incurred by Parent for which Parent is entitled to make a claim on the
Escrow Fund pursuant to Section 7.1(a) (other than Damages resulting from
breaches or inaccuracies of the representations and warranties set forth in
Sections 3.1 (Organization and Qualification; Charter Documents), 3.2 (Corporate
Authorization; Enforceability; Board and Stockholder Action), 3.4
(Capitalization), 3.10(f) (Company Options and Company Warrants), 3.11 (Taxes)
and 3.18 (Finders' or Advisors' Fees) which are the subject of the last sentence
of this Section 7.3(a)), equals or exceeds an amount equal to Four Million Four
Hundred Fifty Thousand Dollars ($4,450,000) (the "Liability Basket"); provided,
however, that once the Liability Basket has been reached, Parent shall be
entitled to make a claim on the Escrow Fund under Section 7.1(a) only for the
amount of Damages in excess of the Liability Basket. Notwithstanding anything in
this Article VII to the contrary, any claim on the Escrow Fund to which Parent
shall become entitled as a result of a breach or inaccuracy of Sections 3.1,
3.2, 3.4, 3.10(f), 3.11 and 3.18 shall be available without regard to the
Liability Basket.
(b) Maximum Liability. Subject to Section 7.3(d), notwithstanding
anything in this Article VII to the contrary, the aggregate maximum amount
available to Parent for claims on the Escrow Fund pursuant to Section 7.1 and
Section 5.12 shall be limited to amount of the Escrow Fund held pursuant to the
Escrow Agreement from time to time and Parent acknowledges and agrees that
neither the Stakeholder Representative nor any Stakeholder shall have any
obligation to replenish or contribute any amounts to the Escrow Fund under any
circumstances.
(c) Additional Limitations.
(i) The amount of any Damages incurred by Parent and the Company
shall be reduced by the net amount Parent or the Company or any of their
Subsidiaries recovers (after deducting all attorneys' fees, expenses and
other costs of recovery) from any insurer or other party liable for such
Damages. Parent and the Company and their Subsidiaries shall use
commercially reasonable efforts to effect any such recovery.
(ii) Any entitlement of Parent to make a claim against the Escrow
Fund under this Agreement shall be determined without duplication of
recovery by reason of the state of facts giving rise to such claim
constituting a breach of more than one representation, warranty, covenant
or agreement.
58
(iii) The items set forth on or reflected in the Company's
Statement, the Closing Balance Sheet, the Determination, the Final Closing
Balance Sheet or the Preliminary Working Capital Amount, the Final Working
Capital Amount, the Preliminary BIPA Refund Amount, the BIPA Statement or
the Final BIPA Refund Amount, and any matters relating thereto that could
have been subject to adjustment or dispute (other than such matters not
known prior to final resolution of the Final Working Capital Amount, the
Final Closing Date Balance Sheet or the Final BIPA Refund Amount, as the
case may be), in each case pursuant to Article II or Section 7.5 (as
applicable), and any other amounts or items that were adjusted or disputed
in the course of the Article II or Section 7.5 process (such items so set
forth or reflected, such matters relating thereto and such other amounts
and items, collectively, the "Article II/Section 7.5 Items"), are subject
solely to the adjustments set forth in Article II and Section 7.5 hereof,
respectively, and accordingly shall not be subject to any claim by Parent
or Merger Subsidiary on the Escrow Fund pursuant to this Article VII. In no
event shall any matter, facts or circumstances pertaining to any Article
II/Section 7.5 Item, which would also constitute a breach of a
representation, warranty, covenant or agreement relating to the Financial
Statements or any other provision hereof, give rise to any claim by Parent
on the Escrow Fund under this Article VII.
(iv) In no event shall any party hereto be liable for, and Parent
acknowledges and agrees that the term "Damages" expressly excludes, any
consequential, treble, punitive or other damages not expressly provided for
in this Article VII.
(v) The amount of any Damages sustained by Parent shall be
reduced by the amount of any Tax Benefit realized with respect to such
Damages. "Tax Benefit" shall mean the Tax savings attributable to any
deduction, expense, loss, credit or refund to the Parent or its Affiliates,
when incurred or received; provided, however, that if such benefit is
reasonably expected to arise or be utilized after the year in which the
Escrow Account is terminated, then it means the present value of such Tax
savings (discounted using one year LIBOR (as published in The Wall Street
Journal) and a Tax rate equal to the sum of the highest marginal U.S.
federal corporate income Tax rate or rates applicable to ordinary income or
capital gain, as the case may be, in effect for the taxable period in issue
plus five percent (5%)).
(vi) If Parent or the Company or any of their Subsidiaries
receives an amount under insurance coverage or from any Person or a Tax
Benefit becomes realizable with respect to Damages sustained at any time
subsequent to any payment to Parent from the Escrow Fund pursuant to this
Article VII, then Parent shall promptly reimburse the Escrow Fund for any
payment made or expense incurred by the Stakeholder Representative in
connection with such payment up to such amount received or realizable by
Parent, as applicable. Notwithstanding anything herein or in any Ancillary
Agreement to the contrary, the amount of any Damages shall also be reduced
to the extent that Parent, the Company or any of their Subsidiaries, as the
case may be, is effectively held
59
harmless or otherwise compensated for such Damages other than pursuant to
this Article VII.
(vii) Notwithstanding anything to the contrary set forth herein,
Parent shall be entitled to make a claim on the Escrow Fund pursuant to
Section 7.1(c) and with respect to a Specified Claim only with respect to
fifty percent (50%) of each dollar of Damages with respect to such matter.
Parent acknowledges and agrees that it shall be responsible for fifty
percent (50%) of each dollar of Damages pursuant to Section 7.1(c) and with
respect to any Specified Claim without recourse to the Escrow Fund
whatsoever. In any Specified Claim Notice and in any notice or payment
request form delivered to the Escrow Agent pursuant to the Escrow
Agreement, Parent shall set forth the full amount of the Damages it claims
arise out of Section 7.1(c) from time to time, as well as calculate the
fifty percent (50%) reduction required by this Section 7.3(c)(vii).
(d) Survival of Representations and Warranties; Claims Period.
(i) The representations and warranties of the Company contained
in Article III of this Agreement shall survive the Closing for a period of
twelve (12) months; provided, however, that the representations and
warranties set forth in Sections 3.1, 3.2, 3.4, 3.10(f), 3.11 and 3.18
shall survive the Closing for a period of twenty-four (24) months. Any and
all claims of Parent on the Escrow Fund under this Article VII arising out
of the inaccuracy or breach of any such representation or warranty of
Seller or Purchaser and Parent must be made prior to the termination of
such survival period; it being understood that in the event Parent shall
have timely delivered notice of any claim on the Escrow Fund pursuant to
Section 7.1(a), such claim shall survive until such time as such claim is
finally resolved. The representations and warranties of the Company
continued in this Agreement shall not survive any termination hereof.
(ii) In accordance with the terms of the Escrow Agreement, for a
period of twenty-four (24) months after the Closing Date, Parent shall be
entitled to make claims against the Escrow Fund with respect to Damages
arising out of or resulting from, or amounts payable with respect to, the
matters set forth in Sections 7.1 (other than Section 7.1(a), which is the
subject of Section 7.4(d)(i) and subject to the limitation in Section
7.3(d)(iii)); it being understood that in the event Parent shall have
timely delivered notice of any claim on the Escrow Fund pursuant to Section
7.1, such claim shall survive until such time as such claim is finally
resolved. The parties intend to shorten the statute of limitations and
agree that, after the Closing Date, any claim or cause of action against
any of the parties hereto, or any of their respective directors, officers,
employees, Affiliates, successors, permitted assigns, or Representatives
based upon, directly or indirectly, any of the representations or
warranties, covenants or agreements contained in this Agreement, or any
other agreement, document or instrument to be executed and delivered in
connection with this Agreement may be brought only as expressly provided in
this Article VII.
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(iii) The parties hereby agree that in the event that the United
States Attorney's Office for the Northern District of Illinois shall not
have issued any subpoena, instituted any formal action, suit or proceeding
or other legal process or formal or informal inquiry evidencing a
continuing investigation for any period of twelve (12) consecutive months
following the Effective Time, then Parent's right to make a claim against
the Escrow Fund pursuant to Section 7.1(c) shall expire and terminate and
be of no further force or effect from and after such period.
(iv) Exclusive Remedy. The parties agree that except for any
claims seeking injunctive specific performance or other equitable relief
(subject to the limitations set forth in Section 9.12) of this Agreement
and except for claims involving fraud, from and after the Closing, the
right to make a claim on the Escrow Fund provided for in this Article VII
pursuant to the provisions of this Article VII and Section 5.12 shall be
the exclusive remedy of Parent, Merger Subsidiary, the Surviving
Corporation and their respective Affiliates, Representatives, successors
and assigns (other than the Company's and its Subsidiaries' directors,
officers, employees, agents and representatives) for any breach of or
inaccuracy in any representation or warranty or any non-compliance with or
breach of or default in the performance of any of the covenants or
agreements contained in this Agreement and none of Parent, Merger
Subsidiary or the Surviving Corporation shall be entitled to a rescission
of this Agreement or to any indemnification or other rights or claims of
any nature whatsoever in respect thereof, all of which Parent and Merger
Subsidiary (for themselves and on behalf of the Surviving Corporation and
their Representatives) hereby irrevocably waive.
