AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DAOU SYSTEMS, INC.,
DAOU-INTEGREX, INC.,
INTEGREX SYSTEMS CORPORATION
AND
THE STOCKHOLDERS OF INTEGREX SYSTEMS CORPORATION
LISTED ON THE SIGNATURE PAGE HERETO
Dated as of July 8, 1997
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . .-2-
SECTION 1.01. THE MERGER. . . . . . . . . . . . . . . . . . . . . . . .-2-
SECTION 1.02. EFFECTIVE TIME. . . . . . . . . . . . . . . . . . . . . .-2-
SECTION 1.03. EFFECT OF THE MERGER. . . . . . . . . . . . . . . . . . .-2-
SECTION 1.04. CERTIFICATE OF INCORPORATION; BY-LAWS . . . . . . . . . .-2-
SECTION 1.05. DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . . .-2-
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES . . . . . .-3-
SECTION 2.01. CONVERSION OF SECURITIES. . . . . . . . . . . . . . . . .-3-
SECTION 2.02. EXCHANGE OF CERTIFICATES. . . . . . . . . . . . . . . . .-3-
SECTION 2.03. STOCK TRANSFER BOOKS. . . . . . . . . . . . . . . . . . .-5-
SECTION 2.04. DISSENTING SHARES . . . . . . . . . . . . . . . . . . . .-5-
ARTICLE IIA VOTING RIGHTS AND PROXY. . . . . . . . . . . . . . . . . . . .-6-
SECTION 2.01A. CONSENT AND VOTING AGREEMENT. . . . . . . . . . . . . . .-6-
SECTION 2.02X. XXXXX OF PROXY. . . . . . . . . . . . . . . . . . . . . .-6-
ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . .-7-
SECTION 3.01. ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . .-7-
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. . . . . . . . .-7-
SECTION 3.03. CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . .-7-
SECTION 3.04. AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . .-8-
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. . . . . . . .-8-
SECTION 3.06. PERMITS; COMPLIANCE . . . . . . . . . . . . . . . . . . .-8-
SECTION 3.07. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . .-9-
SECTION 3.08. NO UNDISCLOSED LIABILITIES. . . . . . . . . . . . . . . .-9-
SECTION 3.09. ABSENCE OF CERTAIN CHANGES OR EVENTS. . . . . . . . . . .-9-
SECTION 3.10. ABSENCE OF LITIGATION . . . . . . . . . . . . . . . . . -11-
SECTION 3.11. VOTE REQUIRED . . . . . . . . . . . . . . . . . . . . . -11-
SECTION 3.12. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . -11-
SECTION 3.13. COMPANY ACTION. . . . . . . . . . . . . . . . . . . . . -12-
SECTION 3.14. TAX MATTERS; "POOLING OF INTERESTS" . . . . . . . . . . -12-
SECTION 3.15. REAL PROPERTY . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 3.16. INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . -13-
SECTION 3.17. TANGIBLE ASSETS . . . . . . . . . . . . . . . . . . . . -15-
SECTION 3.18. INVENTORY . . . . . . . . . . . . . . . . . . . . . . . -15-
SECTION 3.19. CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . -15-
SECTION 3.20. NOTES AND ACCOUNTS RECEIVABLE . . . . . . . . . . . . . -00-
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XXXXXXX 3.21. POWERS OF ATTORNEY. . . . . . . . . . . . . . . . . . . -17-
SECTION 3.22. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . -17-
SECTION 3.23. EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . -17-
SECTION 3.24. EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . -18-
SECTION 3.25. GUARANTIES. . . . . . . . . . . . . . . . . . . . . . . -19-
SECTION 3.26. ENVIRONMENT, HEALTH AND SAFETY. . . . . . . . . . . . . -19-
SECTION 3.27. CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY . . . . -19-
SECTION 3.28. DELIVERY OF INFORMATION . . . . . . . . . . . . . . . . -20-
SECTION 3.29. PRODUCT AND SERVICE WARRANTIES. . . . . . . . . . . . . -20-
SECTION 3.30. PRODUCT AND SERVICE LIABILITY . . . . . . . . . . . . . -20-
SECTION 3.31. CUSTOMER/SUPPLIER RELATIONSHIPS . . . . . . . . . . . . -20-
SECTION 3.32. CERTAIN BUSINESS PRACTICES. . . . . . . . . . . . . . . -20-
SECTION 3.33. DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . -20-
SECTION 3.34. LIMITATION ON REPRESENTATIONS AND WARRANTIES. . . . . . -21-
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER . . . . . -21-
SECTION 3.01A. AUTHORIZATION OF TRANSACTION. . . . . . . . . . . . . . -21-
SECTION 3.02A. NONCONTRAVENTION. . . . . . . . . . . . . . . . . . . . -21-
SECTION 3.03A. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . -21-
SECTION 3.04A. COMPANY SHARES. . . . . . . . . . . . . . . . . . . . . -21-
SECTION 3.05A. ACCREDITED INVESTOR . . . . . . . . . . . . . . . . . . -22-
SECTION 3.06A. INVESTMENT INTENTION. . . . . . . . . . . . . . . . . . -22-
SECTION 3.07A. EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 3.08A. LIMITATION ON REPRESENTATIONS AND WARRANTIES. . . . . . -22-
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB. . . -22-
SECTION 4.01. ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . -22-
SECTION 4.02. CERTIFICATES OF INCORPORATION AND BY-LAWS . . . . . . . -22-
SECTION 4.03. PARENT COMMON STOCK; CAPITALIZATION . . . . . . . . . . -23-
SECTION 4.04. AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . -23-
SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. . . . . . . -23-
SECTION 4.06. REPORTS; FINANCIAL STATEMENTS . . . . . . . . . . . . . -24-
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. . . . . . . . . . -24-
SECTION 4.08. OWNERSHIP OF PARENT SUB; NO PRIOR ACTIVITIES. . . . . . -25-
SECTION 4.09. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . -25-
SECTION 4.10. TAX MATTERS; "POOLING OF INTERESTS" . . . . . . . . . . -25-
SECTION 4.11. LIMITATION ON REPRESENTATIONS AND WARRANTIES. . . . . . -25-
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ARTICLE V COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY. . . . . . . . . . -26-
SECTION 5.02. NEGATIVE COVENANTS OF THE COMPANY . . . . . . . . . . . -26-
SECTION 5.03. NEGATIVE COVENANTS OF PARENT. . . . . . . . . . . . . . -27-
SECTION 5.04. ACCESS AND INFORMATION. . . . . . . . . . . . . . . . . -28-
SECTION 5.05. ESCROW AGREEMENT. . . . . . . . . . . . . . . . . . . . -28-
ARTICLE VI ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . -28-
SECTION 6.01. APPROPRIATE ACTION; CONSENTS; FILINGS . . . . . . . . . -28-
SECTION 6.02. TAX TREATMENT; "POOLING OF INTERESTS"; AFFILIATES . . . -29-
SECTION 6.03. PUBLIC ANNOUNCEMENTS. . . . . . . . . . . . . . . . . . -30-
SECTION 6.04. OBLIGATIONS OF PARENT SUB . . . . . . . . . . . . . . . -30-
SECTION 6.05. RESTRICTIVE LEGEND. . . . . . . . . . . . . . . . . . . -30-
SECTION 6.06. REGISTRATION RIGHTS.. . . . . . . . . . . . . . . . . . -31-
SECTION 6.07. DELIVERY OF SEC FILINGS . . . . . . . . . . . . . . . . -33-
SECTION 6.08. TERMINATION OF SHAREHOLDERS' AGREEMENT AND FIRST
REFUSAL AGREEMENT . . . . . . . . . . . . . . . . . . . -33-
SECTION 6.09. BEST EFFORTS. . . . . . . . . . . . . . . . . . . . . . -34-
ARTICLE VII CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . -34-
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . -34-
SECTION 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT. . . . . -34-
SECTION 7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . -36-
ARTICLE VIII TERMINATION, AMENDMENT, WAIVER AND INDEMNIFICATION . . . . . -36-
SECTION 8.01. TERMINATION . . . . . . . . . . . . . . . . . . . . . . -36-
SECTION 8.02. INVESTIGATION . . . . . . . . . . . . . . . . . . . . . -37-
SECTION 8.03. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . -37-
SECTION 8.04. WAIVER; REMEDIES CUMULATIVE . . . . . . . . . . . . . . -37-
SECTION 8.05. FEES, EXPENSES AND OTHER PAYMENTS . . . . . . . . . . . -37-
SECTION 8.06. STOCKHOLDER INDEMNIFICATION, HOLD BACK AND
ESCROW. . . . . . . . . . . . . . . . . . . . . . . . . -38-
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ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . -41-
SECTION 9.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES and
AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . -41-
SECTION 9.02. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . -41-
SECTION 9.03. CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . -42-
SECTION 9.04. HEADINGS; CONSTRUCTION. . . . . . . . . . . . . . . . . -48-
SECTION 9.05. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . -48-
SECTION 9.06. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . -48-
SECTION 9.07. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . -49-
SECTION 9.08. PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . -49-
SECTION 9.09. FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . -49-
SECTION 9.10. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . -49-
SECTION 9.11. JURISDICTION; SERVICE OF PROCESS. . . . . . . . . . . . -49-
SECTION 9.12. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . -49-
INDEX TO EXHIBITS
Exhibit 2.01A Written Consent of the Stockholders of Integrex Systems
Corporation
Exhibit 5.05 Form of Escrow Agreement
Exhibit 7.02(f) Legal Opinion of Counsel to the Company
Exhibit 7.02(g) Form of Affiliate Agreement
Exhibit 7.02(h)(i) Form of Xxxxxxx Employment Agreement
Exhibit 7.02(h)(ii) Form of Xxxxxxx Employment Agreement
Exhibit 7.02(h)(iii) Form of Xxxxxxx Employment Agreement
Exhibit 7.02(h)(iv) Form of Xxxxx Consulting Agreement
Exhibit 7.02(i) Form of Non-Competition Agreement
Exhibit 7.03(d) Legal Opinion of Counsel to Parent
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INDEX TO SCHEDULES
SCHEDULE
NUMBER DESCRIPTION
------ -----------
3.01 Subsidiaries and Investments in Other Persons
3.02 Officers and Directors and Certificates of Incorporation and By-Laws
3.03 Stockholders
3.05 Filings and Consents
3.07 Financial Statements
3.08 Liabilities
3.09 Certain Changes or Events of the Company
3.10 Litigation Matters
3.14(c) Tax Returns
3.14(f) Gains and Losses
3.15(b) Real Property Leased or Subleased
3.16(c) Intellectual Property Owned
3.16(d) Intellectual Property Licensed, Sublicensed, Agreements or Permission
3.17 Tangible Assets
3.19 Contracts
3.22 Insurance Policies
3.24 Employee Benefit Plans
3.26 Environmental Matters
3.27 Certain Business Relationships with the Company
3.29 Standard Sale, Lease and Performance Terms and Conditions
5.02 Negative Covenants
7.02(d) Contracts or Agreements Requiring Consents or Waivers
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THIS AGREEMENT AND PLAN OF MERGER, dated as of July 8, 1997 (this
"AGREEMENT"), by and among DAOU Systems, Inc., a Delaware corporation
("PARENT"), DAOU-Integrex, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("PARENT SUB"), Integrex Systems Corporation, a Delaware
corporation (the "COMPANY"), and all of the stockholders of the Company
listed on the signature page hereto (the "STOCKHOLDERS").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the General Corporation Law of the State of Delaware
("DELAWARE LAW"), the Company will merge with and into Parent Sub (the
"MERGER");
WHEREAS, the Board of Directors of the Company has determined that the
Merger is in the best interests of the Company and the Stockholders, has
approved and adopted this Agreement and the transactions contemplated hereby,
and has recommended that the Stockholders approve and adopt this Agreement
and the transactions contemplated hereby;
WHEREAS, the Stockholders hold one hundred percent (100%) of the
outstanding voting power of the Company, have irrevocably consented to the
execution and delivery of this Agreement and the consummation of the Merger
and have irrevocably agreed to vote in favor of the Merger at a meeting of
Stockholders or by a written consent executed by each Stockholder, and such
consent and agreement is an essential condition and inducement to Parent to
enter into this Agreement;
WHEREAS, the Boards of Directors of Parent and Parent Sub have determined
that the Merger is in the best interests of Parent and Parent Sub and their
respective stockholders, and have approved and adopted this Agreement and the
transactions contemplated hereby;
WHEREAS, the Company, Parent and Parent Sub intend that the Merger shall
constitute a "reorganization" under Section 368(a)(1)(A) of the Code, by
application of Section 368(a)(2)(D) of the Code, and that this Agreement
shall constitute a "plan of reorganization" for the purposes of Section 368
of the Code;
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests"; and
WHEREAS, certain capitalized terms used in this Agreement are defined in
Section 9.03;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
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ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Delaware Law, at the
Effective Time (as defined in Section 1.02), the Company shall be merged with
and into Parent Sub. As a result of the Merger, the separate corporate
existence of the Company shall cease and Parent Sub shall continue as the
surviving corporation in the Merger (the "SURVIVING CORPORATION"). The name
of the Surviving Corporation shall be DAOU-Integrex, Inc.
SECTION 1.02. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or, if permissible, waiver of the closing conditions set forth
in Article VII, the parties hereto 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 required by, and
executed in accordance with the relevant provisions of, Delaware Law (the
date and time of such filing, or such later time as may be agreed to in
writing by Parent, Parent Sub and the Company and specified in the
Certificate of Merger, being the "EFFECTIVE TIME").
SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, except as otherwise provided herein, all of the
property, rights, privileges, powers and franchises of Parent Sub and the
Company shall vest in the Surviving Corporation, and all debts, liabilities
and duties of Parent Sub and the Company shall become the debts, liabilities
and duties of the Surviving Corporation.
SECTION 1.04. CERTIFICATE OF INCORPORATION; BY-LAWS. At the Effective
Time, the Certificate of Incorporation of Parent Sub as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation, and the By-Laws of Parent Sub shall be the By-Laws of
the Surviving Corporation.
SECTION 1.05. DIRECTORS AND OFFICERS. The directors of Parent Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate
of Incorporation and By-Laws of the Surviving Corporation, and the officers
of Parent Sub 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.
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ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. CONVERSION OF SECURITIES.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of Parent Sub, the Company or the holders of any of the
following securities, each share of the Company's common stock, $1.00 par
value per share ("COMPANY COMMON STOCK"), issued and outstanding immediately
prior to the Effective Time (excluding any Dissenting Shares, if applicable)
shall be converted into the right to receive that number of fully paid,
nonassessable shares of Parent's common stock, par value $.001 per share
("PARENT COMMON STOCK"), equal to the Exchange Ratio, subject to adjustment
as set forth in Sections 2.01(b) and subject to pro rata withholding of
shares to be held in escrow pursuant to Section 5.05. Notwithstanding
anything to the contrary, (i) Parent, Parent Sub and the Stockholders shall
have no obligation to consummate the transactions contemplated herein if at
the Effective Time the Market Price of Parent Common Stock is less than Nine
Dollars ($9.00) per share and (ii) in no event shall less than an aggregate
of Seven Hundred Thousand (700,000) shares of Parent Common Stock be issued
to the Stockholders pursuant to the Merger, including all shares of Parent
Common Stock to be held in the Escrow Account.