Section 7.4 Disputes. In the event of a post-Closing dispute between
the Parent and the Stakeholder Representative relating to any Claim other than a
Third Party Claim that is the subject of litigation ("Escrow Fund Dispute") or
any claim subject to Section 5.12 or Section 7.5, the Stakeholder Representative
and Parent shall seek in good faith to negotiate a resolution of such Escrow
Fund Dispute within ninety (90) days of receipt by the Stakeholder
Representative of a Claim Notice. If the Stakeholder Representative and Parent
are not able to so resolve such Escrow Fund Dispute, all of the parties hereto
agree that such Escrow Fund Dispute shall be exclusively and finally settled by
arbitration in accordance with the Commercial Arbitration Rules of the AAA then
in effect (the "Rules"), except as modified herein. The place of arbitration
shall be Chicago, Illinois. If the amount in controversy is one million dollars
($1,000,000) or less (including all claims and counterclaims) there shall be one
arbitrator who shall be agreed upon by the parties within twenty (20) days of
receipt by respondent of a copy of the demand for arbitration. If the amount in
controversy is more than one million dollars ($1,000,000) (including all claims
and counterclaims) there shall be three neutral and impartial arbitrators, one
of whom shall be appointed by Parent and one of whom shall be appointed by the
Stakeholder Representative within twenty (20) days of receipt by respondent(s)
of a copy of the demand for arbitration. The two arbitrators so appointed shall
agree on a third arbitrator, who shall serve of chair of the arbitral tribunal,
within twenty (20) days of the appointment of the second arbitrator. If any
arbitrator is not
61
appointed within the time limit provided herein, such arbitrator shall be
appointed by the AAA in accordance with the listing, striking and ranking
procedure in the Rules. Any arbitrator appointed by the AAA shall be a retired
judge or a practicing attorney with no less than fifteen years of experience
with large commercial cases and an experienced arbitrator. In rendering an
award, the arbitral tribunal shall be required to follow the laws of the State
of Delaware. The arbitral tribunal is not empowered to award damages in excess
of compensatory damages, and each party hereby irrevocably waives any right to
recover punitive, exemplary or similar damages with respect to any Escrow Fund
Dispute. Any arbitration proceedings, decision or award rendered hereunder and
the validity, effect and interpretation of this arbitration agreement shall be
governed by the Federal Arbitration Act, 9 U.S.C. Section 1 et seq. The award
shall be in writing and shall briefly state the findings of fact and conclusions
of law on which it is based. The award shall be final and binding upon Parent,
Merger Subsidiary, the Company, the Surviving Corporation and the Stakeholder
Representative and shall be the sole and exclusive remedy between the parties
regarding any claims, counterclaims, issues or accounting presented to the
arbitrator(s). Judgment upon the award may be entered in any court having
jurisdiction. Each of Parent, Merger Subsidiary, the Company, the Surviving
Corporation and the Stakeholder Representative agrees that it will not have any
right to, and will not, institute any other Action of any kind challenging such
award or with respect to an Escrow Fund Dispute, except that the foregoing shall
not preclude an Action to enforce any award issued hereunder.
Section 7.5 BIPA Claim.
(a) Parent shall be entitled to make a claim on the Escrow Fund in
accordance with this Section 7.5 for an amount equal to the estimate of the
amount, calculated pursuant to this Section 7.5, that the Company would have
been required to pay as a refund to the Centers for Medicare & Medicaid Services
("CMS") under the Medicare Demonstration Project for Disease Management for
Severely Chronically Ill Medicare Beneficiaries with Congestive Heart Failure,
Diabetes and Coronary Heart Disease (Cooperative Agreement #95-W-0087/5) by and
between CMS and the Company (the "Demonstration Agreement"), based on the
Company's failure to achieve certain savings objectives under the Demonstration
Agreement during the period beginning on the date on which the demonstration
contemplated by the Demonstration Agreement commenced and ending on the Closing
Date (the "Measurement Period") and without regard to performance after the end
of the Measurement Period. Any such amount is referred to herein as the BIPA
Refund Amount (the "BIPA Refund Amount").
(b) The BIPA Refund Amount shall be determined based on a
reconciliation to be performed in accordance with the procedures outlined in the
Demonstration Agreement following the Measurement Period as modified by this
Section 7.5. Not earlier than the nine (9) month anniversary of the Closing
Date, the Company shall prepare the reconciliation for the Measurement Period in
accordance with the procedures outlined in the Demonstration Agreement using the
best available claims data that has been provided to the Company as of such time
by CMS or its representatives. If complete claims data is not available for the
full Measurement Period (including, without limitation, claims data relative to
claims incurred during the Measurement Period and
62
processed within nine (9) months of the end of the Measurement Period), such
data as is available will be extrapolated consistent with customary actuarial
practices over the full Measurement Period. The calculation of the BIPA Refund
Amount shall take into account, and the BIPA Refund Amount shall be reduced by
any amounts refunded to CMS out of, the escrow established pursuant to the terms
of the Demonstration Agreement.
(c) Not later than the twelve (12) month anniversary of the Closing
Date, Parent shall deliver the Stakeholder Representative a statement containing
its calculation of the BIPA Refund Amount (the "Preliminary BIPA Refund Amount")
together with all documentation supporting the Company's calculation of the BIPA
Refund Amount (such statement and supporting documentation, (the "BIPA
Statement").
(d) Upon receipt of the BIPA Statement, the Stakeholder Representative
shall have forty-five (45) days (the "BIPA Review Period") to review such BIPA
Statement. In connection with the review of the BIPA Statement, Parent shall
give, and shall cause the Surviving Corporation and its and the Surviving
Corporation's Affiliates and Representatives to give, to the Stakeholder
Representative and its Representatives full access to the books, records and
other materials of Parent, the Surviving Corporation and their Subsidiaries and
the personnel of, and work papers prepared by or for, Parent, the Surviving
Corporation and their Subsidiaries and their respective accountants and
Representatives, including to such historical financial information and claims
data relating to the Company and its Subsidiaries and the Demonstration
Agreement as the Stakeholder Representative or its Representatives may request,
in each case, in connection with reviewing of the BIPA Statement in accordance
with this Section 7.5. If the Stakeholder Representative has accepted such BIPA
Statement in writing or has not given written notice to Parent setting forth any
objection of the Stakeholder Representative to such BIPA Statement (a "BIPA
Statement of Objections") prior to the expiration of the BIPA Review Period,
then such BIPA Statement shall be final and binding upon the parties, and the
Preliminary BIPA Refund Amount shall be deemed the BIPA Refund Amount (the
"Final BIPA Refund Amount"). In the event that the Stakeholder Representative
delivers a BIPA Statement of Objections during the BIPA Review Period, Parent
and the Stakeholder Representative shall use their reasonable efforts to agree
on the BIPA Refund Amount within thirty (30) days following the receipt by
Parent of the BIPA Statement of Objections. If the parties are unable to reach
an agreement as to the BIPA Refund Amount then the matter shall be submitted as
promptly as practicable to Xxxxxxxx, or such independent actuarial firm mutually
acceptable to each of the parties (such person, the "BIPA Arbitrator"), who
shall resolve the matters still in dispute and adjust the Preliminary BIPA
Refund Amount to reflect such resolution and establish the Final BIPA Refund
Amount; provided, however, that the BIPA Arbitrator may not determine a BIPA
Refund Amount in excess of that claimed by Parent or less than that claimed by
the Stakeholder Representative. The BIPA Arbitrator shall make such
determination within forty-five (45) days following the submission of the matter
to the BIPA Arbitrator for resolution, and such determination shall be final and
binding upon Parent, Merger Subsidiary and the Stakeholder Representative and
may be entered and enforced in any court having jurisdiction. Each of Parent,
Merger Subsidiary, the Company, the Surviving Corporation and the
63
Stakeholder Representative agrees that it will not have any right to, and will
not, institute any Action of any kind challenging such determination or with
respect to the matters that are the subject of this Section 7.5, except that the
foregoing shall not preclude an Action to enforce such determination.
Section 7.6 Release of Escrow Funds. The parties hereby agree that,
notwithstanding anything to the contrary in this Agreement:
(a) Interim Release Date. On the date which is the later of (a) two
(2) Business Days following payment of the BIPA Refund Amount, if any, or the
determination by the BIPA Arbitrator that Parent is not entitled to a BIPA
Refund Amount, and (b) the twelve (12) month anniversary of the Closing Date
(such later date, the "Interim Distribution Date"), all Escrow Funds in excess
of Ten Million Dollars ($10,000,000) that are not the subject of a Claim Notice,
a Specified Claim Notice or a dispute pursuant to Section 2.9 or 5.12 that has
not been resolved (an "Outstanding Claim") shall be distributed from the Escrow
Account to the Agent's Escrow Account. Each of Parent and the Stakeholder
Representative hereby agree that it shall, not later than two (2) Business Days
following the Interim Distribution Date, execute and deliver to the Escrow Agent
a Payment Request Form or Forms (as such term is defined in the Escrow
Agreement) directing that the Escrow Agent make disbursements of Escrow Funds
contemplated by this Section 7.6(a) within two (2) Business Days of receipt of
such Payment Request Form or Forms.
(b) Release Date. On the date which is the twenty four (24) month
anniversary of the Closing Date (the "Release Date") all Escrow Funds that are
not the subject of an Outstanding Claim shall be distributed from the Escrow
Account to the Agent's Escrow Account. Each of Parent and the Stakeholder
Representative hereby agree that it shall, not later than two (2) Business Days
following the Release Date, execute and deliver to the Escrow Agent a Payment
Request Form or Forms (as such term is defined in the Escrow Agreement)
directing that the Escrow Agent make disbursements of Escrow Funds contemplated
by this Section 7.6(b) within two (2) Business Days of receipt of such Payment
Request Form or Forms.
(c) Resolution of Outstanding Claims Following the Release Date.
Following the Release Date, upon resolution of any Outstanding Claim without
full payment of such Outstanding Claim to Parent, all or such portion of such
Outstanding Claim that is not paid to Parent shall be distributed from the
Escrow Account to the Agent's Escrow Account. Each of Parent and the Stakeholder
Representative hereby agree that it shall execute and deliver to the Escrow
Agent Payment Request Form or Forms with respect to such amount not later than
two (2) Business Days following the resolution without payment to Parent of all
or any portion of such Outstanding Claim. Following the resolution of the last
Outstanding Claim, all remaining Escrow Funds shall be distributed from the
Escrow Account to the Agent's Escrow Account. Each of Parent and the Stakeholder
Representative hereby agree that it shall execute and deliver to the Escrow
Agent a Payment Request Form or Forms with respect to the remaining Escrow Funds
not later than two (2) Business Days following the resolution of the last
remaining Outstanding Claim following the Release Date.
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ARTICLE VIII
TERMINATION AND EXPENSES
Section 8.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (except as
provided below, notwithstanding any approval of this Agreement by the
shareholders of the Company):
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent,
(i) if the Merger has not been consummated as of March 1, 2006,
(the "End Date"); provided, however, that if the waiting period under the
HSR Act has not expired or been terminated by March 1, 2006, and the
condition to the Merger set forth in Section 6.1(b) shall not have been
fulfilled but all other conditions to the Merger shall have been fulfilled
or shall be capable of being fulfilled, then either party may (on one or
more occasions) by written notice delivered to the other party on or prior
to March 1, 2006, extend the End Date to July 31, 2006 and, in the case of
such an extension, all references in this Agreement to the End Date shall
mean July 31, 2006;
(ii) if there shall be any Law that makes consummation of the
Merger illegal or otherwise prohibited or if any Restraint enjoining
Parent, Merger Subsidiary or the Company from consummating the Merger is
entered and such Restraint shall become final and nonappealable; provided,
however, that the right to terminate this Agreement under this Section
8.1(b)(ii) is not available to a party that has not fulfilled its
obligations under Section 5.5; or
(iii) if there shall have been a breach by the other of any of
its representations, warranties, covenants or obligations contained in this
Agreement, which breach would result in the failure to satisfy one or more
of the conditions set forth in Section 6.2(a) (in the case of a breach by
the Company), or Section 6.3(a) (in the case of a breach by Parent), and in
any such case such breach shall be incapable of being cured or, if capable
of being cured, shall not have been cured prior to the End Date.
The party desiring to terminate this Agreement pursuant to clause (b) of this
Section 8.1 shall give written notice of such termination to the other party in
accordance with Section 9.4, specifying the provision hereof pursuant to which
such termination is effected.
Section 8.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 8.1, this Agreement shall become void and of no effect with
no liability or further obligation on the part of any party hereto except (a)
that this Section 8.2, Section 5.3(b), Section 8.3, Article IX and the
agreements contained in the Confidentiality Agreement (to the extent set forth
therein), shall survive the termination hereof, (b) that no such termination
shall (i) relieve any party of any liability or damages
65
resulting from any willful or intentional breach by that party of its covenants
under this Agreement to be performed prior to the Closing Date or (ii) relieve
Parent or Merger Subsidiary from liability to the Company or the Stakeholders
for any breach of Section 4.8 or Section 5.13 (whether such breach is willful or
intentional, or not willful and not intentional) and (c) that Parent and Merger
Subsidiary acknowledge and agree that any failure of Parent or Merger Subsidiary
for any reason to obtain the Funds, or to be in a position to immediately
satisfy the Funding Obligations, in either case on or prior to the Financing
Deadline shall be a material breach by Parent and Merger Subsidiary of this
Agreement, and Parent and Merger Subsidiary shall be liable to the Company and
the Stakeholders for such breach notwithstanding any termination of this
Agreement.
Section 8.3 Fees and Expenses.
(a) Other than as specifically provided in this Section 8.3 or as
required by applicable Law, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses, whether or not the Merger is
consummated, except that (i) all printing, mailing and related expenses incurred
in connection with the printing and mailing of the Information Statement shall
be shared equally by Parent and the Company and (ii) filing fees payable under
or pursuant to the HSR Act shall be shared equally by Parent and the Company, in
the case of clause (i) or (ii) whether or not the Merger is consummated.
(b) At least two (2) Business Days prior to Closing, the Company shall
deliver to Parent in writing a certificate setting forth (i) the amount of
Company Transaction Expenses, estimated, in good faith, by the Company that are
expected to remain unpaid as of the Closing Date and (ii) a list of each Person
entitled to any Company Transaction Expenses, including wire transfer or other
payment information. At the Closing, unless the Company shall have previously
paid such Company Transaction Expenses, Parent shall cause the payment (in
accordance with the certificate delivered by the Company in accordance with this
Section 8.3(b)) of the Company Transaction Expenses directly to those Persons so
designated by the Company.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Independent Investigation. Each of Parent and Merger
Subsidiary has conducted its own independent review and analysis of the
business, operations, technology, assets, liabilities, results of operations,
financial condition and prospects of the Company and any financial statements
relating to the Company, and acknowledges that the Company has provided Parent
with access to the personnel, properties, premises and books and records of the
Company for this purpose. In entering into this Agreement and each of the
Ancillary Agreements, each of Parent and Merger Subsidiary has relied solely
upon its own investigation and analysis, and each of Parent and Merger
Subsidiary acknowledges and agrees (i) that, except for the specific
representations and warranties of the Company contained in Article III hereof,
none of
66
the Company or its Affiliates nor any of their respective shareholders,
controlling persons or Representatives makes or has made any representation or
warranty, either express or implied, as to the accuracy or completeness of any
of the information (including any statement, certificate, document or agreement
delivered pursuant to Article II hereof and any financial statements and any
projections, estimates or other forward-looking information); provided
(including in any management presentations, information or descriptive
memorandum, supplemental information or other materials or information with
respect to any of the above) or otherwise made available to Parent, Merger
Subsidiary or any of their Affiliates, shareholders, controlling persons or
Representatives and (ii) that, to the fullest extent permitted by applicable
Law, the Company and its Affiliates and their respective Subsidiaries,
controlling persons or Representatives shall not have any liability or
responsibility whatsoever to Parent, Merger Subsidiary or their Affiliates or
any of their respective Subsidiaries, shareholders, controlling persons or
Representatives on any basis (including in contract or tort, under federal or
state securities laws or otherwise) based upon any information provided or made
available, or statements made (or any omissions therefrom), to Parent, Merger
Subsidiary or their Affiliates or any of their respective Subsidiaries,
shareholders, controlling persons or Representatives, including in respect of
the specific representations and warranties of the Company set forth in Article
III of this Agreement, except as and only to the extent expressly set forth in
Article III hereof with respect to such representations and warranties and
subject to the limitations and restrictions contained in this Agreement.
Section 9.2 Non-survival of Parent Representations and Warranties. The
representations and warranties of Parent and Merger Subsidiary contained in
Article IV of this Agreement shall survive the Closing for twenty-four (24)
months, it being understood that in the event that any claims with respect to a
breach by Parent or Merger Subsidiary of their representations and warranties
shall survive until such time as such claim is finally resolved.
Section 9.3 Amendments; No Waivers.