(b) If between the date of this Agreement and the Effective Time the
outstanding shares of Parent Common Stock or Company Common Stock shall have
been changed into a different number of shares of a different class, by
reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Exchange
Ratio shall be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(c) At the Effective Time, all of the shares of Company Common Stock
shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each Certificate previously evidencing
any such shares shall thereafter represent only the right to receive the
Merger Consideration (as defined in Section 2.02(b)). The holders of such
Certificates previously evidencing such shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock, except as
otherwise provided herein or by law. Such Certificates previously evidencing
shares of Company Common Stock shall be exchanged for certificates evidencing
whole shares of Parent Common Stock issued in consideration therefor in
accordance with the allocation procedures of this Section 2.01 and upon the
surrender of such Certificates in accordance with the provisions of Section
2.02. No fractional shares of Parent Common Stock shall be issued, and, in
lieu thereof, a cash payment shall be made pursuant to Section 2.02(e).
SECTION 2.02. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, Parent shall deposit, or
shall cause to be deposited, with Xxxxx & XxXxxxxx or such other Person
designated by Parent and reasonably satisfactory to the Company (the
"EXCHANGE AGENT"), for the benefit of the Stockholders and for exchange in
accordance with this Article II through the Exchange Agent (i) certificates
evidencing
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such number of whole shares of Parent Common Stock equal to the Exchange
Ratio multiplied by the number of shares of Company Common Stock outstanding
and (ii) cash in consideration of fractional shares as provided in Section
2.02(e) (such Parent Common Stock and cash being hereinafter referred to as
the "EXCHANGE FUND"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the shares of Parent Common Stock (except that ten
percent (10%) of such shares of Parent Common Stock shall be delivered to an
escrow agent pursuant to Sections 5.05 and 8.06) and cash out of the Exchange
Fund. Except as contemplated by Section 2.02(f), the Exchange Fund shall not
be used for any other purpose.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time evidenced outstanding shares of Company Common Stock
(other than Dissenting Shares, if applicable) (collectively, the
"CERTIFICATES"), (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates evidencing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange therefor (A) certificates evidencing that number of whole shares of
Parent Common Stock which such holder has the right to receive in respect of
the shares of Company Common Stock formerly evidenced by such Certificate in
accordance with Section 2.01, less that holder's pro rata portion of the
shares (rounded to the nearest whole share) to be held in escrow pursuant to
Sections 5.05 and 8.06 and (B) cash in lieu of fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 2.02(e)
(such shares of Parent Common Stock and cash, if any, being collectively, the
"MERGER CONSIDERATION"), and the Certificate so surrendered shall forthwith
be canceled. In the event of a transfer of ownership of shares of Company
Common Stock which is not registered in the transfer records of the Company,
a certificate evidencing the proper number of shares of Parent Common Stock
may be issued in accordance with this Article II to a transferee if the
Certificate evidencing such shares of Company Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer taxes
have been paid. Until surrendered as contemplated by this Section 2.02, each
of the Certificates shall be deemed at any time after the Effective Time to
evidence only the right to receive, upon such surrender, the Merger
Consideration.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF PARENT COMMON
STOCK. No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock evidenced
thereby, and no other part of the Merger Consideration shall be paid to any
such holder, until the holder of such Certificate shall surrender such
Certificate, at which time, subject to the effect of applicable Laws, there
shall be issued to the holder (i) certificates evidencing whole shares of
Parent Common Stock issued in exchange therefor, and the amount of any cash
payable with respect to a fractional share of Parent Common Stock to which
such holder is entitled pursuant to Section 2.02(e) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore
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paid with respect to such whole shares of Parent Common Stock, and (ii) at
the appropriate payment date, the amount of dividends or other distributions
(without interest thereon), with a record date after the Effective Time but
prior to surrender and a payment date occurring after surrender, payable with
respect to such whole shares of Parent Common Stock. No interest shall be
paid on the Merger Consideration.
(d) NO FURTHER RIGHTS IN COMPANY COMMON STOCK. All shares of Parent
Common Stock issued and cash paid upon exchange of the shares of Company
Common Stock in accordance with the terms hereof shall be deemed to have been
issued or paid in full satisfaction of all rights pertaining to such shares
of Company Common Stock.
(e) NO FRACTIONAL SHARES.
(i) No certificates or scrip evidencing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of the
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Parent.
(ii) Each holder of a Certificate having a fractional interest
arising upon the conversion of such Certificate shall, at the time of
surrender of such Certificate, be paid by the Exchange Agent an amount in
cash equal to the value of such fractional interest based on a price per
share equal to the Market Price.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the holders of Company Common Stock for two
(2) years after the Effective Time shall be delivered to Parent, upon demand,
and any holders of Company Common Stock who have not theretofore complied
with this Article II shall thereafter look only to Parent for the Merger
Consideration to which they are entitled.
(g) NO LIABILITY. Neither Parent nor the Surviving Corporation shall be
liable to any holder of shares of Company Common Stock for any shares of
Parent Common Stock, cash or dividends or distributions with respect thereto
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
SECTION 2.03. STOCK TRANSFER BOOKS. On the date hereof, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. On or after the Effective Time, any Certificates
presented to the Exchange Agent for any reason shall be converted into the
Merger Consideration.
SECTION 2.04. DISSENTING SHARES. If required under Delaware Law,
notwithstanding any other provisions of this Agreement to the contrary,
shares of Company Common Stock that are outstanding immediately prior to the
Effective Time and which are held by stockholders who shall have not voted in
favor of the Merger or consented thereto in writing and who shall have
demanded properly, in writing, appraisal for such shares in accordance with
Section 262 of Delaware Law (collectively, the "DISSENTING SHARES") shall not
be converted into or represent the right to receive the Merger Consideration.
Such stockholders shall be entitled to receive payment of the appraised
value of such shares of Company Common Stock held by them in accordance with
the provisions
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of Section 262 of Delaware Law, except that all Dissenting Shares held by
stockholders who have failed to perfect or who effectively have withdrawn or
lost their rights to appraisal of such shares of Company Common Stock under
Section 262 of Delaware Law shall thereupon be deemed to have been converted
into and to have become exchangeable, as of the Effective Time, for the right
to receive, without any interest thereon, the Merger Consideration, upon
surrender, in the manner provided in Section 2.02, of the Certificate or
Certificates that formerly evidenced such shares of Company Common Stock.
Any payments required to be made to the holders of any Dissenting Shares
shall be funded by Parent or the Surviving Corporation.
ARTICLE IIA
VOTING RIGHTS AND PROXY
SECTION 2.01A. CONSENT AND VOTING AGREEMENT. Each Stockholder hereby (a)
irrevocably consents to the execution and delivery of this Agreement and to
the consummation of the Merger and shall contemporaneously herewith execute
the written consent attached hereto as EXHIBIT 2.01A (the "CONSENT"), and (b)
as long as this Agreement has not been terminated prior to the date specified
in Section 8.01(f), further irrevocably agrees to vote all Company Common
Stock as to which such Stockholder is entitled to vote at a meeting of the
stockholders of the Company if any meeting is so held, or by written consent
without a meeting as follows: (i) in favor of approval and adoption of this
Agreement and the transactions contemplated hereby; (ii) against any action
or agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of the Company or such
Stockholder under this Agreement; (iii) against any action or agreement
(other than this Agreement or the transactions contemplated by this Agreement
or the termination of this Agreement in accordance with its terms), that
would, directly or indirectly, impede, interfere with, delay, postpone or
attempt to discourage the Merger, including, without limitation: (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company; (B) a sale or transfer of a
material amount of Assets of the Company or a reorganization,
recapitalization or liquidation of the Company; (C) any change in the
management or board of directors of the Company or any Competing Transaction,
except as otherwise agreed to in writing by Parent; (D) any material change
in the present capitalization or dividend policy of the Company; or (E) any
other material change in the Company's corporate structure or business.
SECTION 2.02X. XXXXX OF PROXY. Each Stockholder hereby irrevocably
appoints each of the Chief Executive Officer, President and Chief Financial
Officer of Parent, each with full power of substitution (each such individual
and his substitutes being referred to herein as the "PROXY"), as attorneys
and proxies to vote all Company Common Stock on all matters referred to in
Section 2.01A as to which such Stockholder is entitled to vote at a meeting
of the stockholders of the Company or to which he is entitled to express
consent or dissent to corporate action in writing without a meeting, in the
Proxy's absolute, sole and binding discretion. Each Stockholder agrees to
refrain from taking any action contrary to or in any manner inconsistent with
the terms of this Agreement. Each Stockholder agrees that this grant of
proxy is irrevocable and coupled with an interest and agrees that a person
designated as Proxy pursuant hereto may, at any time, name any other person
as his substituted Proxy to act pursuant hereto, either as to a specific
matter or as to all matters. Each Stockholder hereby revokes any proxy
previously granted by him or her with respect to voting his or her shares of
Company Common Stock. In discharging its powers under this
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Agreement, the Proxy may rely upon advice of counsel to Parent, and any vote
made or action taken by the Proxy in reliance upon such advice of counsel
shall be deemed to have been made in good faith by the Proxy. This grant of
proxy shall terminate upon the termination of this Agreement pursuant to
Article VIII hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
Each of the Company and the Stockholders hereby represents and warrants,
jointly and severally, to Parent and Parent Sub as follows:
SECTION 3.01. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
Laws of the jurisdiction of its incorporation or organization, has all
requisite corporate or other power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted, and
is duly qualified and in good standing to do business in each jurisdiction in
which the nature of the business conducted by it or the ownership or leasing
of its properties makes such qualification necessary. Except as set forth in
SCHEDULE 3.01, the Company has no Subsidiaries, and does not, directly or
indirectly, own or control any investment or interest (whether in the form of
debt or equity) in any other Person.
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. SCHEDULE 3.02
contains (i) a list of the officers and directors of the Company and (ii)
complete and correct copies of the Company's Certificate of Incorporation and
By-Laws or equivalent organizational documents, in each case as amended or
restated. The Company is not in violation of any of the provisions of its
Certificate of Incorporation or By-Laws or equivalent organizational
documents, in each case as amended or restated.
SECTION 3.03. CAPITALIZATION. The authorized capital stock of the
Company consists of Twenty-Five Thousand (25,000) shares of Company Common
Stock. As of June 30, 1997, (a) Eleven Thousand Five Hundred Twenty-Five
(11,525) shares of Company Common Stock were issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights created by statute, the Company's
Certificate of Incorporation or By-Laws or any agreement to which the Company
is a party or bound, (b) no shares of Company Common Stock were held in
treasury of the Company and (c) SCHEDULE 3.03 sets forth the name and address
of each holder of Company Common Stock and the number of shares of Company
Common Stock held by such holder. There are no bonds, debentures, notes or
other indebtedness, issued or outstanding, having the right to vote on any
matters on which the Company's stockholders may vote. There are no options,
warrants, calls or other rights (including registration rights), agreements,
arrangements or commitments of any character, presently outstanding, which
(i) obligate the Company to issue, deliver or sell shares of its capital
stock or debt securities, (ii) obligate the Company to grant, extend or enter
into any such option, warrant, call or other such right, agreement,
arrangement or commitment, (iii) obligate the Company to repurchase, redeem
or otherwise acquire any shares of Company Common Stock, or (iv) relate to
the issued or unissued capital stock of, or other equity interests in, the
Company.
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SECTION 3.04. AUTHORITY. The Company has all requisite corporate power
and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action (including, with respect to the Merger, the approval and
adoption of this Agreement by the Stockholders who hold one hundred percent
(100%) of the outstanding shares of Company Common Stock) and no other
corporate proceeding on the part of the Company is necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and, assuming
the due authorization, execution and delivery thereof by the Stockholders,
Parent and Parent Sub, constitutes the legal, valid and binding obligation of
the Company enforceable in accordance with its terms.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in SCHEDULE 3.05, the execution and delivery of
this Agreement by the Company does not, and the performance of this Agreement
by the Company will not (i) conflict with or violate the Company's
Certificate of Incorporation or By-Laws or equivalent organizational
documents, in each case as amended or restated, (ii) conflict with or violate
any federal, state, foreign or local law, statute, ordinance, rule,
regulation, order, judgment or decree (collectively, "LAWS") in effect as of
the date of this Agreement and applicable to the Company or by which any of
its properties is bound or subject to, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or require payment under, or
result in the creation of an Encumbrance on, any of the properties or Assets
of the Company pursuant to, any note, bond, mortgage, indenture, Contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or any of
its properties is bound or subject.
(b) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require
the Company to obtain any consent, approval, authorization or permit of, or
to make any filing with or notification to, any governmental or regulatory
authority, domestic or foreign ("GOVERNMENTAL ENTITIES") based on Laws and
other requirements of Governmental Entities in effect as of the date of this
Agreement, except for applicable requirements, if any, of the state
securities or blue sky laws ("BLUE SKY LAWS"), and the filing and recordation
of appropriate merger documents as required by Delaware Law.
SECTION 3.06. PERMITS; COMPLIANCE. The Company is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own,
lease and operate its properties and to carry on its business as it is now
being conducted (collectively, the "COMPANY PERMITS"), and, to the Knowledge
of the Stockholders and the Company, there is no action, proceeding or
investigation pending or threatened regarding suspension or cancellation of
any of the Company Permits. The Company is not in conflict with, or in
default or violation of (a) any Law applicable to the Company or which any of
its properties is bound by or subject to or (b) any of the Company Permits.
Since December 31, 1996, the Company has not received from any Governmental
Entity any written notification with respect to possible conflicts, defaults
or violations of Laws.
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SECTION 3.07. FINANCIAL STATEMENTS. SCHEDULE 3.07 contains true,
correct and complete copies of (a) the Balance Sheets of the Company as of
December 31, 1996 and as of December 31, 1995, and the related Statements of
Operations, Statements of Cash Flows and Statements of Stockholders Equity
for the fiscal years then ended and (b) the Balance Sheet of the Company as
of May 31, 1997 (the "INTERIM BALANCE SHEET") and the related Statement of
Operations and Statement of Stockholders Equity ((a) an (b) are collectively
referred to herein as the "FINANCIAL STATEMENTS"). For purposes of this
Agreement and except with respect to the representations and warranties made
in this Section 3.07, references to the Interim Balance Sheet shall not
include any notes and schedules in the Financial Statements. The Financial
Statements are attached hereto as SCHEDULE 3.07 and have been prepared from
books and records of the Company in accordance with accounting principles
applied on a basis consistent with preceding years and throughout the periods
involved (except as otherwise noted therein). The Financial Statements
fairly present the financial condition, results of operations and changes in
cash flows of the Company at the dates thereof and for the periods indicated
in the Statements of Operations, Cash Flows and Stockholders Equity. No
financial statement of any Person is required by GAAP to be included in the
Financial Statements.