(a) Any provision of this Agreement (including the Company Disclosure
Letter, the Parent Disclosure Letter and the Exhibits hereto) may be amended or
waived prior to the Effective Time, if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by the Company, Parent and
Merger Subsidiary, or in the case of a waiver, by the party against whom the
waiver is to be effective; provided, however, that after the receipt of
Requisite Stockholder Approvals, if any such amendment or waiver shall by Law or
in accordance with the rules and regulations of the applicable national
securities exchange require further approval of the shareholders of the Company,
the effectiveness of such amendment or waiver shall be subject to the approval
of the shareholders of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
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Section 9.4 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile or similar writing)
and shall be deemed to have been duly given upon receipt when delivered in
Person, by facsimile (receipt confirmed) or by overnight courier or registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or Merger Subsidiary, to:
Matria Healthcare, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxxx 00000
Attention: General Counsel
Facsimile No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxxx Xxxxxxx LLP
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxx III, Esq.
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
CorSolutions Medical, Inc.
0000 X. Xxxx Xxxx Xxx, Xxxxx 000
Xxxxxxxx, XX 00000
Attention: President and Chief Operating Officer
Facsimile No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
Xxxx Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxx X. Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
Section 9.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; provided that no party may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of the other parties hereto.
Section 9.6 Governing Law. This Agreement, including all matters of
construction, validity and performance, shall be construed in accordance with
and
68
governed by the Laws of the State of Delaware (without regard to principles of
conflicts of Laws).
Section 9.7 Consent to Jurisdiction. Except as provided in Sections
2.9 (Post-Closing Adjustment of Initial Merger Consideration), 5.12(h) (Tax
Disputes), 7.4 (Escrow Fund Disputes) and 7.5 (BIPA Claims) herein, each of the
parties hereto: (a) irrevocably consents to submit itself to the personal
jurisdiction of any state or federal court of competent jurisdiction located in
the City of Wilmington in the State of Delaware, for the purpose of any action
or proceeding arising out of this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court and (c) agrees that, except in any action brought against the party
in another jurisdiction by an independent third party, it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a state or federal court of competent
jurisdiction located in the City of Wilmington in the State of Delaware, except
for the purpose of enforcing any award or decision. For the avoidance of doubt,
except for claims for specific performance arising after the date hereof and
prior to the Closing, any claims arising out of this Agreement, or the breach,
termination or validity thereof, shall be finally and exclusively determined by
arbitration in accordance with Sections 2.9 (Post-Closing Adjustment of Initial
Merger Consideration), 5.12(h) (Tax Disputes), 7.4 (Escrow Fund Disputes) or 7.5
(BIPA Claims).
Section 9.8 Counterparts; Effectiveness. This Agreement may be
executed in one or more counterparts, each of which together shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Section 9.9 Entire Agreement. This Agreement (including the Company
Disclosure Letter, the Parent Disclosure Letter and the Exhibits hereto), the
Confidentiality Agreement and the Escrow Agreement constitute the entire
agreement among the parties with respect to the subject matter of this Agreement
and supersede and cancel all prior agreements, negotiations, correspondence,
undertakings, understandings and communications of the parties, oral and
written, with respect to the subject matter hereof and thereof.
Section 9.10 Third Party Beneficiaries. Except as expressly provided
herein, this Agreement is for the sole benefit of the parties and their
permitted successors and assigns and nothing herein expressed or implied will
give or be construed to give any Person, other than the parties and such
permitted successors and assigns, any legal or equitable rights hereunder;
provided, however, that the parties hereto specifically acknowledge and agree
that (i) the provisions of Section 5.10 hereof are intended to be for the
benefit of, and shall be enforceable by, all current or former directors,
officers and employees of the Company and its Subsidiaries (in all of their
capacities) affected thereby and (ii) this Agreement is intended to be for the
benefit of, and shall be enforceable in all respects by, the Stakeholders.
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Section 9.11 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to affect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
Section 9.12 Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties, for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder, without bond or other security being
required, this being in addition to any other remedy to which they are entitled
at law or in equity.
Section 9.13 No Setoff. Each of the parties hereto acknowledges and
agrees (on their own behalf and on behalf of its Affiliates) that it and its
Affiliates shall have no right hereunder or pursuant to applicable Law to, and
will not, offset any amounts due and owing (or to become due and owing) under
this Agreement or any Ancillary Agreement to any other party hereto or thereto
or such party's Affiliates against any amounts due and owing from such other
party or such other party's Affiliates under this Agreement, any Ancillary
Agreement or any other agreement, contract or understanding.
Section 9.14 Construction.
(a) The article and section headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement. As used in this Agreement, (i) unless otherwise specified herein, the
term "affiliate," with respect to any person, shall mean and include any person
controlling, controlled by or under common control with such person, (ii) the
term "including" shall mean "including, without limitation," (iii) words in the
singular shall be held to include the plural and vice versa and words of one
gender shall be held to include the other genders as the context requires, (iv)
the words "hereof," "herein," and "herewith" and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole
(including the Company Disclosure Letter, the Parent Disclosure Letter and the
Exhibits hereto) and not to any particular provision of this Agreement, and
article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement, unless
otherwise specified, (v) the words "date
70
hereof" shall mean December 14, 2005, (vi) the word "or" shall not be exclusive
and (vii) Parent, Merger Subsidiary and the Company will be referred to herein
individually as a "party" and collectively as "parties" (except where the
context otherwise requires).
(b) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
(c) Any reference to any federal, state, local or non-United States
Law shall be deemed also to refer to all rules and regulations promulgated
thereunder and any predecessor or successor Law, rules and regulations, in each
case as amended or as otherwise modified from time to time, unless the context
otherwise requires.
[Signature page follows]
71
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
CORSOLUTIONS MEDICAL, INC.
By: /s/ Xxxxx X. Xxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Chairman & CEO
MATRIA HEALTHCARE, INC.
By: /s/ Xxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Chairman & CEO
CORAL ACQUISITION CORP.
By: /s/ Xxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Chairman & CEO
CORAL SR LLC
By: /s/ Xxxxx X. Xxxxxx, III
------------------------------------
Name: Xxxxx X. Xxxxxx, III
Title: Manager
[Signature Page to Merger Agreement]
EXECUTION COPY
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of January 19, 2006, by and
among Matria Healthcare, Inc. a Delaware corporation ("Parent"), Coral SR LLC,
(the "Stakeholder Representative"), and Xxxxx Fargo Bank, N.A. (the "Escrow
Agent"). Parent, the Stakeholder Representative and the Escrow Agent are
sometimes referred to herein as a "Party" and, collectively, as the "Parties."
RECITALS:
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated as of
December 14, 2005, by and among CorSolutions, Inc., a Delaware corporation (the
"Company"), Parent and Coral Acquisition Corp., a newly formed Delaware
corporation and an indirect wholly owned subsidiary of the Company ("Merger
Subsidiary"), and the Stakeholder Representative, a copy of which without the
schedules or exhibits thereto is attached hereto as Exhibit 1 ("Merger
Agreement"), Merger Subsidiary will merge with and into the Company (the
"Merger"), with the Company as the surviving corporation in the Merger and a
wholly-owned subsidiary of Parent;
WHEREAS, the Stakeholder Representative has been designated as the agent
and representative of the Stakeholders for purposes of the Merger Agreement,
this Agreement and other various matters described in the Agent's Escrow
Agreement;
WHEREAS, the Parties desire to specify and clarify their rights and
responsibilities with respect to the Escrow Amount (as defined below);
WHEREAS, Parent and the Stakeholders have requested the Escrow Agent to
accept from the Company cash in the amount of Twenty Million Three Hundred
Thousand Dollars ($20,300,000) (the "Escrow Amount") and to hold it in escrow
pursuant to the terms of this Agreement; and
WHEREAS, the Escrow Agent is willing to serve in such capacity, but only
pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
intending to be legally bound hereby, the Parties hereto agree as follows:
1. Definitions.
1.1. As used in this Agreement, the following terms shall have the
meanings set forth below:
"Agreement" means this Escrow Agreement.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banks are required or authorized to be closed in Chicago, Illinois
or Minneapolis, Minnesota. If any period expires on a day which is not a
Business Day or any event or condition is required by the terms of this
Agreement to occur or be fulfilled on a day which is not a Business Day, such
period shall expire or such event or condition shall occur or be fulfilled, as
the case may be, on the next succeeding Business Day.
"Certificate" has the meaning set forth in Section 5.1(b).
"Claim" has the meaning set forth in Section 5.2.
"Eligible Investments" has the meaning set forth in Section 11.1.
"Escrow Account" has the meaning set forth in Section 4.1.
"Escrow Agent" has the meaning set forth in the Preamble.
"Escrow Funds" has the meaning set forth in Section 4.1.
"Escrow Amount" has the meaning set forth in the Recitals.