SECTION 3.08. NO UNDISCLOSED LIABILITIES. Except as set forth on
SCHEDULE 3.08 and to the Knowledge of the Stockholders and the Company, the
Company has no liabilities or other obligations of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise
("LIABILITIES"), and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a
Liability, other than Liabilities fully reflected or reserved against on the
face of the Interim Balance Sheet (rather than in any notes thereto) as
adjusted for Liabilities incurred in the Ordinary Course of Business since
May 31, 1997 through the Effective Time.
SECTION 3.09. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1996, there has not been any material adverse change in the business,
financial condition, operations, results of operations or future prospects of
the Company. Without limiting the generality of the foregoing, since that
date and except as otherwise disclosed in SCHEDULE 3.09:
(a) the Company has not sold, leased, transferred, or assigned any of
its Assets, tangible or intangible, other than sales to its customers for
fair consideration in the Ordinary Course of Business or other than as fully
reflected on the face of the Interim Balance Sheet (rather than in any notes
thereto);
(b) the Company has not entered into any agreement, Contract, lease or
license (or series of related agreements, Contracts, leases and licenses)
outside the Ordinary Course of Business;
(c) to the Knowledge of the Stockholders and the Company, there is no
fact, condition or event relating to (i) the potential loss of the benefit
of, or any material change in, any relationship with any customers, clients,
suppliers, key employees or insurers, except where such loss or change was
caused by actions or statements made by Parent and the Parent Representatives
prior to the Effective Time, or (ii) price increases for parts, raw
materials, supplies, services or equipment purchased from present suppliers
or vendors which is, with the lapse of time or the occurrence of such event
or condition is reasonably likely to be materially adverse to the financial
condition, business, Assets, properties or operations of the Company;
-9-
(d) no party (including the Company) has accelerated, terminated,
modified or canceled any agreement, Contract, lease or license (or series of
related agreements, Contracts, leases and licenses) to which the Company is a
party or by which the Company is bound;
(e) the Company has not imposed any Security Interest upon any of its
Assets, tangible or intangible;
(f) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than Thirty Thousand
Dollars ($30,000) or outside the Ordinary Course of Business;
(g) the Company has not made any capital investment in, any loan to, or
any acquisition of the securities or Assets of, any other Person (or series
of related capital investments, loans, and acquisitions);
(h) the Company has not issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for borrowed money
or capitalized lease obligation;
(i) the Company has not delayed or postponed the payment of accounts
payable or other Liabilities outside the Ordinary Course of Business;
(j) the Company has not canceled, compromised, waived or released any
right or claim (or series of related rights and claims);
(k) the Company has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property;
(l) there has been no change made or authorized in the Company's
Certificate of Incorporation or By-Laws or equivalent organizational
documents, in each case as amended or restated;
(m) the Company has not issued, sold or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other rights to purchase
or obtain (including upon conversion, exchange, or exercise) any of its
capital stock;
(n) the Company has not declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its capital
stock;
(o) the Company has not experienced any damage, destruction or Loss
(whether or not covered by insurance) to its property;
(p) the Company has not made any loan to, or entered into any other
transaction with, any of its directors, officers and employees;
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(q) the Company has not entered into any employment Contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such Contract or agreement;
(r) the Company has not granted any increase in the base compensation of
any of its directors, officers and employees;
(s) the Company has not adopted, amended, modified or terminated any
bonus, profit-sharing, incentive, severance or other plan, Contract or
commitment for the benefit of any of its directors, officers and employees
(or taken any such action with respect to any other Employee Benefit Plan);
(t) the Company has not made any other change in employment terms for
any of its directors, officers and employees outside the Ordinary Course of
Business;
(u) the Company has not made or pledged to make any charitable or other
capital contribution;
(v) there has not been any other occurrence, event, incident, action,
failure to act or transaction outside the Ordinary Course of Business
involving the Company; and
(w) the Company has not committed to any of the foregoing.
SECTION 3.10. ABSENCE OF LITIGATION. Except as set forth on SCHEDULE
3.10, (a) there is no claim, action, suit, litigation, proceeding,
arbitration or investigation of any kind, at law or in equity (including
actions or proceedings seeking injunctive relief), pending or, to the
Knowledge of the Stockholders and the Company, threatened against the Company
or any properties or rights of the Company, and (b) the Company is not
subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement with or continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction, decree or
award of any Governmental Entity or arbitrator. In respect of the matters
relating to or arising in connection with the actions set forth in SCHEDULE
3.10 and to the Knowledge of the Stockholders and the Company, there is no
fact, event, condition, circumstance or other matter which either has, or is
reasonably likely to have resulted in, an event or determination having a
Company Material Adverse Effect. The Company has delivered to Parent copies
of all pleadings, correspondence and other documents relating to each matter
disclosed in SCHEDULE 3.10.
SECTION 3.11. VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock is the only vote
of the holders of any class or series of Company capital stock necessary to
approve the Merger. The Stockholders, by executing this Agreement, have
irrevocably consented to the Merger and have irrevocably agreed to vote in
favor of the Merger and have granted an irrevocable proxy to such effect.
Such action by the Stockholders is sufficient to constitute stockholder
approval of the Merger.
SECTION 3.12. BROKERS. The Company has no Liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement or for which Parent or Parent
Sub could become liable or obligated.
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SECTION 3.13. COMPANY ACTION. The Board of Directors of the Company (at
a meeting duly called and held in compliance with Delaware Law or by written
consent) has (a) determined that the Merger is in the best interests of the
Company and fair to the Stockholders, (b) approved the Merger in accordance
with the provisions of Delaware Law, and (c) recommended the approval of this
Agreement and the Merger by the holders of the Company Common Stock.
SECTION 3.14. TAX MATTERS; "POOLING OF INTERESTS".
(a) Neither the Company nor any of its Affiliates has taken or agreed to
take any action that would prevent the Merger from constituting (i) a
"reorganization" under Section 368(a)(1)(A) of the Code, by application of
Section 368(a)(2)(D) of the Code, or (ii) a "pooling of interests" in
accordance with GAAP and applicable SEC rules, including, without limitation,
the sale of any shares of Company Common Stock or Parent Common Stock during
the period commencing on the date which is thirty (30) days prior to the
Effective Time and ending on the Financial Result Date. The Company has
timely filed or will timely file all Tax Returns that it was or is required
to file. All such Tax Returns were correct and complete in all material
respects. All Taxes owed by the Company (whether or not shown on any Tax
Return) have been paid. The Company is not currently the beneficiary of any
extension of time within which to file any Tax Return. To the Knowledge of
the Stockholders and the Company, no claim has ever been made by an authority
in a jurisdiction where the Company does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the Assets of the Company that arose in connection with
any failure (or alleged failure) to pay any Tax.
(b) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party.
(c) There is no dispute or claim concerning any Tax Liability of the
Company claimed or raised by any Governmental Entity. SCHEDULE 3.14(c) lists
all federal, state, local and foreign income Tax Returns filed with respect
to the Company for taxable periods ended on or after December 31, 1994, none
of which has been audited or currently is the subject of audit by any
Governmental Entity. The Company has delivered to Parent correct and
complete copies of all federal income Tax Returns filed by the Company for
taxable periods ended on or after December 31, 1994.
(d) The Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) The Company has not made any payments, or is not obligated to make
any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code.
(f) SCHEDULE 3.14(f) sets forth, as of the most recent practicable date,
the tax basis of the Company's Assets.
(g) The unpaid Taxes of the Company (i) do not exceed the reserve for
Tax Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book
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and Tax income) set forth on the face of the Interim Balance Sheet (rather
than in any notes thereto) and (ii) will not exceed that reserve as adjusted
for the passage of time through the Effective Time in accordance with the
past custom and practice of the Company in filing their Tax Returns.
SECTION 3.15. REAL PROPERTY.
(a) The Company does not own any real property.
(b) SCHEDULE 3.15(b) lists and describes briefly all real property
leased or subleased to the Company. The Company has delivered to Parent
correct and complete copies of the leases and subleases listed in SCHEDULE
3.15(b). With respect to each lease and sublease listed in SCHEDULE 3.15(b):
(i) the lease or sublease is legal, valid, binding, enforceable
and in full force and effect in all material respects;
(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(iii) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification of a
material term or condition, or acceleration thereunder, except as disclosed
in SCHEDULE 3.15(b);
(iv) no party to the lease or sublease has repudiated any
provision thereof;
(v) there are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease;
(vi) The Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(vii) all facilities leased or subleased thereunder have received
all approvals of Governmental Entities (including licenses and permits)
required in connection with the operation thereof and have been operated and
maintained in accordance with applicable Laws; and
(viii) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities.
SECTION 3.16. INTELLECTUAL PROPERTY.
(a) The Company owns or has the right to use pursuant to license,
sublicense, agreement or permission all Intellectual Property necessary for
the operation of the Company's business as presently conducted. Each item of
Intellectual Property owned or used by the Company is owned or available for
use by the Company on identical terms and conditions immediately subsequent to
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the Effective Time. The Company has taken all reasonably necessary and
desirable action to maintain and protect each item of Intellectual Property
that it owns or uses.
(b) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Stockholders and none of
the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company has ever received any oral or
written charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or violation (including any
claim that the Company must license or refrain from using any Intellectual
Property rights of any third party). To the Company's Knowledge, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Company.
(c) SCHEDULE 3.16(c) identifies each patent or trademark and copyright
registration which has been issued to the Company or any Affiliate with
respect to any of its Intellectual Property, identifies each pending patent
application or application for registration which the Company or any
Affiliate has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which the Company or
any Affiliate has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). The Company has
delivered to Parent correct and complete copies of all such patents,
registrations, applications, licenses, agreements and permissions (as amended
to date). SCHEDULE 3.16(c) also identifies each trade name or unregistered
trademark used by the Company or any Affiliate in connection with any of its
businesses. With respect to each item of Intellectual Property required to
be identified in SCHEDULE 3.16(c):
(i) the Company possesses all right, title, and interest in and to
the item, free and clear of any Security Interest, license, or other
restriction;
(ii) such item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or, to the Knowledge of the
Stockholders and the Company, threatened which challenges the legality,
validity, enforceability, use or ownership of such item; and
(iv) the Company has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation or other conflict
with respect to such item.
(d) SCHEDULE 3.16(d) identifies each item of Intellectual Property that
any third party owns and that the Company or any Affiliate uses pursuant to
license, sublicense, agreement or permission, other than shrink-wrap licenses
for personal computer software. The Company has delivered to Parent correct
and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each item of Intellectual
Property required to be identified in SCHEDULE 3.16(d) and to the Knowledge
of the Stockholder and the Company:
(i) the license, sublicense, agreement or permission covering such
item is legal, valid, binding, enforceable and in full force and effect;
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(ii) the license, sublicense, agreement or permission will
continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the Effective Time;
(iii) no party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default or permit termination,
modification or acceleration thereunder;
(iv) no party to the license, sublicense, agreement or permission
has repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in items (i) through (iv) above are true and correct
with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling or charge;
(vii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or threatened which challenges the
legality, validity or enforceability of the underlying item of Intellectual
Property; and
(viii) the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(e) None of the Stockholders and the directors and officers (and
employees with responsibility for Intellectual Property matters) of the
Company has any Knowledge of any new products, inventions, procedures or
methods of manufacturing or processing that any competitors or other third
parties have developed which reasonably could be expected to supersede or
make obsolete any product or process of the Company.
SECTION 3.17. TANGIBLE ASSETS. Except as set forth on SCHEDULE 3.17,
the Company owns and has good and marketable title to the tangible property
and Assets necessary for the conduct of its business as presently conducted
and as proposed to be conducted. Each tangible Asset is free from material
defects, has been maintained in accordance with normal industry practice and
is in good operating condition and repair (subject to normal wear and tear).
SECTION 3.18. INVENTORY. The Company maintains no inventory of raw
materials, supplies, manufactured or purchased parts, goods in process or
finished goods, whatsoever.
SECTION 3.19. CONTRACTS. SCHEDULE 3.19 lists the following Contracts
and other agreements to which the Company is a party as of the date hereof:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of Ten Thousand Dollars ($10,000) per annum or a term of more than one
(1) year;
-15-
(b) any agreement (or group of related agreements) for the purchase or
sale of raw materials, commodities, supplies, products or other personal
property, which involves consideration in excess of Ten Thousand Dollars
($10,000), or for the furnishing or receipt of services, the performance of
which has a term more than six months, or involves consideration in excess of
Twenty-Five Thousand Dollars ($25,000);
(c) any partnership or joint venture agreement;
(d) any agreement (or group of related agreements) under which it has
created, incurred, assumed or guaranteed any indebtedness for borrowed money,
or any capitalized lease obligation, in excess of Ten Thousand Dollars
($10,000), or under which it has imposed a Security Interest on any of its
Assets, tangible or intangible;
(e) any agreement concerning confidentiality or noncompetition;
(f) any agreement with any of the Stockholders and their respective
Affiliates;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other material plan or
arrangement (including any Employee Benefit Plan) for the benefit of its
current or former directors, officers and employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a full-time,
part-time, consulting or other basis providing annual compensation in excess
of Forty Thousand Dollars ($40,000), or providing severance benefits;
(j) any agreement under which the consequences of a default or
termination could have a Company Material Adverse Effect; or
(k) any other agreement (or group of related agreements) the performance
of which involves consideration in excess of Twenty-Five Thousand Dollars
($25,000).
The Company has delivered to Parent a correct and complete copy of each
written agreement listed in SCHEDULE 3.19 and a written summary setting forth
the material terms and conditions of each oral agreement referred to in
SCHEDULE 3.19. With respect to each such agreement, and except as otherwise
disclosed in SCHEDULE 3.19: (i) such agreement is legal, valid, binding,
enforceable and in full force and effect in all material respects; (ii) such
agreement will continue to be legal, valid, binding, enforceable and in full
force and effect in all material respects following the consummation of the
transactions contemplated hereby; (iii) no party is in breach or default, and
no event has occurred which with notice or lapse of time would constitute a
breach or default, or permit termination, modification of any material term
or condition or acceleration, under such agreement; and (iv) no party has
repudiated any provision of such agreement.
SECTION 3.20. NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Company are reflected properly on its books and records and
are valid receivables subject to no setoffs or counterclaims, are current and
collectible and will be collected in accordance with their
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terms at their recorded amounts, subject only to the reserve for bad debts
set forth on the face of the Interim Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Effective Time in
accordance with the past custom and practice of the Company.
SECTION 3.21. POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company.
SECTION 3.22. INSURANCE. SCHEDULE 3.22 sets forth the following
information with respect to each current insurance policy (including policies
providing property, casualty, liability and workers' compensation coverage
and bond and surety arrangements) to which the Company has been a party, a
named insured, or otherwise the beneficiary of coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder and the name
of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage was on a
claims made, occurrence, or other basis) and amount (with a summary of the
amount of any deductibles and ceilings) of coverage; and
(e) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (i) such policy is legal, valid,
binding, enforceable and in full force and effect in all material respects;
(ii) such policy will continue to be legal, valid, binding, enforceable and
in full force and effect in all material respects following the consummation
of the transactions contemplated hereby; (iii) neither the Company nor any
other party to the policy is in breach or default (including with respect to
the payment of premiums or the giving of notices), and no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under such
policy; and (iv) no party to the policy has repudiated any provision thereof.