"Final Determination" means a final and nonappealable judgment or
award of an arbitrator, arbitration panel or court of competent jurisdiction, as
applicable, establishing a Party's right to all or a portion of the Escrow
Funds. The Parties agree that (i) the decision of the Settlement Accountant
pursuant to Section 2.9 of the Merger Agreement, (ii) a resolution by the Tax
Arbitrator of a claim against the Escrow Fund pursuant to Section 5.12, (iii) an
award pursuant to Section 7.4 of the Merger Agreement and (iv) the decision of
the BIPA Arbitrator pursuant to Section 7.5 of the Merger Agreement shall each
be a Final Determination without further right of appeal as set forth in such
sections of the Merger Agreement.
"Claim Notice" has the meaning set forth in Section 5.2.
"Merger Agreement" has the meaning set forth in the Recitals.
"Parent" has the meaning set forth in the Preamble.
"Stakeholder Representative" has the meaning set forth in the
Recitals.
1.2. Capitalized terms used but not defined in this Agreement have the
meanings ascribed to such terms in the Merger Agreement.
2. Appointment of Escrow Agent. Parent and the Stakeholder Representative,
on behalf of the Stakeholders, hereby jointly appoint the Escrow Agent to act as
an escrow agent as provided herein, and the Escrow Agent hereby accepts such
appointment.
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3. Stakeholder Representative.
3.1. The Parties acknowledge that the Stakeholder Representative is
authorized to act as the agent and representative in the name and on behalf of
all of the Stakeholders in all matters necessary to carry out the terms and
conditions of this Agreement.
3.2. The Escrow Agent may act upon the directions, instructions and
notices of the Stakeholder Representative named above and, thereafter, upon the
resignation, death or incapacity of the Stakeholder Representative, his
replacement appointed pursuant to Section 2.4 of the Merger Agreement.
4. Delivery of Escrow Amount.
4.1. Parent acknowledges that, concurrently with the execution and
delivery of this Agreement, Parent is depositing the Escrow Amount in an account
(the "Escrow Account") with the Escrow Agent. The funds in the Escrow Account,
together with any interest or other income received from or earned thereon and
as reduced by any distributions therefrom pursuant hereto, are hereinafter
referred to as the "Escrow Funds."
4.2. During the term of this Agreement, the Escrow Agent will invest
the Escrow Funds as provided in Section 11.
5. Disbursement of the Escrow Funds. The Escrow Agent will hold the Escrow
Funds and, subject to the Escrow Agent's rights in Section 9, make disbursements
therefrom as follows:
5.1. The Escrow Agent shall disburse Escrow Funds on deposit in the
Escrow Account to Parent, the Stakeholder Representative (or as directed by the
Stakeholder Representative) or both, as the case may be, within two (2) Business
Days following receipt of:
(a) one or more fully executed Payment Request Forms in
substantially the form attached hereto as Exhibit 2, executed by Parent and the
Stakeholder Representative, and otherwise pursuant to the terms hereof. Upon
receipt of a Payment Request Form, the amounts specified therein shall be paid
by the Escrow Agent within (2) Business Days directly to the Party or Parties
entitled to payment as specified in the Payment Request Form. Each of Parent and
the Stakeholder Representative hereby agree that within two (2) Business Days
after final resolution of any matter pursuant to Sections 2.9, 5.12 and 7.5 of
the Merger Agreement, Parent and the Stakeholder Representative shall execute a
Payment Request Form or Forms directing the Escrow Agent to make the
disbursements of Escrow Funds within two (2) Business Days of receipt of such
Payment Request Form or Forms; or
(b) a copy of a Final Determination setting forth a Party's right
to the Escrow Funds, together with a Certificate in substantially the form
attached hereto as Exhibit 3 (a "Certificate").
5.2. Indemnification. If Parent asserts a claim for Damages pursuant
to Section 7.2 of the Merger Agreement (a "Claim") against the Stakeholders
pursuant to the Merger Agreement, which Parent agrees it will do only in good
faith, Parent shall send a copy of
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written notice of such Claim (a "Claim Notice") at the same time to the Escrow
Agent and to the Stakeholder Representative. In the case of a Claim Notice in
respect of a Third Party Claim, such Claim Notice shall specify the nature of
such Action and the amount or estimated amount thereof (which amount or
estimated amount shall not be conclusive of the final amount, if any, of such
Action). In submitting such Claim to the Escrow Agent, Parent shall account for
any applicable threshold, exclusion or cap and other limitation on Damages
provided for in the Merger Agreement. Whenever Parent sends such a Claim Notice,
the Parties shall comply with the procedures set forth herein.
(a) The Escrow Agent shall immediately confirm in writing to the
Stakeholder Representative (a "Confirmation") the date on which the Escrow Agent
received the Claim Notice. Concurrently with its delivery of the Confirmation
the Escrow Agent will deliver a copy of the Claim Notice to the Stakeholder
Representative. If the Stakeholder Representative decides, in its sole and
absolute discretion, to dispute the Claim described in the Claim Notice, the
Stakeholder Representative shall, on or before the thirtieth (30th) day
following the Stakeholder Representative's receipt of the Confirmation and the
Claim Notice, send to the Escrow Agent and Parent a written objection to such
Claim.
(b) If the Escrow Agent does not receive from the Stakeholder
Representative a written objection to such Claim Notice on or before the
thirtieth (30th) day following the Stakeholder Representative's receipt of the
Confirmation and the Claim Notice, then the Escrow Agent shall make a
disbursement to Parent from the Escrow Funds in the amount of the Claim
described in such Claim Notice. If the Escrow Agent receives a timely written
objection to only a portion of a Claim Notice, then the Escrow Agent shall make
a disbursement to Parent from the Escrow Funds in the amount of the Claim not
subject to the written objection.
(c) If the Escrow Agent receives from the Stakeholder
Representative a written objection to such Claim on or before the thirtieth
(30th) day following the Stakeholder Representative's receipt from the Escrow
Agent of notice of receipt of the Confirmation and the Claim Notice, the Escrow
Agent shall hold the funds subject to such dispute until a Payment Request Form
or Forms executed by Parent and the Stakeholder Representative directing the
Escrow Agent to make the disbursements of Escrow Funds within two (2) Business
Days of receipt of such Payment Request Form or Forms or a Final Determination
and a Certificate is delivered with respect thereto.
5.3. Timed Release of Escrow Funds.
(a) Interim Release Date. On the date which is the later of (i) two
(2) Business Days following payment of the BIPA Refund Amount pursuant to
Section 7.5 of the Merger Agreement, if any, or the determination by the BIPA
Arbitrator that Parent is not entitled to a BIPA Refund Amount, and (ii) the
twelve (12) month anniversary of the Closing Date (such later date, the "Interim
Distribution Date"), all Escrow Funds in excess of Ten Million Dollars
($10,000,000) that are not the subject of a Claim Notice, a Specified Claim
Notice or a dispute pursuant to Section 2.9 or 5.12 that has not been resolved
(an "Outstanding Claim") shall be distributed by the Escrow Agent from the
Escrow Account to the Agent's Escrow Account. Each of Parent and the Stakeholder
Representative hereby agree that it shall, not later than two (2)
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Business Days following the Interim Distribution Date, execute and deliver to
the Escrow Agent a Payment Request Form or Forms (as such term is defined in the
Escrow Agreement) directing that the Escrow Agent make disbursements of Escrow
Funds contemplated by this Section 5.3(a) within two (2) Business Days of
receipt of such Payment Request Form or Forms.
(b) Release Date. On the date which is the twenty four (24) month
anniversary of the Closing Date (the "Release Date") all Escrow Funds that are
not the subject of an Outstanding Claim shall be distributed by the Escrow Agent
from the Escrow Account to the Agent's Escrow Account. Each of Parent and the
Stakeholder Representative hereby agree that it shall, not later than two (2)
Business Days following the Release Date, execute and deliver to the Escrow
Agent a Payment Request Form or Forms (as such term is defined in the Escrow
Agreement) directing that the Escrow Agent make disbursements of Escrow Funds
contemplated by this Section 5.3(b) within two (2) Business Days of receipt of
such Payment Request Form or Forms.
(c) Resolution of Outstanding Claims Following the Release Date.
Following the Release Date, upon resolution of any Outstanding Claim without
full payment of such Outstanding Claim to Parent, all or such portion of such
Outstanding Claim that is not paid to Parent shall be distributed from the
Escrow Account to the Agent's Escrow Account. Each of Parent and the Stakeholder
Representative hereby agree that it shall execute and deliver to the Escrow
Agent Payment Request Form or Forms with respect to such amount not later than
two (2) Business Days following the resolution without payment to Parent of all
or any portion of such Outstanding Claim. Following the resolution of the last
Outstanding Claim, all remaining Escrow Funds shall be distributed by the Escrow
Agent from the Escrow Account to the Agent's Escrow Account. Each of Parent and
the Stakeholder Representative hereby agree that it shall execute and deliver to
the Escrow Agent a Payment Request Form or Forms with respect to the remaining
Escrow Funds not later than two (2) Business Days following the resolution of
the last remaining Outstanding Claim following the Release Date.