SCHEDULE 3.22 also describes any self-insurance arrangements affecting the
Company.
SECTION 3.23. EMPLOYEES. The Company has delivered to Parent a true and
complete list of all employees of the Company, their respective positions,
locations, salaries or hourly wages and severance arrangements, each as of
the date hereof. To the Knowledge of any of the Stockholders and the
directors and officers (and employees with responsibility for employment
matters) of the Company, no executive, key employee or group of employees,
except for Xxxxxxx X. Xxxxx who will become a consultant to Parent Sub
immediately following the Effective Time, has any plans to terminate
employment with the Company. Each employee of the Company is employed on an
"at will" basis and has no right to any material compensation following
termination of employment. The Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. To the Knowledge of the Stockholders and the Company, the Company
has
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not committed any unfair labor practice and there is no organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of the Company.
SECTION 3.24. EMPLOYEE BENEFITS.
(a) Except as set forth on SCHEDULE 3.24, with respect to all employees,
former employees, directors and independent contractors of the Company and
their dependents and beneficiaries, neither the Company nor any ERISA
Affiliate presently maintains, contributes to or has any Liability under or
with respect to any Employee Benefit Plan. The plans, programs and
arrangements set forth on SCHEDULE 3.24 are herein referred to as the
"COMPANY EMPLOYEE BENEFIT PLANS." Each Company Employee Benefit Plan (and
each related trust, insurance Contract or other funding arrangement) complies
in form and in operation in all material respects with the applicable
requirements of ERISA, the Code, other applicable Laws and governing
documents and agreements. With respect to each Company Employee Benefit Plan
and to the Knowledge of the Company and the Stockholders, there has been no
act or omission by the Company or any ERISA Affiliate that would impair the
right or ability of the Company or any ERISA Affiliate to unilaterally amend
in whole or part or terminate such Company Employee Benefit Plan at any time,
subject to the terms of any insurance Contract or other contractual
arrangements with third parties, and the Company has delivered to Parent true
and complete copies of: (i) the plan documents, including any related trust
agreements, insurance Contracts or other funding arrangements, or a written
summary of the terms and conditions of the plan if there is no written plan
document; (ii) the most recent IRS Form 5500; (iii) the most recent financial
statement and, if applicable, actuarial valuation; (iv) all correspondence
with the Internal Revenue Service, the Department of Labor and other
governmental agencies with respect to the past three (3) plan years other
than IRS Form 5500 filings; and (v) the most recent summary plan description.
(b) Neither the Company nor any of its directors, officers or employees
has any material Liability with respect to any Company Employee Benefit Plan
for failure to comply with ERISA, the Code, any other applicable Laws or any
governing documents or agreements.
(c) No Company Employee Benefit Plan is an Employee Pension Benefit
Plan, and no Company Employee Benefit Plan has any material unfunded
Liability. With respect to the Company Employee Benefit Plans, all
applicable contributions and premium payments for all periods ending prior to
the Effective Time (including periods from the first day of the then current
plan year to the Effective Time) shall be made prior to the Effective Time in
accordance with past practice or as expressly agreed to in advance by Parent.
(d) Neither the Company nor any ERISA Affiliate maintains, maintained,
contributes to, or has any Liability (including, but not limited to, current
or potential withdrawal Liability) with respect to any Multiemployer Plan or
Employee Pension Benefit Plan.
(e) With respect to all employees and former employees of the Company,
neither the Company nor any ERISA Affiliate presently maintains, contributes
to or has any Liability under any funded or unfunded medical, health or life
insurance plan or arrangement for present or future retirees or present or
future terminated employees except as required by the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, or state continuation coverage
Laws. There has been no act or acts which would result in a disallowance of
a deduction or the imposition of a tax
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pursuant to Section 4980B, or any predecessor provision, of the Code or any
related regulations. No event has occurred with respect to which the Company
or any Affiliates could be liable for a material Tax imposed by any of
Sections 4972, 4976, 4977, 4979 or 4980 of the Code, or for a material civil
penalty under Section 502(c) of ERISA.
(f) There is no pending, or to the Knowledge of the Company, threatened
legal action, proceeding, audit, examination or investigation against or
involving any Company Employee Benefit Plan maintained by the Company or any
ERISA Affiliate (other than routine claims for benefits). To the Knowledge
of the Company, there is no basis for, and there are no facts which could
give rise to, any such condition, legal action, proceeding or investigation.
Any bonding required with respect to any Company Employee Benefit Plans in
accordance with applicable provisions of ERISA has been obtained and is in
full force and effect.
SECTION 3.25. GUARANTIES. The Company is not a guarantor or otherwise
is liable for any Liability or obligation (including indebtedness) of any
other Person.
SECTION 3.26. ENVIRONMENT, HEALTH AND SAFETY.
(a) Except as set forth on SCHEDULE 3.26 and to the Knowledge of the
Stockholders and the Company without inquiry, the Company has complied with
all Environmental, Health and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand or notice has been
filed or commenced against the Company alleging any failure so to comply.
Without limiting the generality of the preceding sentence, the Company has
obtained and been in compliance with all of the terms and conditions of all
permits, licenses, and other authorizations which are required under, and has
complied with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health and Safety Laws.
(b) Except as set forth on SCHEDULE 3.26 and to the Knowledge of the
Stockholders and the Company without inquiry, the Company has no Liability
(and the Company has not handled or disposed of any substance, arranged for
the disposal of any substance, exposed any employee or other individual to
any substance or condition, or owned or operated any property or facility in
any manner that could form the basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
against the Company giving rise to any Liability) for damage to any site,
location, or body of water (surface or subsurface), for any illness of or
personal injury to any employee or other individual, or for any reason under
any Environmental, Health and Safety Law.
(c) To the Knowledge of the Stockholders and the Company without
inquiry, all properties owned or leased and equipment used in the business of
the Company, and its predecessors and Affiliates, have been free of asbestos,
PCB's, methylene chloride, trichloroethylene, 1,2-transdichloroethylene,
dioxins, dibenzofurans, and Extremely Hazardous Substances.
SECTION 3.27. CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except
as described in SCHEDULE 3.27, none of the Stockholders and their Affiliates
has been involved in any business arrangement or relationship with the
Company (other than in an employment or consulting
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capacity) within the past twelve (12) months, and none of the Stockholders
and their Affiliates owns any Asset, tangible or intangible, which is used in
the business of the Company.
SECTION 3.28. DELIVERY OF INFORMATION. Each of the Stockholders has
received a copy of the following documents relating to Parent: (i) the final
Prospectus to the Registration Statement on Form SB-2 dated February 12,
1997; and (ii) the Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1997. Each of the Stockholders acknowledges that he has reviewed
carefully the risk factors contained in the above referenced registration
statement.
SECTION 3.29. PRODUCT AND SERVICE WARRANTIES. Each product sold, leased
or delivered, and each service performed, by the Company has been in
conformity with all applicable contractual commitments and all express and
implied warranties, and the Company has no Liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against any of them giving rise to any
Liability) for the replacement or repair of any product, the substandard
performance of any service, or other damages in connection with the product
sold or services provided by the Company, subject only to the reserve for
product and service warranty claims set forth on the face of the Interim
Balance Sheet (rather than in any notes thereto) as adjusted for the passage
of time through the Effective Time in accordance with the past custom and
practice of the Company. No product sold, leased or delivered, or service
performed, by the Company is subject to any guaranty, warranty or other
indemnity beyond the applicable standard terms and conditions of sale, lease
or performance. SCHEDULE 3.29 includes copies of the standard terms and
conditions of sale, lease or performance for the Company (containing
applicable guaranty, warranty and indemnity provisions).
SECTION 3.30. PRODUCT AND SERVICE LIABILITY. The Company has no
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand
against the Company giving rise to any Liability) arising out of any injury
or damages (whether actual or alleged) to any Person or its property or its
business operations or prospects as a result of the ownership, possession or
use of (i) any product sold, leased or delivered by the Company or (ii) any
service performed by the Company.
SECTION 3.31. CUSTOMER/SUPPLIER RELATIONSHIPS. The Company enjoys good
commercial relationships with each of its customers and suppliers. Since
December 31, 1996, the Company has received no communication from any of its
customers or suppliers expressing significant dissatisfaction with its
commercial relationship with the Company.
SECTION 3.32. CERTAIN BUSINESS PRACTICES. Neither the Company nor any
director, officer, stockholder, agent or employee of the Company has (i) used
any funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
SECTION 3.33. DISCLOSURE. No representation or warranty made by the
Company and/or the Stockholders, nor any document, written information,
statement, financial statement, certificate, schedule or exhibit prepared and
furnished or to be prepared and furnished by the Company or its
representatives pursuant hereto or in connection with the transactions
contemplated
-20-
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements
of facts contained herein or therein not misleading in light of the
circumstances under which they were furnished.
SECTION 3.34. LIMITATION ON REPRESENTATIONS AND WARRANTIES. The Company
makes no representation or warranty to the Parent regarding the probable
success or profitability of the Surviving Corporation.
ARTICLE IIIA
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder hereby represents and warrants, jointly and severally,
to Parent and Parent Sub as follows:
SECTION 3.01A. AUTHORIZATION OF TRANSACTION. Such Stockholder has full
power and authority to execute and deliver this Agreement and the Consent and
to perform its obligations hereunder and thereunder. This Agreement
constitutes the valid and legally binding obligation of such Stockholder,
enforceable in accordance with its terms and conditions. Such Stockholder is
a natural person, is over 21 years of age and has not had a legal
representative appointed by a court of law or otherwise act in his or her
behalf or with respect to any of his or her property. Such Stockholder need
not give any notice to, make any filing with, or obtain any authorization,
consent or approval of any Governmental Entity in order to consummate the
transactions contemplated by this Agreement.
SECTION 3.02A. NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement and the Consent, nor the consummation of the transactions
contemplated hereby and thereby, will (a) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge or
other restriction of any government, Governmental Entity, or court to which
such Stockholder is subject or (b) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or cancel, or require any
notice under any agreement, Contract, lease, license, instrument or other
arrangement to which such Stockholder is a party, by which it is bound or to
which any of its Assets is subject.
SECTION 3.03A. BROKERS. Such Stockholder has no Liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement or for which Parent or Parent
Sub could become liable or obligated.
SECTION 3.04A. COMPANY SHARES. Such Stockholder holds of record and owns
beneficially the number of shares of Company Common Stock set forth next to
his name on the signature page hereto, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws and the restrictions in that certain Shareholders' Agreement
(as defined herein) and First Refusal Agreement (as defined herein) which are
to be terminated pursuant to Section 6.08), Encumbrances, Security Interests,
options, warrants, purchase rights, Contracts, commitments and/or equities.
Except for the Shareholders' Agreement and the First Refusal Agreement, such
Stockholder is not a party to any option, warrant, purchase right or other
contract or commitment that could require such Stockholder to sell, transfer
or otherwise
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dispose of any capital stock of the Company (other than this Agreement).
Such Stockholder is not a party to any voting trust, proxy or other agreement
or understanding with respect to the voting of any capital stock of the
Company (other than this Agreement).
SECTION 3.05A. ACCREDITED INVESTOR. Assuming that the Merger
Consideration has an aggregate value greater than or equal to Ten Million
Dollars ($10,000,000) at the Effective Time and that such Stockholder's
proportionate share of the Merger Consideration equals his percentage
ownership of the Company Common Stock prior to the Effective Time, such
Stockholder is an "accredited investor" as that term is defined in Regulation
D of the Securities Act. In addition, such Stockholder has designated J.
Xxxxx Xxxxxxx, Xx. as his purchaser representative and, either alone or
together with such purchaser representative, is sufficiently knowledgeable
and experienced in financial and business matters that he is capable of
evaluating the merits and risks of the transactions contemplated by this
Agreement and making an informed business decision.
SECTION 3.06A. INVESTMENT INTENTION. Such Stockholder has no present
intention to dispose of any shares of Parent Common Stock to be issued in the
Merger.
SECTION 3.07A. EMPLOYMENT. In the event that such Stockholder is
entering into an employment agreement pursuant to Section 7.02(h), such
Stockholder currently intends to remain in the employ of the Surviving
Corporation (and/or Parent) and has no intention to seek other employment
opportunities. Each of the Stockholders has no intention to compete with the
Surviving Corporation (and/or Parent).
SECTION 3.08A. LIMITATION ON REPRESENTATIONS AND WARRANTIES. The
Stockholders make no representation or warranty to the Parent regarding the
probable success or profitability of the Surviving Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB
Parent and Parent Sub hereby represent and warrant, jointly and
severally, to the Company and each Stockholder that:
SECTION 4.01. ORGANIZATION AND QUALIFICATION. Each of Parent and Parent
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and
has all requisite power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted, and
Parent is duly qualified and in good standing to do business in each
jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary,
except for such failures to be so qualified or licensed and in good standing
as would not, individually or in the aggregate, have a Parent Material
Adverse Effect.
SECTION 4.02. CERTIFICATES OF INCORPORATION AND BY-LAWS. Neither Parent
nor Parent Sub is in violation of any of the provisions of its Certificate of
Incorporation or By-Laws, respectively, in each case as amended or restated.
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SECTION 4.03. PARENT COMMON STOCK; CAPITALIZATION.
(a) The shares of Parent Common Stock to be issued pursuant to the
Merger (i) will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute,
Parent's Certificate of Incorporation or By-Laws or any agreement to which
Parent is a party or is bound and (ii) will, when and if sold in accordance
with the Shelf Registration Statement, be registered under the Securities Act
and registered or exempt from registration under applicable Blue Sky Laws,
and approved for trading on NASDAQ upon official notice of issuance.
(b) The authorized capital stock of Parent consists of Fifty Million
(50,000,000) shares of Parent Common Stock and Five Million (5,000,000)
shares of preferred stock, par value $.001 per share (the "PARENT PREFERRED
STOCK"). As of June 30, 1997, (i) Ten Million Two Hundred Seventy-Seven
Thousand Four Hundred Ninety-Nine (10,277,499) shares of Parent Common Stock
were issued and outstanding, all of which are duly authorized, validly
issued, fully paid and nonassessable, (ii) no shares of Parent Preferred
Stock were outstanding, (iii) no shares of Parent Common Stock were held in
treasury of Parent and (iv) One Million Four Hundred Fifty-Three Thousand One
Hundred Four (1,453,104) shares of Parent Common Stock were reserved for
issuance pursuant to option and employee benefit plans and in connection with
the exercise of outstanding warrants.
(c) The authorized capital stock of Parent Sub consists of one thousand
(1,000) shares of Parent Sub Common Stock, of which one hundred (100) shares
are issued and outstanding and held by Parent.
SECTION 4.04. AUTHORITY. Each of Parent and Parent Sub has all
requisite corporate power and authority to execute and deliver this
Agreement, to perform its respective obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action and no other corporate
proceeding on the part of Parent or Parent Sub is necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Parent and Parent Sub and,
assuming the due authorization, execution and delivery thereof by the
Stockholders and the Company, constitutes the legal, valid and binding
obligations of Parent and Parent Sub enforceable in accordance with its terms.
SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Parent and Parent
Sub do not, and the performance of this Agreement by Parent and Parent Sub
will not, (i) conflict with or violate the Certificate of Incorporation or
By-Laws, as amended or restated, of Parent or Parent Sub, (ii) conflict with
or violate any Laws in effect as of the date of this Agreement applicable to
Parent or Parent Sub or by which any of their respective properties is bound,
or (iii) result in any breach of or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation
of, or require payment under, or result in the creation of a lien or
encumbrance on, any of the properties or Assets of Parent or Parent Sub
pursuant to, any note, bond, mortgage, indenture, Contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Parent
or
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Parent Sub is a party or by which Parent or Parent Sub or any of their
respective properties is bound by or subject to, except for breaches,
defaults, events, rights of termination, amendment, acceleration or
cancellation, payment obligations or Liens or Encumbrances that would not
have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and Parent
Sub do not, and the performance of this Agreement by Parent and Parent Sub
will not, require Parent or Parent Sub to obtain any consent, approval,
authorization or permit of, or to make any filing with or notification to,
any Governmental Entities, except (i) for applicable requirements, if any, of
the Securities Act, the Exchange Act, Blue Sky Laws, the NASDAQ and the
filing and recordation of appropriate merger documents as required by
Delaware Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not, either individually or in the aggregate, prevent Parent or Parent Sub
from performing its obligations under this Agreement.
SECTION 4.06. REPORTS; FINANCIAL STATEMENTS.
(a) Since February 12, 1997, Parent has timely filed all forms, reports,
statements and other documents required to be filed with the SEC
(collectively, the "PARENT SEC REPORTS"). The Parent SEC Reports, including
all Parent SEC Reports filed after the date of this Agreement and prior to
the Effective Time, were or will be prepared in all material respects in
accordance with the requirements of applicable Law (including, the Securities
Act and the Exchange Act, as the case may be, and the rules and regulations
of the SEC thereunder applicable to such Parent SEC Reports). As of their
respective dates, the Parent SEC Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case, any
related notes thereto) contained in the Parent SEC Reports filed prior to, on
or after the date of this Agreement (i) have been or will be prepared in
accordance with, and complied or will comply as to form with, the published
rules and regulations of the SEC and GAAP applied on a consistent basis
throughout the periods involved (except as otherwise noted therein) and (ii)
fairly present or will fairly present the financial position of Parent as of
the respective dates thereof and the results of its operations and cash flows
for the periods indicated, except that any unaudited interim financial
statements were or will be subject to normal and recurring year-end
adjustments.
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as and to
the extent disclosed in the Parent SEC Reports filed prior to the date of
this Agreement or as contemplated in this Agreement or as otherwise disclosed
in writing by Parent to the Stockholders prior to the Effective Time, since
March 31, 1997, there has not been (a) a Parent Material Adverse Effect or
(b) any significant change by Parent in its accounting methods, principles or
practices.
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SECTION 4.08. OWNERSHIP OF PARENT SUB; NO PRIOR ACTIVITIES.
(a) Parent Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement. All of the outstanding capital
stock of Parent Sub is owned directly by Parent.
(b) Except for obligations or liabilities incurred in connection with
its incorporation or organization and the transactions contemplated by this
Agreement and except for this Agreement and any other agreements or
arrangements contemplated by this Agreement, Parent Sub has not and will not
have incurred, directly or indirectly, through any Subsidiary or Affiliate,
any obligations or liabilities or engaged in any business activities or any
type or kind whatsoever or entered into any agreements or arrangements with
any Person.
SECTION 4.09. BROKERS. Except for Xxxxx & Company, there is no broker,
finder or investment banker which is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent or
Parent Sub. Notwithstanding anything herein to the contrary, the
Stockholders shall not be liable or obligated for any such brokerage,
finder's or other fee or commission.
SECTION 4.10. TAX MATTERS; "POOLING OF INTERESTS". Neither Parent nor
Parent Sub nor any of its respective Affiliates has taken or agreed to take
any action that would prevent the Merger from constituting (a) a
"reorganization" under Section 368(a)(1)(A) of the Code, by application of
Section 368(a)(2)(D) of the Code, or (b) a "pooling of interests" in
accordance with GAAP and applicable SEC rules, including, without limitation,
the sale of any shares of Company Common Stock or Parent Common Stock during
the period commencing on the date which is thirty (30) days prior to the
Effective Time and ending on the Financial Result Date.
SECTION 4.11. LIMITATION ON REPRESENTATIONS AND WARRANTIES.
(a) Except as and to the extent expressly set forth in this Article IV,
included on any schedule hereto or included in any writing delivered by
Parent to the Company concurrently herewith or subsequent hereto expressly
pursuant to this Agreement, each of Parent and Parent Sub makes no other
representation or warranty and disclaims all Liability and responsibility for
any representation, warranty, statement or information (financial or
otherwise) made or communicated (orally or in writing) to the Company or any
of its stockholders, employees, agents, consultants or representatives.
(b) Parent makes no representation or warranty to the Company or the
Stockholders regarding the probable success or profitability of Parent.
-25-
ARTICLE V
COVENANTS
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by
Parent, the Company will: (a) operate only in the Ordinary Course of
Business; and (b) use its best efforts to (i) preserve and/or maintain, in
all material respects and consistent with past custom and practice, its
business and properties, including its present operations, physical
facilities, working conditions and relationships with its present employees
and Persons having significant business relations with it, including, without
limitation, suppliers and customers, (ii) maintain and keep its properties
and Assets in as good repair and condition as at present, ordinary wear and
tear excepted, and (iii) keep in full force and effect insurance and bonds
comparable in amount and scope of coverage to that currency maintained.
SECTION 5.02. NEGATIVE COVENANTS OF THE COMPANY. Except as expressly
contemplated by this Agreement or as previously disclosed to Parent in
writing on SCHEDULE 5.02, or otherwise consented to in writing by Parent,
from the date of this Agreement until the Effective Time, the Company shall
not, directly or indirectly through any Affiliate or otherwise (and the
Stockholders shall not and shall not cause the Company to), and shall not
permit any Affiliate to directly or indirectly, do any of the following:
(a) (i) increase the compensation payable to, or to become payable to,
any employee, director or executive officer; (ii) grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any director, officer or employee; (iii) establish, adopt, enter into, amend,
modify or terminate any Employee Benefit Plan or arrangement except as may be
required by applicable Law; or (iv) hire any salaried person earning annual
compensation, including salary, cash bonuses and commissions, in excess of
Forty Thousand Dollars ($40,000);
(b) declare or pay any dividend on or make any other distribution in
respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of its capital
stock or any securities or obligations convertible into or exchangeable for
any shares of its capital stock, or any options, warrants or conversion or
other rights to acquire any shares of its capital stock or any such
securities or obligations); (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for, shares of its capital stock;
(d) (i) issue, deliver, award, grant or sell, or authorize or propose
the issuance, delivery, award, grant or sale (including the grant of any
Security Interests, Liens, claims, pledges, limitations in voting rights,
charges or other Encumbrances) of, any shares of any class of its capital
stock, any securities convertible into or exercisable or exchangeable for any
other shares, or any rights, warrants or options to acquire, any such shares;
and (ii) amend or otherwise modify the terms of any such rights, warrants or
options the effect of which shall be to make such terms more favorable to the
holders thereof;
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(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in, all or a portion of the Assets of, or by
any other manner, any corporation, partnership, association or other
business, organization or division thereof, or otherwise acquire or agree to
acquire any Assets of any other Person (other than the purchase of Assets
from suppliers or vendors in the Ordinary Course of Business) which are
material, individually or in the aggregate, to the Company;
(f) propose or adopt any amendments to its Certificate of Incorporation
or its By-Laws;
(g) (i) change any of its methods of accounting in effect at December
31, 1996, or (ii) make or rescind any material election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes (except
where the amount of such settlements or controversies, individually or in the
aggregate, does not exceed Ten Thousand Dollars ($10,000)), or change in any
material respect any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of the
federal income Tax Return for the taxable year ended December 31, 1996,
except, in the case of clause (i) or clause (ii), as may be required by Law
or GAAP;
(h) enter into any Contract outside the Ordinary Course of Business;
(i) create, or permit the creation of, any Lien upon any Assets outside
the Ordinary Course of Business;
(j) enter into any employment Contract or collective bargaining
agreement, or modify the terms of any existing such Contract or agreement;
(k) sell, lease, exchange, mortgage, pledge, transfer, assign or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer, assign or otherwise dispose of, any Assets with a Fair Market Value
of Ten Thousand Dollars ($10,000) or more, or Assets with an aggregate Fair
Market Value of Fifty Thousand Dollars ($50,000) or more, in each case
tangible or intangible;
(l) make any capital expenditures other than in the Ordinary Course of
Business, or make any capital expenditures in the aggregate in excess of Ten
Thousand Dollars ($10,000);
(m) amend or renew, or enter into any Contract involving operations
outside of the United States; or
(n) take or agree to take any action that would or is reasonably likely
to result in any of Company's representations and warranties set forth in
this Agreement being untrue or in any of the conditions to the Merger not
being satisfied.
SECTION 5.03. NEGATIVE COVENANTS OF PARENT. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by the
Company, from the date of this Agreement until the Effective Time, Parent
will not do any of the following:
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(a) amend any of the terms or provisions of the Parent Common Stock
which amendment would have a material adverse effect on the Stockholders;
(b) knowingly take any action which would result in a failure to
maintain the quotation of the Parent Common Stock on NASDAQ;
(c) declare or pay any dividends or other distribution (whether in cash,
stock or other property) on outstanding shares of capital stock;
(d) take or agree to take any action that would or is reasonably likely
to result in any of Parent's representations and warranties set forth in this
Agreement being untrue or in any of the conditions to the Merger not being
satisfied; or
(e) agree in writing or otherwise to do any of the foregoing.
SECTION 5.04. ACCESS AND INFORMATION. The Company shall (i) provide
Parent and its officers, directors, employees, agents, counsel, accountants,
financial advisors, consultants and other representatives (collectively, the
"PARENT REPRESENTATIVES"), with full access, upon reasonable prior notice, to
all officers, employees and accountants of the Company and to their assets,
properties, Contracts, books, records and all such other information and data
concerning the business and operations of the Company as Parent or any of the
Parent Representatives reasonably may request in connection with such
investigation. Such investigation will involve, among other things, Parent's
review and confirmation of the Company's Financial Statements, the legal
review of the Company's Contracts and leases, the review of the Company's
client lists and reference checks of the Company. Parent will provide the
Stockholders with all information reasonably requested by them to enable them
to evaluate the merits of the Merger.
SECTION 5.05. ESCROW AGREEMENT. At or before the Effective Time, J.
Xxxxx Xxxxxxx, Xx., as representative and attorney-in-fact for the
Stockholders (the "STOCKHOLDERS' REPRESENTATIVE"), Parent, and a third party
acceptable to Parent and the Stockholders' Representative, as escrow agent,
shall execute and deliver the escrow agreement, substantially in the form of
EXHIBIT 5.05 hereof (the "ESCROW AGREEMENT"). Each Stockholder hereby
authorizes and appoints the Stockholders' Representative to serve as its
attorney-in-fact to execute the Escrow Agreement, and agrees to be bound by
the provisions thereof.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) The Company, Parent and Parent Sub shall each use its best efforts
to: (i) take, or cause to be taken, all appropriate action, and do, or cause
to be done, all things necessary, proper or advisable under applicable Law or
otherwise to consummate and make effective the transactions contemplated by
this Agreement; (ii) obtain from any Governmental Entities any consents,
licenses, permits, waivers, approvals, authorizations or orders required to
be obtained or made by Parent, Parent Sub or the Company in connection with
the authorization, execution and delivery of this
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Agreement and the consummation of the transactions contemplated herein,
including, without limitation, the Merger; (iii) make all necessary filings,
and thereafter make any other required submissions, with respect to this
Agreement and the Merger required under (A) Delaware Law (including holding a
stockholders meeting and/or sending notice of merger and appraisal rights)
and the federal securities laws and the rules and regulations thereunder, if
any, and any other applicable federal or state securities laws, and (B) any
other applicable Law; provided that Parent, Parent Sub and the Company shall
cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents to the nonfiling party and
its advisors prior to filing and, if requested, accepting all reasonable
additions, deletions or changes suggested in connection therewith. The
Company, Parent and Parent Sub shall furnish all information required for any
application or other filing to be made pursuant to the rules and regulations
of any applicable Law in connection with the transactions contemplated by
this Agreement.
(b) (i) Each of the Company, Parent and Parent Sub shall give any
notices to third parties, and use its best efforts to obtain any third party
consents (A) necessary, proper or advisable to consummate the transactions
contemplated in this Agreement, (B) disclosed or required to be disclosed in
the schedules contained herein, (C) otherwise required under any Contracts,
licenses, leases or other agreements in connection with the consummation of
the transactions contemplated herein or (D) required to prevent a Company
Material Adverse Effect from occurring prior to or after the Effective Time
or a Parent Material Adverse Effect from occurring prior to or after the
Effective Time.
(ii) In the event that any party shall fail to obtain any third
party consent described in subsection (b) (i) above, such party shall use its
best efforts, and shall take any such actions reasonably requested by the
other party hereto, to minimize any adverse effect upon the Company, Parent
and Parent Sub and their respective businesses resulting, or which could
reasonably be expected to result after the Effective Time, from the failure
to obtain such consent.
SECTION 6.02. TAX TREATMENT; "POOLING OF INTERESTS"; AFFILIATES. The
Company, Parent and Parent Sub shall use their best efforts, and shall cause
their respective Subsidiaries and Affiliates to use their best efforts, to
cause the Merger to qualify, and will not take any actions which would
prevent the Merger from qualifying, as a "reorganization" under Section
368(a)(1)(A) of the Code, by application of Section 368(a)(2)(D) of the Code.
The Company, Parent and the Stockholders shall, and shall cause each of
their respective Subsidiaries and Affiliates to, use their best efforts not
to take any action (regardless of whether such action would otherwise be
permitted or not prohibited hereunder) that would prevent Parent from
accounting for the Merger as a "pooling of interests." Each Stockholder
agrees and undertakes that from the date hereof until such time as financial
results (including combined sales and net income) covering at least thirty
(30) days of post-merger operations have been published (the date on which
such financial results are published shall be the "FINANCIAL RESULT DATE"),
such Stockholder shall not sell or in any other way alter his risk relative
to any shares of Parent Common Stock received in the Merger (within the
meaning of the Codification of Financial Reporting Policies 201.01 (reprinted
in 7 Fed. Sec. L. Rep. (CCH) 72,951)). Each Stockholder understands that
Parent will advise it when the Financial Result Date shall have occurred.
Each Stockholder undertakes to inform the Company and Parent of any
transactions involving Company Common Stock or Parent Common Stock that he
may wish to consummate during any time prior to the Financial Result Date and
will not consummate such transaction unless Parent shall consent thereto in
writing.