6. Payments from the Escrow Funds.
6.1. The Escrow Agent shall make no payments from the Escrow Funds
unless permitted pursuant to Section 5.
6.2. Any amounts payable by the Escrow Agent under this Agreement
shall be paid by bank check or by wire transfer, as specified in the Payment
Request Form or Final Determination received by the Escrow Agent. In the event
funds transfer instructions are given (other than in writing at the time of the
execution of the Agreement), such instructions shall be in writing by the person
or persons designated on Exhibit 4 hereto and the Escrow Agent is authorized to
seek confirmation of such instructions by telephone call-back to the person or
persons designated on Exhibit 4 hereto, and the Escrow Agent may rely upon the
confirmations of anyone purporting to be the person or persons so designated.
The persons and telephone numbers for call-backs may be changed only in writing
actually received and acknowledged by the Escrow Agent. The Parties to this
Agreement acknowledge that such security procedure is commercially reasonable.
It is understood that the Escrow Agent and the beneficiary's bank in any funds
transfer may rely solely upon any account numbers or similar identifying number
provided by any Party hereto to identify (i) the beneficiary, (ii) the
beneficiary's bank or (iii) an
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intermediary bank. The Escrow Agent may apply funds for any payment order it
executes using any such identifying number, even where its use may result in a
person other than the beneficiary being paid, or the transfer of funds to a bank
other than the beneficiary's bank, or an intermediary bank, designated.
6.3. All interest and other income received from or earned on the
Escrow Funds shall become a part of the Escrow Funds and be paid in accordance
with the other terms of this Agreement.
7. Tax Matters.
7.1. The Parties agree that, for tax reporting purposes, all interest
or other income earned from the investment of the Escrow Funds shall be
allocable to Parent and so reported to the Internal Revenue Service and any
other applicable taxing authority, except to the extent that any law or
regulation should otherwise require.
7.2. Parent agrees to provide the Escrow Agent with a certified tax
identification number by signing and returning a Form W-9 (or Form W-8, in the
case of non-U.S. persons) to the Escrow Agent on or prior to the date hereof.
Parent understands that, in the event its tax identification number is not
certified to the Escrow Agent, the Internal Revenue Code may require withholding
of a portion of any interest or other income earned on the investment of the
Escrow Funds, in accordance with the Internal Revenue Code, as amended from time
to time.
7.3. The Escrow Agent shall distribute quarterly to Parent amounts
intended to cover the potential federal, state or local tax obligations of
Parent on account of the cumulative allocation to Parent of taxable income
attributable to the interest and other income earned on the Escrow Funds. Such
distributions shall be made with respect to each quarter prior to the date that
United States taxpayers are required to make estimated federal tax payments with
respect to such quarter, as soon as practical after receipt by the Escrow Agent
of a written request of Parent, with a copy to the Stakeholder Representative.
For purposes of the foregoing, such federal, state and local tax obligations of
the Parent shall be assumed to equal an effective combined federal and state
income tax rate equal to thirty-five percent (35%) or such other rate as
provided in an amendment to this Agreement pursuant to Section 21 hereof.
7.4. The Escrow Agent shall report to the Internal Revenue Service
against Parent, as of each calendar year-end, all income earned from the Escrow
Funds, whether or not such income has been distributed during such year, as and
to the extent required by law. Parent shall prepare and file any necessary tax
returns with respect to income earned on the Escrow Funds, and the Escrow Agent
shall have no duty to prepare or file any tax returns with respect to the Escrow
Account.
7.5. Parent shall pay all taxes payable on income earned from the
investment of the Escrow Funds, whether or not the Escrow Agent distributed the
income during any particular year.
8. Escrow Agent's Duties.
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8.1. The Escrow Agent's duties are entirely ministerial and not
discretionary, and the Escrow Agent will be under no duty or obligation to give
any notice, or to do or to omit the doing of any action with respect to the
Escrow Funds, except to give notice, make disbursements and invest the Escrow
Funds in accordance with the terms of this Agreement.
8.2. The Escrow Agent will neither be responsible for, nor chargeable
with, knowledge of the terms and conditions of any other agreement, instrument
or document among the other Parties hereto, in connection herewith, including
without limitation the Merger Agreement (other than for terms used and not
otherwise defined herein but defined therein), and will be required to act only
pursuant to the terms and provisions of this Agreement. This Agreement sets
forth all matters pertinent to the escrow contemplated hereunder, and no
additional obligations of the Escrow Agent will be inferred from the terms of
this Agreement, the Merger Agreement or any other agreement.
8.3. The Escrow Agent will not be liable for any error in judgment or
any act or steps taken or permitted to be taken in good faith, or for any
mistake of law or fact, or for anything it may do or refrain from doing in
connection with this Agreement, except for its own willful misconduct or gross
negligence. As to any legal questions arising in connection with the
administration of this Agreement, the Escrow Agent may consult with and rely
absolutely upon the opinions give to it by counsel (including internal counsel)
and shall be free of liability for acting in reliance on such opinions.
8.4. The Escrow Agent will not be required in any way to determine the
validity, genuineness, authenticity or sufficiency, whether in form or
substance, of any instrument, document, certificate, statement or notice
referred to in this Agreement or contemplated by this Agreement, or the identity
or authority of the persons executing it, and it will be sufficient if any
writing purporting to be such instrument, document, certificate, statement or
notice is delivered to the Escrow Agent and purports to be correct in form and
signed or otherwise executed by the Party or Parties required to sign or execute
it under this Agreement. The Escrow Agent reserves the right, but shall in no
way be obligated, to call upon the Parties, or any of them, for written
instructions before taking any actions hereunder.
8.5. During the term of this Agreement, the Escrow Agent shall not
exercise on its own behalf any right of set-off against, or enforce any lien on,
the Escrow Funds, except such right or lien as may arise in connection with this
Agreement, particularly Sections 10 and 13 hereof.
8.7 IN NO EVENT SHALL THE ESCROW AGENT BE LIABLE, DIRECTLY OR
INDIRECTLY, FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL LOSSES OR DAMAGES OF ANY
KIND WHATSOEVER (INCLUDING BUT NOT LIMITED TO LOST PROFITS), EVEN IF THE ESCROW
AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND
REGARDLESS OF THE FORM OF ACTION.
8.8 Notwithstanding any other provision of this Agreement, the Escrow
Agent shall not be obligated to perform any obligation hereunder and shall not
incur any liability for the nonperformance or breach of any obligation hereunder
to the extent that the Escrow Agent is
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delayed in performing, unable to perform or breaches such obligation because of
acts of God, war, terrorism, fire, floods, strikes, electrical outages,
equipment or transmission failures, or other causes reasonably beyond its
control.
9. Disputes.
9.1. It is understood and agreed that should any dispute arise with
respect to the payment and/or ownership or right of possession of the Escrow
Funds, or should the Escrow Agent be uncertain as to what action to take with
respect to the Escrow Funds, the Escrow Agent is authorized and directed to
retain in its possession, without liability to anyone, all or any part of the
Escrow Funds until such dispute or uncertainty shall have been settled either by
mutual agreement by the Parties (as evidenced by a written agreement among them)
or by a Final Determination.
9.2. If the Escrow Agent becomes involved in litigation by reason of
this Agreement, or if the Escrow Agent reasonably believes, in its sole
discretion, that it may become involved in litigation, the Escrow Agent is
authorized to institute a xxxx of interpleader in a court in Wilmington,
Delaware to determine the rights of the Parties and to deposit the Escrow Funds
with the court in accordance with Delaware law. Upon deposit of the Escrow Funds
with the court, the Escrow Agent shall stand fully relieved and discharged of
any further duties as Escrow Agent.
9.3. If a xxxx of interpleader is instituted, or if the Escrow Agent
is threatened with litigation or becomes involved in litigation in any manner
whichever on account of this Agreement or the Escrow Funds, Parent and the
Stakeholder Representative, jointly and severally, shall pay the Escrow Agent
its reasonable attorneys' fees and any other disbursements, expenses, losses,
costs and damages incurred by the Escrow Agent in connection with or resulting
from such threatened or actual litigation. All costs and expenses of such
dispute will be charged to the non-prevailing Party in such dispute, unless such
non-prevailing Party is a third Party, in which case the Escrow Agent's costs
and expenses will be charged to and paid out of the Escrow Funds, and to the
extent the Escrow Funds are insufficient, will be charged equally to Parent, on
the one hand, and the Stakeholder Representative, on the other hand; provided,
that the Stakeholder Representative's obligations pursuant to this Section 9.3
shall be satisfied only from and shall not exceed the amount of funds, if any,
held pursuant to the Agent's Escrow Agreement.
9.4. In the event that the Escrow Agent is directed pursuant to
Section 5 hereof to disburse to the Stakeholders any portion of the Escrow
Funds, the disbursement of which the Escrow Agent had previously withheld
pursuant to this section, the Escrow Agent shall disburse such amount to, or as
directed by, the Stakeholder Representative. In the event that the Escrow Agent
is directed pursuant to Section 5 hereof to disburse to Parent any portion of
the Escrow Funds, the disbursement of which the Escrow Agent had previously
withheld pursuant to this section, the Escrow Agent shall disburse such amount
to Parent.