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SECTION 6.03. PUBLIC ANNOUNCEMENTS.
(a) Any public announcement or similar publicity with respect to this
Agreement or the transactions contemplated hereby will be issued, if at all,
at such time and in such manner as Parent determines. Subject to Section
6.03(b) below, prior to the Effective Time each of the Stockholders and
Parent shall, and the Stockholders shall cause the Company to, keep this
Agreement and the transactions contemplated hereby strictly confidential and
shall not make any disclosure of this Agreement or the transactions
contemplated hereby to any Person. The parties hereto shall consult with
each other concerning the means by which the Company's employees, customers
and suppliers and others having dealings with the Company will be informed of
the transactions contemplated hereby and Parent will have the right to be
present for any such communication.
(b) Each party hereto acknowledges that, as a publicly traded company,
Parent has disclosure obligations under the federal securities laws and,
depending on the facts and circumstances, may be required to announce the
existence of this Agreement and/or the Merger prior to the Effective Time.
If so required, Parent will first consult with the Company regarding the
timing and contents of any such announcement. Each of the parties hereto
further acknowledges that this Agreement and/or the Merger may constitute
material, non-public information and agrees that it or he shall not, and
shall cause its respective representatives or Affiliates to not, engage in or
effect any transaction of Parent's securities until the Effective Time,
subject to the additional restrictions imposed by the federal securities laws
concerning the purchase or sale of securities.
SECTION 6.04. OBLIGATIONS OF PARENT SUB. Parent shall take all action
necessary to cause Parent Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement.
SECTION 6.05. RESTRICTIVE LEGEND. Each of the Stockholders acknowledges
and agrees that the certificates of Parent Common Stock issued to the
Stockholders pursuant to the Merger shall bear a restrictive legend in
substantially the following form and a stop-transfer order may be placed
against their transfer:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended.
The securities have been acquired for investment and may not
be sold, transferred or assigned in the absence of an
effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of
counsel that registration is not required under said Act or
unless sold pursuant to Rule 144.
The legend set forth above shall be removed and Parent shall issue a
certificate without such legend to the holder of the shares of Parent Common
Stock upon which it is stamped, if, unless otherwise required by applicable
state securities laws, (a) the such shares are included in an effective
registration statement under the Securities Act covering the resale thereof,
or (b) such holder provides Parent with an opinion of legal counsel, in form,
substance and scope reasonably acceptable to Parent, to the effect that a
public sale or transfer of such shares may be made without registration under
the Securities Act and such shares are being sold or transferred in
accordance with
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the method described therein, or (c) such holder provides Parent with
reasonable assurances that such shares can be sold pursuant to Rule 144 under
the Securities Act (or a successor rule thereto) without any restriction as
to the number of shares acquired as of a particular date that can then be
immediately sold. Each of the Stockholders agrees to sell all of the shares
of Parent Common Stock acquired pursuant to the Merger, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with the prospectus delivery requirements, if any, under
applicable securities laws.
SECTION 6.06. REGISTRATION RIGHTS.
(a) Upon the written request of the Stockholders who receive at least
fifty percent (50%) of the Parent Common Stock issued pursuant to the Merger
and are employed by Parent at the time of such request and remain so employed
through the Effective Period, unless as a result of termination by the
Surviving Corporation (and/or Parent), which written request may be made on
or after February 15, 1998, Parent shall file with the SEC within forty-five
(45) days of receipt of such written request a Shelf Registration Statement
on Form S-3 (or other applicable form) covering the continuous sale pursuant
to Rule 415 under the Securities Act (the "SHELF REGISTRATION STATEMENT"), in
the manner specified therein (provided that such manner shall not include an
underwritten public offering), of (i) ten percent (10%) of the shares of
Parent Common Stock issued in the Merger to each of the Stockholders (other
than Xxxxxxx X. Xxxxx) and (ii) all of the shares of Parent Common Stock
issued to Xxxxxxx X. Xxxxx (such shares issued to each of the Stockholders
(other than Xxxxxxx X. Xxxxx) and such shares issued to Xxxxxxx X. Xxxxx
being referred to herein collectively as the "REGISTRATION SHARES"). Parent
shall use its best efforts to cause the Shelf Registration Statement to be
declared effective by the SEC as soon as practicable after its filing with
the SEC, and to remain effective until the earlier of (x) such time as all of
the Registration Shares are sold pursuant to the Shelf Registration Statement
or (y) the conclusion of the period of six (6) months immediately following
the effective date of the Shelf Registration Statement (the "EFFECTIVE
PERIOD"); provided that in the event that Parent determines in good faith
that, because it has under consideration a significant (as defined under
Regulation S-X of the SEC) acquisition or disposition or other material
transaction that has not been publicly disclosed or that it is in the process
of preparing for filing with the SEC a Report on Form 8-K or other form, the
Shelf Registration Statement may contain a material misstatement or omission,
Parent may cause the Shelf Registration Statement to not be used for an
aggregate period not to exceed forty-five (45) days during the Effective
Period.
(b) Parent shall use its best efforts to cause the shares of Parent
Common Stock issued in the Merger to be approved for quotation on NASDAQ, or
other national securities exchange in which Parent Common Stock is
principally traded, as soon as practicable after the Effective Time. Parent
will also use its best efforts to register or qualify the Registration Shares
under such other securities or blue sky laws of the United States and keep
such registration or qualification in effect for the Effective Period, and do
any and all other acts and things which may be reasonably necessary or
advisable to enable the Stockholders to have the right to sell or otherwise
dispose of the Registration Shares in such jurisdictions.
(c) In connection with any registration of the Registration Shares
pursuant to this Agreement, each Stockholder shall furnish Parent with such
information concerning such Stockholder as Parent may reasonably request for
use in the preparation of the Shelf Registration
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Statement or any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto
("PROSPECTUS"), and shall cooperate fully in the preparation and filing of a
Shelf Registration Statement. Each Stockholder hereby agrees to jointly and
severally indemnify Parent, its officers and directors, and each Person, if
any, who controls Parent within the meaning of Section 15 of the Securities
Act, against any losses, claims, damages and liabilities, joint or several,
to which Parent or any such officer or director or controlling Person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
(or alleged untrue) statement of any material fact contained in, or any
material fact omitted from (or allegedly omitted from) the Shelf Registration
Statement or Prospectus covering the Registration Shares, if such statement
or omission was made in reliance upon and in conformity with written
information furnished to Parent by such Stockholder expressly for use in the
Shelf Registration Statement or Prospectus covering the Registration Shares.
(d) Parent will, prior to filing the Shelf Registration Statement,
furnish to a representative selected by the holders of a majority of the
Registration Shares a copy of the draft of such document which is proposed to
be filed. Parent will promptly notify such representative of any stop order
issued or threatened by the Commission with respect to the Shelf Registration
Statement and will take all reasonable actions required to prevent the entry
of such stop order or to remove it if entered. Parent will notify such
representative and each holder of Registration Shares, during the
effectiveness of the Shelf Registration Statement, of the occurrence of an
event that would require the preparation of a supplement or amendment to the
Prospectus in order for such Prospectus to not (i) contain an untrue
statement of a material fact or (ii) omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. Parent will provide such representative with a copy of any such
supplement or amendment. The Stockholders shall advise Parent of any
proposed change in the manner of distribution.
(e) Parent hereby indemnifies and holds harmless each Stockholder, each
of its officers and directors, partners and each Person deemed to be an
"underwriter" under the Securities Act, if any, and each Person controlling
such Stockholder within the meaning of Section 15 of the Securities Act, if
any, against any losses, claims, damages or liabilities severally, but not
jointly, to which such Stockholder or any of the foregoing Persons may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
(or alleged untrue) statement of any material fact contained in the Shelf
Registration Statement or any Prospectus covering the Registration Shares or
any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, except insofar
as such untrue (or alleged untrue) statement or omission (or alleged
omission) shall have been based upon information furnished to Parent by such
Stockholder or such other individuals, and Parent will reimburse such
Stockholder for any legal or other expenses reasonably incurred by him in
connection with investigating or defending any such claim, loss, damage,
Liability, action or proceedings; PROVIDED, HOWEVER, that none of the
foregoing shall affect, in any manner whatsoever, any of the representations,
warranties, undertakings, covenants, agreements and obligations of each
Stockholder and the Company under this Agreement. Notwithstanding the
foregoing, in the event that Parent is required to indemnify such Stockholder
pursuant to this subsection, Parent shall be entitled to assume the defense
of such investigation or defense, with counsel approved by such
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Stockholder, which approval shall not be unreasonably withheld, upon the
delivery to such Stockholder of written notice of its election to do so.
After delivery of such notice, Parent shall not be liable to such Stockholder
under this subsection for any fees of counsel subsequently incurred by such
Stockholder with respect to the same investigation or defense.
(f) In circumstances in which any indemnity provided by the preceding
paragraphs of this Section 6.06 is unavailable or insufficient, for any
reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof), then each indemnifying party, in order to provide for just and
equitable contribution, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion
as is appropriate to reflect (i) the relative fault of the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) and (ii) any other relevant
equitable considerations. The relevant fault of the parties shall be
determined by reference to, among other things, whether the statement or
omission or alleged statement or omission relates to information supplied by
Parent or by any Stockholder, the parties' relative intents, Knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances.
(g) The registration rights set forth in this section with respect to
the Registration Shares are not assignable without the express written
consent of Parent.
SECTION 6.07. DELIVERY OF SEC FILINGS. Parent shall promptly deliver to
the Company or to the Company's counsel a copy of all filings of the Parent
SEC Reports with the SEC, from the date hereof to the Effective Time, or any
other document which Parent deems to be appropriate for provision to the
holders of stock in the Company. Upon delivery of any such document by Parent
to the Company, the Company shall promptly deliver to each holder of capital
stock of the Company a copy of such document, including all exhibits thereto,
and an officer of the Company shall promptly provide to Parent an affidavit
of delivery of such copies.
SECTION 6.08. TERMINATION OF SHAREHOLDERS' AGREEMENT AND FIRST REFUSAL
AGREEMENT. Each of the Stockholders (as applicable) and the Company hereby
agree to and approve of the termination, effective as of immediately before
the Effective Time, of: (a) that certain Shareholders' Agreement, dated as of
July 31, 1996, by and among the Company and the Stockholders named therein
(as so executed and amended from time to time, the "SHAREHOLDERS'
AGREEMENT"); (b) that certain Stockholders First Refusal Agreement, dated as
of September 7, 1993, by and among the Company and the Stockholders named
therein (as so executed and amended from time to time, the "FIRST REFUSAL
AGREEMENT"); and (c) any buy-sell agreement or other agreement or arrangement
similar to the Shareholders' Agreement and/or the First Refusal Agreement
between and among such parties. Xxxxxxx X. Xxxxxxx and the Surviving
Corporation hereby acknowledge and agree that the terms and conditions of
that certain Shareholder's Agreement, dated as of October 16, 1995, by and
between the Company and Xxxxxxx X. Xxxxxxx (as so executed and amended from
time to time, the "XXXXXXX AGREEMENT"), will continue in full force and
effect, with the Surviving Corporation assuming the Company's rights and
obligations thereunder; PROVIDED, however, that Xxxxxxx X. Xxxxxxx and the
Surviving Corporation hereby agree to and approve of the termination,
effective
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as of January 15, 1998, of the Xxxxxxx Agreement and any buy-sell agreement
or other agreement or arrangement similar to the Xxxxxxx Agreement.
SECTION 6.09. BEST EFFORTS. The parties hereto shall use their best
efforts to consummate the Merger and the other transactions contemplated
hereby as soon as practicable. The parties hereto agree to execute such
amendments to this Agreement, the Escrow Agreement and any other document as
may be necessary to enable the Merger to qualify for "pooling of interests"
accounting treatment; provided that such amendments or documents do not
adversely affect such party.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT. The respective obligations of each party to effect the Merger and
the other transactions contemplated herein shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions,
any or all of which may be waived, in whole or in part, to the extent
permitted by applicable Law:
(a) NO ORDER. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect
and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(b) CONSENTS AND APPROVALS. All material consents, approvals and
authorizations legally required to be obtained to consummate the Merger shall
have been obtained from all required Governmental Entities.
SECTION 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT. The
obligations of Parent to effect the Merger and the other transactions
contemplated herein are also subject to the following conditions, each of
which may be waived, in whole or in part, to the extent permitted by
applicable Law, by Parent:
(a) REPRESENTATIONS AND WARRANTIES.
(i) Notwithstanding any due diligence performed by Parent and the
Parent Representatives, each of the representations and warranties of the
Company contained in this Agreement shall be true and correct when made and
on and as of the Effective Time, as if made on and as of such date, except
where failure to be so true and correct would not have a Company Material
Adverse Effect, individually or in the aggregate, and except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, except where the failure
to be so true and correct would not have a Company Material Adverse Effect.
Parent shall have received a certificate of the President of the Company to
such effect; and
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(ii) Notwithstanding any due diligence performed by Parent and the
Parent Representatives, each of the representations and warranties of the
Stockholders contained in this Agreement shall be true and correct when made
and on and as of the Effective Time, as if made on and as of such date,
except that those representations and warranties which address matters only
as of a particular date shall remain true and correct as of such date.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time. Parent shall have received a certificate of the President or
Chief Financial Officer of the Company to that effect.
(c) "POOLING OF INTERESTS". The Merger shall qualify for "pooling of
interests" accounting treatment and Parent shall have received a letter,
dated as of the Effective Time, from Ernst & Young LLP regarding such firm's
concurrence with Parent's conclusion as to the appropriateness of "pooling of
interests" accounting treatment for the Merger under Accounting Principles
Board Opinion No. 16 if the Merger is closed and consummated in accordance
with this Agreement.
(d) THIRD PARTY CONSENTS AND WAIVERS. The Company shall have obtained
consents and waivers, in form and substance reasonably satisfactory to
Parent, in respect of the Contracts or agreements set forth on SCHEDULE
7.02(d).
(e) COMPANY MATERIAL ADVERSE EFFECT. The Company shall not have become
subject to any action or event which resulted in or may likely result in a
Company Material Adverse Effect.
(f) LEGAL OPINION. Parent shall have received the legal opinion of
Freedman, Levy, Xxxxx & Xxxxxxx, covering the matters set forth on EXHIBIT
7.02(f) hereto.
(g) AFFILIATE AGREEMENTS. Parent shall have received from each
Affiliate of the Company and any other Person who may be deemed to have
become an Affiliate of the Company (under Rule 145 under the Securities Act
or otherwise under applicable SEC accounting releases with respect to
"pooling of interests" accounting treatment) after the date of this Agreement
and or prior to the Effective Time a signed Affiliate Agreement in the form
of EXHIBIT 7.02(g). Each such Affiliate agrees to execute and deliver similar
Affiliate Agreements upon the reasonable request of Parent (or any of its
Subsidiaries or Affiliates) in connection with future business transactions
of Parent (or any of its Subsidiaries or Affiliates).