10. Indemnity. Parent and the Stakeholder Representative jointly and
severally agree to hold the Escrow Agent harmless and to indemnify the Escrow
Agent against any loss, liability,
-8-
expenses (including reasonable outside and inhouse attorney's fees and expenses
and fees and expenses of experts and their staffs), proceeding, penalty, cost,
claim, or demand arising out of or in connection with the performance of its
obligations in accordance with the provisions of this Agreement ("Losses"),
unless such Losses shall have been finally adjudicated to have been primarily
caused by the willful misconduct or gross negligence of the Escrow Agent.
Notwithstanding anything in this Agreement to the contrary, the Escrow Agent
shall be entitled to set-off against the Escrow Funds and apply such set-off to
payment of such fees and disbursements and other liabilities and obligations
hereunder. The foregoing indemnities in this paragraph shall survive the
resignation or removal of the Escrow Agent or the termination of this Agreement.
The indemnity by the Stakeholder Representative set forth in this Section 10 is
not personal to the Stakeholder Representative and shall be satisfied only from
and shall not exceed the amount of funds, if any, held pursuant to the Agent's
Escrow Agreement.
11. Investment.
11.1. As used in this section, "Eligible Investments" include one or
more of the following obligations or securities, but only to the extent that
such obligations or securities mature within thirty (30) calendar days or such
longer time as the Stakeholder Representative and Parent shall determine, such
longer maturities not to exceed eighteen months from the Closing Date: (a)
direct obligations of, or obligations fully guaranteed by, the United States of
America or any agency thereof, (b) money market funds investing primarily in the
obligations or securities listed in clause (a) above or repurchase agreements
fully collateralized by direct obligations of the United States of America and
(c) demand or time deposits, money market accounts and interest bearing accounts
of a bank or trust company organized under the laws of the United States of
America or any state thereof and having capital and surplus in excess of One
Billion Dollars ($1,000,000,000).
11.2. The Escrow Agent will invest the Escrow Funds in such Eligible
Investments as the Stakeholder Representative and Parent, from time to time,
shall jointly instruct the Escrow Agent in writing, and in the absence of any
such instruction, shall invest in the Xxxxx Fargo Advantage, Government Money
Market Fund. Earnings upon Eligible Investments shall be deemed part of the
Escrow Funds, shall be deposited in the Escrow Account and shall be disbursed in
accordance with the terms of this Agreement. The Escrow Agent shall have no
responsibility or liability for any diminution which may result from any
investments or reinvestments made in accordance with this Agreement.
11.3. The Parties acknowledge and agree that the Escrow Agent will not
provide supervision, recommendations or advice relative to either the investment
of the Escrow Funds or the purchase, sale, retention or other disposition of any
Eligible Investment.
11.4. The Escrow Agent is hereby authorized to execute purchases and
sales of Eligible Investments through its own trading or capital markets
operations. The Escrow Agent shall send statements to Parent and the Stakeholder
Representative reflecting activity for the Escrow Account for the preceding
month within fifteen (15) days after the last day of each month. Although the
Parties acknowledge that they may obtain a broker confirmation or written
statement containing comparable information at no additional cost, each Party
hereby agrees that
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confirmations of Eligible Investments are not required to be issued by the
Escrow Agent for each period in which a statement is provided.
11.5. Any loss or expense incurred from an Eligible Investment shall
be borne by the Escrow Funds.
12. Resignation.
12.1. The Escrow Agent may resign upon thirty (30) calendar days'
prior written notice to the Stakeholder Representative and Parent, and, upon
joint instructions from the Stakeholder Representative and Parent, will deliver
the Escrow Funds to any designated substitute Escrow Agent selected by the
Stakeholder Representative and Parent. If the Stakeholder Representative and
Parent fail to designate a substitute Escrow Agent within 15 calendar days after
receipt of such notice, the Escrow Agent may, at its sole discretion, institute
a xxxx of interpleader as contemplated by Section 9 above for the purpose of
having an appropriate court designate a substitute Escrow Agent.
12.2. Any company into which the Escrow Agent may be merged or
converted or with which it may be consolidated, or any company resulting from
any merger, conversion or consolidation to which it shall be a Party, or any
company to which the Escrow Agent may sell or transfer all or substantially all
of its corporate trust business shall be the successor to the Escrow Agent
without the execution or filing of any paper or the performance of any further
act, notwithstanding anything herein to the contrary.
13. Compensation. Parent and Stakeholders agree that the fees and expenses
of the Escrow Agent, including any investment fees and other investment-related
charges, for services rendered, including the basic fees set forth in Exhibit 5
attached hereto, shall be paid out of the Escrow Funds. In the event that the
Escrow Funds shall be insufficient to pay the fees and expenses of the Escrow
Agent, 50% of such fees and expenses shall be payable by Parent and 50% of such
fees and expenses shall be payable by the Stakeholder Representative, provided
that the Stakeholder Representative's obligations pursuant to this Section 13
shall not exceed the amount of funds, if any, held pursuant to the Agent's
Escrow Agreement. The Escrow Agent shall have, and is hereby granted, a prior
lien upon any property, cash, or assets hereunder, with respect to its unpaid
fees and nonreimbursed expenses, superior to the interests of any other person.
The Escrow Agent shall be entitled and is hereby granted the right to set off
and deduct any unpaid fees, nonreimbursed expenses and/or unsatisfied
indemnification rights from amounts on deposit in the Escrow Account.
14. Termination. Upon delivery of all amounts constituting the Escrow Funds
as provided in Section 5 and the resolution of all disputes, if any, covered by
Section 9, this Agreement shall terminate except for the provisions of Section 9
(with respect to payment of the Escrow Agent's expenses), Section 10 and Section
13.
15. Notices.
15.1. All necessary notices, demands and requests required or
permitted to be given hereunder shall be in writing and shall be (a) personally
delivered, (b) sent by overnight courier or by registered mail, return receipt
requested, postage prepaid or (c) sent by telephonic
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facsimile transmission, or scanned email, with confirmatory copies mailed by
registered mail, return receipt requested, postage prepaid. All such
communications shall be addressed as follows:
If to the Stakeholder Xxxxx X. Xxxxxx, III
Representative: Coral SR LLC
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxxx, XX 00000
Fax: (000) 000-0000
With a copy to: Xxxxx X. Xxxxxxxx
Xxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Fax: (000) 000-0000
If to Parent: Matria Healthcare, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000
Attention: General Counsel
Fax: (000) 000-0000
With a copy to: Xxxxxxxx Xxxxxxx LLP
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx III, Esq.
Fax: (000) 000-0000
If to the Escrow Agent: Xxxxx Fargo Bank, N.A.
Corporate Trust Services
Sixth and Marquette; MAC X0000-000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx
Fax: (000) 000-0000
15.2. From time to time either Party may designate a new address or
facsimile number for the purpose of notice hereunder by notice to the other
Party in accordance with the provisions of this Section 15.
16. Choice of Laws; Cumulative Rights. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware without regard
to the choice of law provisions thereof. The rights and remedies provided to
each Party hereunder are cumulative and will be in addition to the rights and
remedies otherwise available to such Party under this Agreement, any other
agreement or applicable law.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered will be deemed an
original, and such counterparts together will constitute an original.
-11-
18. Successors and Assigns. This Agreement will bind and inure to the
benefit of the Parties and their respective successors and permitted assigns.
Except as provided in Section 12.2, this Agreement may not be assigned by
operation of law or otherwise without the prior written consent of each of the
Parties hereto. No assignment of the interest of any of the Parties hereto shall
be binding upon the Escrow Agent unless and until written notice of such
assignment shall be filed with and acknowledged by the Escrow Agent.
19. Headings. The Section headings in this Agreement are for convenience of
reference only and will not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
20. Waiver. No failure on the part of any Party to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Party in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or any other power, right,
privilege or remedy. No Party shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Party; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
21. Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of each of the Parties hereto.
22. Entire Agreement. This Agreement and the other agreements referred to
herein set forth the entire understanding of the Parties hereto relating to the
subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the Parties relating to the subject
matter hereof and thereof.
[Signature Page Follows]
-12-
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the
date first above written.
PARENT:
MATRIA HEALTHCARE, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
STAKEHOLDER REPRESENTATIVE:
CORAL SR LLC
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
ESCROW AGENT:
XXXXX FARGO BANK, N.A., as Escrow Agent
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-13-
EXHIBIT 1 TO ESCROW AGREEMENT
Merger Agreement
-14-
EXHIBIT 2 TO ESCROW AGREEMENT
PAYMENT REQUEST FORM
[Date]
[Escrow Agent]
Attention: ___________
Re:Escrow No. ____________ ("Escrow")
Ladies and Gentlemen:
The undersigned hereby certify that:
(1) Demand for payment as provided per the terms and conditions of that
certain Escrow Agreement dated January 19, 2006 is hereby made in the amount of
$ ____________ to [Name of Parent/Stakeholder Representative, receiving Party]
[and $ _____________ to [Name of Parent/Stakeholder Representative, receiving
Party]]. [The demand is in respect of Section _____ of the Escrow Agreement.]
(2) Please direct payment by wire transfer[s] as follows:
$_____________ to
[Depository Bank]
[Depository Bank Address]
ABA No. _________________
Acct. No. _________________
For Benefit of: _____________
[and, $_____________ to
[Depository Bank]
[Depository Bank Address]
ABA No. _________________
Acct. No. _________________
For Benefit of: _____________]
(3) With respect to the drawing referred to in this Payment Request Form,
the [aggregate] amount demanded hereby does not exceed one hundred percent
(100%) of the Escrow Funds valued as of the date hereof.
Parent
By: Date:
--------------------------------- --------------------
Name:
-------------------------------
Title:
------------------------------
STAKEHOLDER REPRESENTATIVE,
as representative:
By: Date:
--------------------------------- --------------------
Name:
-------------------------------
-16-
EXHIBIT 3 TO ESCROW AGREEMENT
CERTIFICATE
The undersigned certifies that [he/she] is the [Title] of [Party] and that,
as such, [he/she] is authorized to execute this certificate in the name of and
on behalf of [Party], and, with reference to Section 5.[__][__] of the Escrow
Agreement (the "Escrow Agreement"), dated as of January 19, 2006, by and among
Matria Healthcare, Inc., a Delaware corporation ("Parent"), Coral SR LLC, (the
"Stakeholder Representative"), and Xxxxx Fargo Bank, N.A. (the "Escrow Agent"),
further certifies that the attached [Description of Final Determination] is a
true and correct, final and non-appealable determination of [__], a Person
authorized to make such Final Determination pursuant to the terms of the Merger
Agreement.
IN WITNESS WHEREOF, I have signed this certificate the [__] day of [___],
200[__].
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EXHIBIT 4 TO ESCROW AGREEMENT
TELEPHONE NUMBERS AND DESIGNATED
PERSONS TO CONFIRM WIRE TRANSFER INSTRUCTIONS
If to Parent:
Name Telephone Number
---- ----------------
1. Xxxxxxx X. Xxxxxxx, CFO 000-000-0000
2. Xxxxxx Xxxxxxxxxxx, 000-000-0000
Corporate Controller
If to Stakeholder Representative, as representative
Name Telephone Number
---- ----------------------------------------------
1. E. F. (Skip) Xxxxxx, III 000-000-0000, ext. 200, or 000-000-0000 (cell)
-18-
EXHIBIT 5 TO ESCROW AGREEMENT
[basic fees and expenses of the Escrow Agent]
-19-
EXHIBIT B
TO MERGER AGREEMENT
Knowledge of Parent
Chairman and Chief Executive Officer
President and Chief Operating Officer
Vice President - Finance and Chief Financial Officer
EXHIBIT C
TO MERGER AGREEMENT
Knowledge of the Company
Chairman and Chief Executive Officer
President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
EXHIBIT D
TO MERGER AGREEMENT
Definition of "Working Capital"
and Calculation of "Target Working Capital"
Pursuant to Section 2.9(a) of the Agreement and Plan of Merger, dated as of
December 14, 2005, by and among CorSolutions Medical, Inc., Matria Healthcare,
Inc. and Coral Acquisition Corp. (the "Agreement"), the following is the
definition of "Working Capital" and the calculation of the Target Working
Capital. Capitalized terms not otherwise defined in this Exhibit D shall have
the same meaning as such terms do in the Agreement.
"Working Capital" means Current Assets of the Company and its Subsidiaries, less
Current Liabilities of the Company and its Subsidiaries, as "Current Assets" and
"Current Liabilities" are defined in this Exhibit D. The calculation of Working
Capital shall be calculated without regard to Total Deferred Revenue as defined
in this Exhibit D. The calculation of Working Capital shall not give effect to
the Closing or any of the transactions contemplated by the Agreement.
Current Assets
Current Assets of the Company and its Subsidiaries shall consist of each of the
following line items, adjusted in each case to exclude the items set forth under
"Exclusions" below:
1. Accounts receivable--net; and
2. Prepaid and other current assets,
in the case of each of the line items set forth above, as determined in
accordance with GAAP applied on a basis consistent with the Reference Balance
Sheet and the audited consolidated statements of income, stockholders' equity
and cash flows for the fiscal year ended December 31, 2004.
Current Liabilities
Current Liabilities of the Company and its Subsidiaries shall consist of each of
the following line items, adjusted in each case to exclude the items set forth
under "Exclusions" below:
1. Accounts payable;
2. Accrued expenses;
3. Income tax payable; and
4. To the extent determined by Parent, if determinable within forty-five (45)
days after the Closing Date at the time of the delivery by Parent of the Closing
Date Balance Sheet and Preliminary Working Capital Amount, and agreed to by the
Stakeholder Representative, the amount of additional U.S. federal and state
income taxes payable for the 2002, 2003 and 2004 tax years related to the
correction of the software costs matter set forth in Section 3.11, paragraph 7
of the Company Disclosure Letter.
in the case of each of the line items set forth above, as determined in
accordance with GAAP applied on a basis consistent with the Reference Balance
Sheet and the audited consolidated statements of income, stockholders' equity
and cash flows for the fiscal year ended December 31, 2004. Notwithstanding the
Company's proposed treatment in the December 31, 2005 balance sheet of severance
obligations to the Company's former CEO in the Company's (as set forth in
Section 3.6(a) of the Company Disclosure Letter), for purposes of the
calculation of Current Liabilities in the Working Capital calculation, such item
shall be treated in a manner that is consistent with the treatment of such items
in the September 30, 2005 balance sheet.
Exclusions
Each of Current Assets and Current Liabilities shall expressly exclude each of
the following items, which shall not be taken into account in determining
Working Capital:
1. Cash and cash equivalents;
2. Deferred tax asset;
3. Indebtedness;
4. Company Transaction Expenses;
5. All "change of control," severance, retention, bonus and similar payments,
benefits, obligations and liabilities due to directors, officers, employees or
any other person or payable by the Company or any of its Subsidiaries to
directors, officers, employees or any other person, and any Tax Benefit relating
to such payments, benefits obligations and liabilities, in each case as a result
of the transactions contemplated by the Agreement, including, without
limitation, as a result of the termination of directors, officers or employees
of the Company or any of its Subsidiaries, in connection with, at or after the
Closing (whether pursuant to "single trigger" or "double trigger" provisions),
and any Tax Benefit relating to such payments, benefits and obligations;
6. Any amounts required to be paid to Ms. Gold or Xx. Xxx pursuant to Section
3.7 of the Company Disclosure Letter.
7. Any other payment, obligation or liability that arises as a result of the
execution, delivery or performance of the Agreement, the Ancillary Agreements or
any of the transactions contemplated thereby, including the consummation of the
Merger; and
8. Total Deferred Revenue. Total Deferred Revenue shall consist of all deferred
revenue line items, current portion and otherwise, as determined in accordance
with GAAP applied on a basis consistent with the Reference Balance Sheet and the
audited consolidated statements of income, stockholders' equity and cash flows
for the fiscal year ended December 31, 2004.
9. Any amounts payable to employees of the Company in lieu of Options granted or
promised to such employees as described in Section 3.4(d)(i) of the Company
Disclosure Letter.
10. Any loans made by the Company to employees in order to enable employees to
exercise some or all of their vested stock options. Such loans will be made only
on terms that provide that such loans will be repaid out of the Initial Merger
Consideration to be paid to such employees.
Target Working Capital
The Target Working Capital shall be an amount equal to $8,281,000. Such amount
is calculated per the table below and is based on the Company's and its
Subsidiaries' Balance Sheet as of September 30, 2005.
TARGET WORKING CAPITAL
CURRENT ASSETS
Accounts receivable - net $18,958
Prepaid and other current assets 3,052
-------
Total Current Assets $22,010
CURRENT LIABILITIES
Accounts payable $ 4,955
Accrued Expenses 8,785
Income Tax Payable (11)
-------
Total Current Liabilities $13,729
-------
TARGET WORKING CAPITAL $ 8,281
=======
EXHIBIT E
TO MERGER AGREEMENT
MATTERS AS TO WHICH COMPANY COUNSEL WILL OPINE
1. The Company has been duly incorporated and is existing and in good
standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power and authority to execute
and deliver the Agreement and Plan of Merger.
3. The execution and delivery of the Agreement and Plan of Merger by the
Company has been duly authorized by all necessary corporate action on the part
of the Company.
----------
* Opinion will be based solely on examination of certificates issued by
Delaware Secretary of State.