(h) EMPLOYMENT AND CONSULTING AGREEMENTS. Each of Messrs. J. Xxxxx
Xxxxxxx Xx., Xxxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxxxx shall execute
employment agreements (collectively, the "EMPLOYMENT AGREEMENTS") in the
forms attached hereto as EXHIBITS 7.02(h)(i), (ii) AND (iii), respectively,
and Xxxxxxx X. Xxxxx shall execute the consulting agreement (the "CONSULTING
AGREEMENT") in the form attached hereto as EXHIBIT 7.02(h)(iv).
(i) NONCOMPETITION AGREEMENTS. Each of Messrs. J. Xxxxx Xxxxxxx Xx.,
Xxxxxxxx X. Xxxxxxx, Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxx shall execute a
noncompetition agreement in the form attached hereto as EXHIBIT 7.02(i),
which agreement shall remain in effect for a period of three (3) years after
the Effective Time.
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(j) SPOUSAL CONSENTS. Parent shall have obtained from each of the
spouses of the Stockholders, respectively, the consent, in form and substance
reasonably satisfactory to Parent, in respect of the consummation of the
Merger and the transactions contemplated by this Agreement.
SECTION 7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger and the other transactions
contemplated in this Agreement is subject to the following conditions, each
of which may be waived, in whole or in part, to the extent permitted by
applicable Law, by the Company:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Parent and Parent Sub contained in this Agreement shall be true
and correct when made and on and as of the Effective Time as if made on and
as of such date, except where the failure to be so true and correct would not
have a Parent Material Adverse Effect, and except that those representations
and warranties which address matters only as of a particular date shall
remain true and correct as of such date, except where the failure to be so
true and correct would not have a Parent Material Adverse Effect. The
Company shall have received a certificate of the President of Parent to such
effect.
(b) AGREEMENTS AND COVENANTS. Parent shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time. The Company shall have received a certificate of the President of
Parent to that effect.
(c) PARENT MATERIAL ADVERSE EFFECT. Parent shall not have become
subject to any action or event which resulted in or may likely result in a
Parent Material Adverse Effect.
(d) LEGAL OPINION. The Company shall have received the legal opinion of
Xxxxx & XxXxxxxx, covering the matters set forth on EXHIBIT 7.03(d).
ARTICLE VIII
TERMINATION, AMENDMENT, WAIVER AND INDEMNIFICATION
SECTION 8.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual consent of Parent and the Company;
(b) by Parent, upon a material breach of any covenant or agreement on
the part of the Company set forth in this Agreement;
(c) by the Company, upon a material breach of any covenant or agreement
on the part of Parent or Parent Sub set forth in this Agreement;
(d) by either Parent or Company, if there shall be any order of a
Governmental Entity which is final and nonappealable preventing the
consummation of the Merger;
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(e) on or before 5:00 p.m., San Diego time, on July 7, 1997, by Parent,
if Parent is not satisfied with the results of its continuing due diligence
review regarding the Company;
(f) by either Parent or the Company, if the Merger shall not have been
consummated before August 28, 1997 (unless the failure to consummate the
Merger by such date shall be due to the action or failure to act of the party
seeking to terminate this Agreement).
SECTION 8.02. INVESTIGATION. Notwithstanding any of the foregoing, the
right of any party hereto to terminate this Agreement pursuant to Section
8.01 shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto, any Person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
SECTION 8.03. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto (in the case of the
Stockholders, by a number of Stockholders who are entitled to receive or have
received, in the aggregate, seventy-five percent (75%) of the shares of
Parent Common Stock to be issued at the Effective Time if prior to the
Effective Time, or a majority of the shares of Parent Common Stock issued if
subsequent to the Effective Time).
SECTION 8.04. WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of any party hereto in the exercise of any right hereunder shall impair
such right or be construed to be a waiver of, or acquiescence in, any breach
of any representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise thereof
or of any other right. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement or the documents referred
to in this Agreement can be discharged by one party hereto, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party or parties hereto (in the case of the Stockholders,
by a number of Stockholders who are entitled to receive or have received, in
the aggregate, seventy-five percent (75%) of the shares of Parent Common
Stock to be issued at the Effective Time if prior to the Effective Time, or a
majority of the shares of Parent Common Stock issued if subsequent to the
Effective Time); (b) no waiver that may be given by a party hereto will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement. All rights and
remedies existing under this Agreement are in addition to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 8.05. FEES, EXPENSES AND OTHER PAYMENTS. Except as otherwise
expressly provided in this Agreement, Parent and the Company shall bear all
of the costs and expenses related to (a) Parent or Parent Sub or (b) the
Company and the Stockholders, respectively, which are incurred in connection
with the preparation, negotiation and performance of this Agreement
(including the related letter of intent dated June 6, 1997) and the
transactions contemplated hereby, including all due diligence expenses and
fees and expenses of agents, representatives, counsel and accountants;
PROVIDED, HOWEVER, that the Company shall not be responsible for costs and
expenses in the aggregate greater than Thirty Thousand Dollars ($30,000).
Notwithstanding the foregoing, (a) in the event that the Merger is
consummated, Parent shall reimburse the Stockholders for all of
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the reasonable and documented fees and expenses paid by the Stockholders to
Ernst & Young LLP in connection with the financial audit of the Company
relating to the transactions contemplated hereby; and (b) in the event that
the Merger is not consummated, Parent shall reimburse the Stockholders for up
to fifty percent (50%) of such reasonable and documented fees and expenses.
SECTION 8.06. STOCKHOLDER INDEMNIFICATION, HOLD BACK AND ESCROW.
(a) Each of the Major Stockholders jointly and severally shall, and each
of the Stockholders who is not one of the Major Stockholders severally shall,
indemnify and defend each of Parent and Parent Sub, and hold it harmless,
from and against any and all losses, damages, Liabilities, claims, demands,
judgments, settlements, costs and expenses of any nature whatsoever
(including reasonable attorneys' fees) (collectively, "LOSS"), resulting from
or arising out of any: (i) breach of any representation or warranty or
agreement of the Company or any Stockholder contained herein; or (ii)
Liability of the Company, whether or not addressed by a representation or
warranty, which was created, incurred or arose from facts, events, conditions
or circumstances existing on or before the Effective Time, to the extent
that, but only to the extent that, such Liability was not reflected or
reserved against on the face of the Interim Balance Sheet (rather than in any
notes thereto) as adjusted for Liabilities incurred in the Ordinary Course of
Business since May 31, 1997 (provided that the items listed on SCHEDULE 3.08
shall be deemed to be incurred in the Ordinary Course of Business); PROVIDED,
HOWEVER, that the Stockholders (including the Major Stockholders) will not
have any obligation to indemnify Parent and Parent Sub from and against any
Loss resulting from, arising out of, relating to, in the nature of, or caused
by the breach (or alleged breach) of any representation or warranty of the
Stockholders contained herein until the value of such Loss by reason of all
such breaches (or alleged breaches) exceeds a Twenty-Five Thousand Dollar
($25,000) aggregate threshold, at which point the Stockholders (including the
Major Stockholders) shall be obligated to indemnify Parent and Parent Sub
from and against all such Loss relating back to the first dollar. No claim
for indemnification pursuant to this Section 8.06(a) may be made subsequent
to the date which is one (1) year after the Effective Time or in respect of a
Loss in respect of accounts receivable or for which Parent has otherwise been
previously reimbursed by the Stockholders.
(b) (i) If any third party shall notify Parent with respect to any
third party claim (a "THIRD PARTY CLAIM") that may give rise to a Loss, then
Parent shall promptly notify the Stockholders' Representative thereof in
writing; PROVIDED, HOWEVER, that no delay on the part of Parent in notifying
the Stockholders' Representative shall relieve the Stockholders from any
obligation hereunder unless (and then solely to the extent) such Stockholders
thereby are prejudiced.
(ii) The Stockholders will have the right to defend Parent against
the Third Party Claim with counsel of their choice reasonably satisfactory to
Parent, so long as: (A) the Stockholders so notify Parent in writing within
fifteen (15) days, acknowledging that such claim is in respect of a Loss
described in Section 8.06(a); (B) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief; (C)
settlement of, or an adverse judgment with respect to, the Third Party Claim
is not, in the good faith judgment of Parent, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of Parent; and (D) the Stockholders conduct the defense of the
Third Party Claim actively and diligently.
(iii) So long as the Stockholders are conducting the defense of the
Third Party Claim in accordance with Section 8.06(b)(ii), (A) Parent may
retain separate co-counsel at its sole
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cost and expense and participate in the defense of the Third Party Claim, (B)
Parent will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Stockholders' Representative (which consent will not be
withheld unreasonably); and (C) the Stockholders will not consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of Parent (which consent will
not be withheld unreasonably).
(iv) In the event that any of the conditions in Section 8.06(b)(ii)
is or becomes unsatisfied, (A) Parent may defend against the Third Party
Claim in any manner it reasonably may deem appropriate; PROVIDED, HOWEVER,
that Parent shall not consent to the entry of any judgment or enter into any
settlement or agreement to settle a Third Party Claim without the prior
written consent of the Stockholders' Representative, which consent shall not
be unreasonably withheld; (B) Parent shall be reimbursed from the Escrow
Account promptly and periodically for the costs of defending against the
Third Party Claim (including reasonable attorneys' fees and expenses); and
(C) the Stockholders will remain responsible for any Loss that Parent
actually suffers resulting from, arising out of, relating to, in the nature
of, or caused by the Third Party Claim to the fullest extent provided in this
Section 8.06.
(c) (i) Each Stockholder of the Company hereby agrees that, at the
Effective Time, Parent shall hold back and place into escrow pursuant to the
Escrow Agreement (the "ESCROW ACCOUNT"), a number of Parent Shares equal to
ten percent (10%), rounded to the nearest whole share, of the total number of
shares of Parent Common Stock to be received by such Stockholder (the total
value of all such shares as valued at the Market Price to be collectively
referred to as the "INDEMNIFICATION AMOUNT"), as partial security for such
Stockholder's indemnity obligations herein.
(ii) At any time Parent shall have a claim for indemnification,
Parent shall submit such claim to the Stockholders' Representative and within
thirty (30) calendar days thereof the Stockholders' Representative shall
notify Parent, in writing, whether he agrees with such claim; PROVIDED,
HOWEVER, that in the event that the Stockholders' Representative fails to so
notify Parent, the Stockholders' Representative shall be deemed to have
agreed to the release of securities or cash from the Escrow Account. In the
event that the Stockholders' Representative notifies Parent that he disagrees
with such claim, the Stockholders' Representative shall provide Parent with a
written notice specifying the basis for such disagreement and, if the
Stockholders' Representative and Parent shall be unable to reach agreement
within thirty (30) days, the matter will be submitted to arbitration pursuant
to the rules of the American Arbitration Association in the city and state
where any defendant to such arbitration resides, at the election of Parent in
its sole discretion, before a panel of three (3) arbitrators, the cost of
which shall be borne equally by the Stockholders, on one hand, and Parent on
the other. Any determination by the arbitrators shall be final and binding
on the parties.
(iii) For purposes of calculating quantities of shares to be paid to
Parent pursuant to this Section 8.06, each share of Parent Common Stock shall
be valued at the Market Price. Any and all distributions to and from the
Escrow Account shall be allocated among the Stockholders, pro rata, based on
each Stockholder's interest in shares of Parent Common Stock to be issued
pursuant to the Merger, as separate subaccounts for each holder.
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(iv) Each of the Stockholders hereby acknowledges and agrees that
the indemnity obligations set forth above shall not be the exclusive remedy
of Parent and Parent Sub with respect to such Stockholder's indemnity
obligations herein and the Indemnification Amount in no way limits the amount
or sources of recovery of Parent and Parent Sub with respect to such
indemnity obligations; PROVIDED, HOWEVER, that, unless and to the extent that
they result from or arise out of fraud, a violation of any representation or
warranty contained in Section 3.03 or any intentional breach of any
representation or warranty or agreement contained herein, (A) the indemnity
obligations of each Major Stockholder will not exceed the amount, exclusive
of recovery costs and expenses, equal to thirty percent (30%) of the initial
value of the total number of shares of Parent Common Stock received by such
Major Stockholder pursuant to the Merger, respectively, as valued at the
Market Price before deduction of any taxes or other amounts; and (B) the
indemnity obligations of each Stockholder (who is not a Major Stockholder)
will not exceed the amount, exclusive of recovery costs and expenses, equal
to such Stockholder's respective portion of the Indemnification Amount. In
the event and to the extent that the indemnity obligations of any Stockholder
result from or arise out of fraud, a violation of any representation or
warranty contained in Section 3.03 or any intentional breach of any
representation or warranty or agreement contained herein, no such limitation
on indemnity obligations shall apply.
(d) For the purposes of this Section 8.06, holders of a majority of the
shares of Parent Common Stock in the Escrow Account may, by written notice
signed by them and delivered to Parent, appoint any other individual to act
in the place and stead of the Stockholders' Representative. In the event of
the death, incapacity or resignation of the Stockholders' Representative, if
no such replacement is appointed within thirty (30) days, Parent may
designate an interim replacement to serve until such appointment.
(e) In connection with this Agreement and the Escrow Agreement and the
transactions contemplated hereby and thereby, respectively, the Company and
the Stockholders agree that the Stockholders' Representative shall not be
liable for any error of judgment or for any act done or omitted by the
Stockholders' Representative in good faith or for any mistake in fact or law,
except its own willful misconduct or gross negligence.
(f) The right to indemnification, payment of damages or other remedy
based on the representations, warranties, covenants and obligations of the
Company and the Stockholders contained herein will not be affected by any
investigation conducted by Parent or the Parent Representatives with respect
to, or any Knowledge acquired (or capable of being acquired) by Parent or the
Parent Representatives, at any time whether before or after the execution and
delivery of this Agreement or the Effective Time, with respect to the
accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants and obligations.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) Except as set forth below in Section 9.01(b), the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any Person controlling any such party or any of its
officers or directors, whether prior to or after the execution of this
Agreement.
(b) The representations, warranties and agreements in this Agreement
shall terminate (i) with respect to the Stockholders and the Company, on the
first (1st) anniversary of the Effective Time and (ii) with respect to Parent
and Parent Sub, at the Effective Time; PROVIDED, HOWEVER, that the
representations, warranties and agreements set forth in Section 3.03, Article
IIIA, Section 6.06, Section 6.07, Article VIII and Article IX shall not so
terminate.
SECTION 9.02. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, mailed or transmitted, and shall
be effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at
the following addresses (or at such other address for a party as shall be
specified by like changes of address) or sent by electronic transmission to
the telecopier number specified below:
(a) If to Parent or Parent Sub:
DAOU Systems, Inc.
0000 Xxxxxxxx Xxxxx
Xxx Xxxxx, XX 00000
ATTENTION: President and Chief Financial Officer
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxx & XxXxxxxx
000 Xxxx Xxxxxxxx, Xxxxxxx Xxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
ATTENTION: Xxxx X. Xxxxxxxx, Esq.
Telecopier No.: (000) 000-0000
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(b) If to the Company:
Integrex Systems Corporation
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
ATTENTION: J. Xxxxx Xxxxxxx, Xx. and Xxxxxxx X. Xxxxx
Telecopier No.: (000) 000-0000
with a copy to:
Freedman, Levy, Xxxxx & Xxxxxxx
0000 Xxxxxxxxxxx Xxxxxx, X.X., Xxxxx 000
Xxxxxxxxxx, X.X. 00000-0000
ATTENTION: Xxxxx X. Xxxx, Esq.
Telecopier No.: (000) 000-0000
(c) If to the Stockholders:
J. Xxxxx Xxxxxxx Xx.
0000 Xxxxx Xxxx Xxxxx
Xxxxxxxxxx, XX 00000
SECTION 9.03. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
"AFFILIATE" means a Person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned Person;
"AFFILIATED GROUP" means any affiliated group within the meaning of
Section 1504 of the Code or any similar group defined under a similar
provision of state, local or foreign law;
"AGREEMENT" as defined in the Preamble;
"ASSETS" means any and all properties and assets (real, personal or
mixed, tangible or intangible) of any Person;
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence;
"BLUE SKY LAWS" as defined in Section 3.05(b);
"BUSINESS DAY" means any day other than a day on which banks in the State
of California are authorized or obligated to be closed;
"CERTIFICATE OF MERGER" as defined in Section 1.02;
-42-
"CERTIFICATES" as defined in Section 2.02(b);
"CODE" means the Internal Revenue Code of 1986, as amended;
"COMPANY" as defined in the Preamble;
"COMPANY COMMON STOCK" as defined in Section 2.01(a);
"COMPANY EMPLOYEE BENEFIT PLAN" as defined in Section 3.24;
"COMPANY MATERIAL ADVERSE EFFECT" means any change or effect that,
individually or when taken together with all other such changes or effects,
is or is reasonably likely to be materially adverse to the business,
properties, Assets, condition (financial or otherwise), liabilities,
operations or prospects of the Company at the time of such change or effect.
A Company Material Adverse Effect shall be deemed to exist if there shall
occur any event which causes or may reasonably be expected to cause or result
in estimable monetary loss which, individually or when aggregated with all
other events, exceeds $25,000;
"COMPANY PERMITS" as defined in Section 3.06;
"COMPETING TRANSACTION" means any of the following involving the Company
or any Subsidiary or Affiliate of the Company: (i) any merger, consolidation,
share exchange, business combination, or other similar transaction (other
than the transactions contemplated by this Agreement); (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of twenty-five
percent (25%) or more of the Assets of the Company in a single transaction or
series of transactions; (iii) any offer (whether cash or securities) for
twenty-five percent (25%) or more of the outstanding shares of capital stock
of the Company; or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing;
"CONSENT" as defined in Section 2.01A;
"CONSULTING AGREEMENT" as defined in Section 7.02(h);
"CONTRACT" of any Person means any contract, agreement or instrument of
any type whatsoever (i) to which such Person is a party and by which such
Person either has made a binding undertaking to perform an obligation or is
entitled to any property or right, or (ii) by which any of the Assets of such
Person is bound;
"CONTROL" (including the terms "CONTROLLED," "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of stock or
as trustee or executor, by Contract or credit arrangement or otherwise;
"DELAWARE LAW" as defined in the Preamble;
"DISSENTING SHARES" as defined in Section 2.04;
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"EFFECTIVE PERIOD" as defined in Section 6.06(a);
"EFFECTIVE TIME" as defined in Section 1.02;
"EMPLOYEE BENEFIT PLAN" means (a) any bonus, incentive compensation,
profit sharing, retirement, pension, group insurance, death benefit, group
health, medical expense reimbursement, workers' compensation, dependent care,
flexible benefits or cafeteria, stock option, stock purchase, stock
appreciation rights, savings, deferred compensation, consulting, severance
pay or termination pay, vacation pay, life insurance, disability, welfare or
other employee benefit or fringe benefit plan, program or arrangement; or (b)
any plan, program or arrangement which is an Employee Pension Benefit Plan,
Employee Welfare Benefit Plan or Multiemployer Plan.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2);
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1);
"EMPLOYMENT AGREEMENTS" as defined in Section 7.02(h);
"ENCUMBRANCES" means any Security Interests, Liens, claims, pledges,
agreements, limitations on voting rights, charges or other encumbrances of
any nature whatsoever;
"ENVIRONMENTAL, HEALTH AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other Laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments
(and all agencies thereof), concerning pollution or protection of the
environment, public health and safety, or employee health and safety,
including Laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or
wastes;
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended;
"ERISA AFFILIATE" means each person (as defined in Section 3(9) of ERISA)
that together with the Company (or any person whose liabilities the Company
has assumed or is otherwise subject to) would be considered or has been a
single employer under Section 4001(b) of ERISA or would be considered or has
been a member of the same "controlled group," under common control, a member
of the same affiliated service group or otherwise a single employer within
the meaning of Section 414(b), (c), (m) and (o) of the Code (PROVIDED,
HOWEVER, that when the subject of the provision is a Multiemployer Plan only
subsections (b) and (c) of Section 414 of the Code shall be taken into
account).
"ESCROW ACCOUNT" as defined in Section 8.06(c);
"ESCROW AGREEMENT" as defined in Section 5.05;
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended;
"EXCHANGE AGENT" as defined in Section 2.02(a);
"EXCHANGE FUND" as defined in Section 2.02(a);
"EXCHANGE RATIO" means, subject to adjustment as set forth in Sections
2.01(b), the quotient obtained from dividing (i) as the numerator of such
quotient, the number of shares of Parent Common Stock obtained from dividing
Ten Million Dollars ($10,000,000) by the Market Price, by (ii) as the
denominator of such quotient, the total number of shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time
(excluding any Dissenting Shares, if applicable). All calculations made to
determine the Exchange Ratio shall be made through the fourth decimal place
(i.e., rounded to the closest ten-thousandth);
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended;
"FAIR MARKET VALUE" of any Asset means the value that would be obtained
in an arm's length transaction between an informed and willing buyer and an
informed and willing seller;
"FINANCIAL RESULT DATE" as defined in Section 6.02;
"FINANCIAL STATEMENTS" as defined in Section 3.07;
"FIRST REFUSAL AGREEMENT" as defined in Section 6.08;
"GAAP" means United States generally accepted accounting principles as in
effect from time to time;
"GOVERNMENTAL ENTITIES" as defined in Section 3.05(b);
"INDEMNIFICATION AMOUNT" as defined in Section 8.06(c);
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and
-45-
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies
and tangible embodiments thereof (in whatever form or medium);
"INTERIM BALANCE SHEET" as defined in Section 3.07;
"KNOWLEDGE" or "KNOWN" means, with respect to a particular fact or other
matter, that (i) an individual is actually aware of such fact or other matter
or (ii) commensurate with an individual's level of business experience,
involvement and sophistication, such individual could reasonably be expected
to discover or otherwise become aware of such fact or other matter; a Person
(other than an individual) will be deemed to have "Knowledge" of a particular
fact or other matter if any individual who is serving, or who has at any time
served, as a director, officer, partner, executor or trustee of such Person
(or in any similar capacity) has, or at any time had, Knowledge of such fact
or other matter;
"LAWS" as defined in Section 3.05(a);
"LIABILITIES" as defined in Section 3.08;
"LIEN" means any lien, charge, encumbrance, mortgage, conditional sale
agreement, title retention agreement, financing lease, pledge or Security
Interest of any kind or type and whether arising by Contract or under Law;
"LOSS" as defined in Section 8.06(a);
"MAJOR STOCKHOLDERS" means each of Messrs. J. Xxxxx Xxxxxxx Xx., Xxxxxxxx
X. Xxxxxxx, Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxx.
"MARKET PRICE" means the average of the bid and ask prices of the Parent
Common Stock as reported on the NASDAQ National Market Quotation System for
the ten (10) trading days prior to the Effective Time.
"MERGER" as defined in the Preamble;
"MERGER CONSIDERATION" as defined in Section 2.02(b);
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37);
"NASDAQ" means The NASDAQ Stock Market, Inc.;
"ORDINARY COURSE OF BUSINESS" with respect to any entity, means the
ordinary course of business consistent with past custom and practice
(including with respect to quantity and frequency) of that entity;
"PARENT" as defined in the Preamble;
"PARENT COMMON STOCK" as defined in Section 2.01(a);
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"PARENT MATERIAL ADVERSE EFFECT" shall mean any change or effect that,
individually or when taken together with all such other changes or effects,
is or is reasonably likely to be materially adverse to the business,
properties, Assets, condition (financial or otherwise), liabilities,
operations or prospects of Parent and its Subsidiaries, taken as a whole at
the time of such change or effect. A Parent Material Adverse Effect shall be
deemed to exist if there shall occur any event which causes or may reasonably
be expected to cause or result in estimable monetary loss which, individually
or when aggregated with all other events, exceeds $500,000;
"PARENT PREFERRED STOCK" as defined in Section 4.03(b);
"PARENT REPRESENTATIVES" as defined in Section 5.04;
"PARENT SEC REPORTS" as defined in Section 4.07(a);
"PARENT SUB" as defined in the Preamble;
"PARENT SUB COMMON STOCK" means Parent Sub's common stock, par value
$.001 per share;
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a Governmental Entity (or any
department, agency, or political subdivision thereof) or any other entity;
"PROSPECTUS" as defined in Section 6.06(c);
"PROXY" as defined in Section 2.02A;
"REGISTRATION SHARES" as defined in Section 6.06(a);
"SEC" means the Securities and Exchange Commission;
"SECURITIES ACT" means the Securities Act of 1933, as amended;
"SECURITY INTEREST" means any mortgage, pledge, Lien, Encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar Liens, (b) Liens for Taxes not yet due and payable, (c) purchase
money Liens and Liens securing rental payments under capital lease
arrangements, and (d) other Liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money;
"SHELF REGISTRATION STATEMENT" as defined in Section 6.06(a);
"STOCKHOLDERS" as defined in the Preamble;
"SHAREHOLDERS' AGREEMENT" as defined in Section 6.08;
"STOCKHOLDERS' REPRESENTATIVE" as defined in Section 5.05;
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"SUBSIDIARY" or "SUBSIDIARIES" of the Company, Parent, the Surviving
Corporation or any other Person, means any corporation, partnership, joint
venture or other legal entity of which the Company, Parent, the Surviving
Corporation or such other Person, as the case may be (either alone or through
or together with any other subsidiary), owns, directly or indirectly, fifty
percent (50%) or more of the capital stock or other equity interests which
the holders thereof are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other legal
entity;
"SURVIVING CORPORATION" as defined in Section 1.01;
"TAX" or "TAXES" shall mean any and all taxes, charges, fees or levies,
payable to any federal, state, local or foreign taxing authority or agency,
including, without limitation, (i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, AD VALOREM, value added,
sales, use, service, real or personal property, capital stock, license,
payroll, withholding, disability, employment, social security, workers
compensation, unemployment compensation, utility, severance, excise, stamp,
windfall profits, transfer and capital gains taxes, (ii) custom duties,
imposts, charges, levies or other similar assessments of any kind, and (iii)
interest, penalties and additions to tax imposed with respect thereto;
"TAX RETURN" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof;
"THIRD PARTY CLAIM" as defined in Section 8.06(b); and
"XXXXXXX AGREEMENT" as defined in Section 6.08.
SECTION 9.04. HEADINGS; CONSTRUCTION. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
SECTION 9.05. SEVERABILITY. If any term or other provision of this
Agreement is determined to be invalid, illegal or incapable of being enforced
by any rule of law or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect 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
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties
hereto as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.06. ENTIRE AGREEMENT. This Agreement (together with the
exhibits and schedules) constitutes the entire agreement of the parties and
supersedes all prior agreements and undertakings, both written and oral,
between the parties hereto, or any of them, with respect to the subject
matter hereof.
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SECTION 9.07. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise except Parent Sub may, without the Company's
approval, assign its interests to a wholly-owned Subsidiary of Parent.
SECTION 9.08. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.09. FURTHER ASSURANCES. The parties hereto agree (a) to
furnish upon request to each other such further information, (b) to execute
and deliver to each other such other documents, and (c) to do such other acts
and things, all as another party hereto may reasonably request for the
purpose of carrying out the intent of this Agreement and the documents
referred to in this Agreement.
SECTION 9.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, REGARDLESS
OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW.
SECTION 9.11. JURISDICTION; SERVICE OF PROCESS. EXCEPT WITH RESPECT TO
MATTERS THAT THE PARTIES HERETO HAVE AGREED TO SUBMIT TO BINDING ARBITRATION,
ANY ACTION OR PROCEEDING SEEKING TO ENFORCE ANY PROVISION OF, OR BASED ON ANY
RIGHT ARISING OUT OF, THIS AGREEMENT WILL BE BROUGHT AGAINST ANY OF THE
PARTIES HERETO, AT THE ELECTION OF THE PLAINTIFF IN SUCH ACTION OR PROCEEDING
IN ITS SOLE DISCRETION, IN THE COURTS OF A STATE IN WHICH ANY OF THE
DEFENDANTS IN SUCH ACTION OR PROCEEDING RESIDES OR IS DOMICILED, OR, IF IT
HAS OR CAN ACQUIRE JURISDICTION, IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF THE STATE IN WHICH SUCH DEFENDANT RESIDES OR IS DOMICILED, AND
EACH OF THE PARTIES HERETO CONSENTS TO THE JURISDICTION OF SUCH COURTS (AND
OF THE APPROPRIATE APPELLATE COURTS) IN ANY SUCH ACTION OR PROCEEDING AND
WAIVES ANY OBJECTION TO VENUE LAID THEREIN. PROCESS IN ANY ACTION OR
PROCEEDING REFERRED TO IN THE PRECEDING SENTENCE MAY BE SERVED ON ANY PARTY
HERETO ANYWHERE IN THE WORLD.
SECTION 9.12. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original
but all of which taken together shall constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed as of the date first written above by their
respective officer thereunto duly authorized.
DAOU SYSTEMS, INC.
By /s/ XXXXXX X. XXXX
------------------------------------
Xxxxxx X. Xxxx, President
DAOU-INTEGREX, INC.
By /s/ XXXXXX X. XXXX
------------------------------------
Xxxxxx X. Xxxx, President
INTEGREX SYSTEMS CORPORATION
By /s/ J. XXXXX XXXXXXX
------------------------------------
Name:
Title:
STOCKHOLDERS OF INTEGREX SYSTEMS
CORPORATION
/s/ J. XXXXX XXXXXXX
---------------------------------------
J. Xxxxx Xxxxxxx, Xx. 4,116 shares
/s/ XXXXXXXX X. XXXXXXX
---------------------------------------
Xxxxxxxx X. Xxxxxxx, 4,116 shares
/s/ XXXXXXX. C XXXXX
---------------------------------------
Xxxxxxx X. Xxxxx, 1,372 shares
/s/ XXXXXXX X. XXXXXXX
---------------------------------------
Xxxxxxx X. Xxxxxxx, 1,725 shares
/s/ XXXX X. XXXX
---------------------------------------
Xxxx X. Xxxx, 98 shares
/s/ XXXXXX X. XXXX
---------------------------------------
Xxxxxxx X. Xxxxxxx, 98 shares
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